Former Treasury secretary Hank Paulson is due to testify in front of the House Committee on Oversight and Government Reform tomorrow, where he will answer, among other things, questions about whether he inappropriately threatened to oust Bank of America CEO Ken Lewis for trying to scuttle his company's deal to buy the ailing Merrill Lynch last December. Paulson's response, according to his prepared remarks obtained by the Journal? Yeah, he threatened Lewis. And he doesn't regret it for a minute.
Some have suggested that there was something inappropriate about my conversation of December 21st with Mr. Lewis in which I mentioned the possibility that the Federal Reserve could remove management and the board of Bank of America if the bank invoked the MAC clause. I believe my remarks to Mr. Lewis were appropriate. I explained to him that the government was supportive of Bank of America, but that it felt
very strongly that if Bank of America exercised the MAC clause, such an action would
show a colossal lack of judgment and would jeopardize Bank of America, Merrill Lynch, and the financial system. I further explained to him that, under such circumstances, the Federal Reserve could exercise its authority to remove management and the board of Bank of America ... I was expressing what I am confident was the strong opinion of the Federal Reserve, namely, that exercise of the MAC clause was not a legally viable option; that it threatened significant harm to Bank of America and to the financial system; and that it would raise serious questions about the competence and judgment of Bank of America’s management and board.
"In other words, I said, see this fish I'm holding here, Ken? That's what's going to happen to you if you don't go through with this deal. Sleep on it, okay?"