Again: Government Lawlessness

Yesterday afternoon, after I published "Paulson and Bernanke: Indictment Time?" in which I said:

Your first obligation isn’t to your regulator, it is your fiduciary responsibility to your share and bondholders.

If your regulator decides to remove you from office as a consequence, they do.  That doesn’t change a thing; your personal interests cannot override your responsibilities.

As the CEO of a public firm you don’t work for the government, whether you think you’re some "left arm adjunct" or not.  You work for the holders of your stock and debt – period.  On this matter the law is clear, and the government, even post-TARP, had a minority stake.

As such they lack standing to tell you to shut up when your obligation to disclose is a matter of black-letter law.

The finger pointing got really good.

First, Paulson was reported to have taken his marching orders from Ben Bernanke.  Then he "recanted" that with the following:

Hank Paulson has recanted on what he  told Andrew Cuomo, which was that Ben Bernanke asked him to threaten to oust Ken Lewis and the Bank of America board if Lewis decided not to go forward with the Merrill deal.

Paulson says his words were his own and that Bernanke did not ask him to convey a specific message to Lewis, CNBC says.

Even later the story changed again!

Both Paulson and Federal Reserve Chairman Ben S. Bernanke said they hadn’t advised Lewis to conceal Merrill’s mounting losses from his shareholders.

“Questions of Bank of America’s disclosures were left up to Bank of America,” Paulson said in a statement e-mailed to Bloomberg by Michele Davis of the Brunswick Group, a corporate communications company.

What we have here are rats scurrying around having realized that they ate the poison.  See, as was reported on Bloomberg yesterday and which I identified immediately, this is black-letter law:

“Everyone involved knew that was a clear violation, that’s material non-public information, so basically we just closed the rule book during the crisis and said we don’t care, we need to keep the lights on, and we’ll deal with that manana,” Sorrentino said. “Logic went out the window and they were just acting out of fear,” he said. It was “completely panic mode.”

Now "tomorrow" has come.

President Obama (and others, including Barney Frank) have repeatedly tried to deflect criticism not only here but also when it comes to other matters in the Bush Administration (and those before it) by saying "we have to move on."

Mr. President, no.  We will not "move onward" and forget. 

This has nothing to do with partisan politics and it is not aimed at either administration – there is plenty here to go around.

This is about the rule of law – black-letter law.  "Moving on" is exactly how people in "high places" get to commit felonies – serious felonies – without consequence, even when they screw millions of Americans out of hundreds of billions or even trillions of dollars.

Americans are tired of being financially raped, and with good reason.  This "economic mess" is not an accident or "act of God"; it is an act of man – intentional and willful malfeasance and misfeasance intended to strip off "profits" for individuals in the banking system by impoverishing ordinary Americans.

Second, let’s talk about what I believe Mr. Cuomo (and the shareholders of Bank America) need to be looking at here: An active conspiracy between Treasury and The Fed – a conspiracy that there is no evidence has ended:

Lewis testified that he asked Bernanke to “put something in writing” regarding the U.S. government’s plan to support Bank of America’s acquisition in view of Merrill’s mounting losses.

After Bernanke said he would consider the idea, Paulson called Lewis. He said, according to Lewis, “First it would be so watered down, it wouldn’t be as strong as what we were going to say to you verbally, and secondly, this would be a disclosable event and we do not want a disclosable event.”

Got it?

This is in testimony (according to Bloomberg) – that means, under oath. 

What Lewis has alleged, assuming that these reports are correct, is that he had a conversation with Bernanke in which he asked for something on paper from The Fed, who is the plenary regulator of all federally-chartered banks.

Ben told him he’d consider it.

Then Paulson called him (who was not involved in the original conversation) and explicitly stated that "we" do not want a disclosable event.

Assuming this testimony is a correct rendition of what happened we have:

1. Two or more people who were conspiring together.
2. Who each individually and collectively knew what they were doing required disclosure under the law.
3. Who conspired together to block that disclosure and allegedly issued threats to Mr. Lewis to achieve that goal.

Bloomberg spent most of yesterday on this, as they should.  CNBS, on the other hand, tried like hell to bury this story, when it is the seminal story of the bank bailouts and the tip of the iceberg.

IF the testimony is as reported then someone has broken a series of laws and I’m willing to bet that it does not stop here.

Let’s outline the possibilities.  There are only two:

• Ken Lewis lied in his testimony.  That is, he committed perjury and must be so charged.  He also committed securities fraud, acting alone; the shareholders should sue him to Mars and the SEC should bring both civil and criminal felony complaints.
   
• Ken Lewis told the truth.  Ben Bernanke and Hank Paulson, both federal officials, grossly exceeded their authorities, possibly exposing them personally to liability, both civil and criminal.  "Acting under color of authority of law" is an extremely serious matter and the predicate act may rise to extortion; since they acted in concert one must ask if racketeering may have taken place (in a legal context.) In addition Ken Lewis is an active participant as he cooperated with this unlawful act as demanded and he must also be charged.

We need Grand Juries and we need them now.  Not only in the Bank America/Merrill deal, but also in the Bank America/Countrywide deal, in the Bear Stearns/JP Morgan deal and more.

We the people deserve and must have the truth. 

Just as importantly we must have the truth for the integrity of our capital markets.  That fluttering sound you hear is foreign capital departing, and if we are not careful since this extends to the highest level of our Treasury and Banking System (The Fed) the risk is very real that we will incite a run on Treasury Securities, which would lead to an immediate collapse of federal funding and the failure of our political and economic system.

That is precisely the sort of nightmare scenario that I have been sounding the warning horn on for nearly two years.  When government becomes the felon instead of the cop there is a very real possibility that both domestic and international support for your government will be lost.  When you require that support in order to survive as a consequence of your heavy borrowing demands you are at severe risk of both economic and political collapse.

This is far more serious than Watergate and it requires immediate attention.  If Cuomo is the only man with the balls for the job, then Godspeed Mr. Cuomo, and I hope you haven’t patronized any high-dollar hookers at any time in your life, as I’m quite certain your political opponents are looking into it at this very moment.