Federal Reserve Board chairman Ben Bernanke spent an extremely tense session Thursday before the House Committee on Oversight and Government Reform answering questions regarding whether he pressured Bank of America to acquire Merrill Lynch last year.
The grilling was led by Rep. Edolphus Towns (D-N.Y.), the Congressional Black Caucus member chairing the committee. Most of the questions, accompanied by several Fed e-mails shown on a monitor in the hearing room, centered on whether Fed officials threatened to remove CEO Kenneth Lewis and his board if Bank of America pulled out of the deal. Bernanke replied repeatedly that he did not threaten or use coercion to ensure that the deal went through.
In a show of solidarity that is rare these days on Capitol Hill, Democrats and Republicans seemed unconvinced by Bernanke’s testimony. Rep. Darrell Issa (D-California), the committee’s ranking member, charged Bernanke with engaging in a cover-up.
In interviews, Towns maintained that “there’s something rotten in the cotton,†and may call Bank of America Chairman Ken Lewis, Bush Treasury Secretary Henry Paulson, and FDIC Chair Sheila Bair to testify. He says the answers he gains once the investigation is complete will also determine how he will vote on the Obama administration’s financial market regulation overhaul. He has pledged to hold more hearings throughout the summer.
Here are Towns’ comments from an exclusive interview the lawmaker had with Black Enterprise:
Black Enterprise: Do you believe that the Federal Reserve abused its power in Bank of America’s acquisition of Merrill Lynch?
Rep. Edolphus Towns: I’m concerned about some of the things that we heard. For instance, there seems to have been force, that they were coerced. Bank of America said, “Look, we’re not going to move forward with it. Ken Lewis said the Fed threatened to remove him and his board, which led to him reconsidering. A private deal ended up with $20 billion of taxpayers’ money. I just don’t understand how this happened. We have to talk to the SEC to find out if they were asleep at the switch and what happened here. We need to talk to the FDIC because it was concerned about the deal and reluctant for it to move forward. So there are a lot of unanswered questions. We know there was a shotgun wedding; we’re just having some difficulty figuring out who had the shotgun.
What action will your committee recommend or take against Fed Chairman Bernanke if he is found to have abused his powers or used coercion?
I don’t know who’s lying, but I’m convinced there’s a lie being told. Once we finish with this, we can refer [the matter] to the Justice department, because after all, [the witnesses] testify under oath, and then the department can make a decision as to what they would do from that point on.
Bernanke’s term is up in January. Do you think he should be reappointed?
I want to talk to all the players, get a feeling in terms of their actions and then make a decision based on that as to whether he should be reappointed. But right now I have some concerns.
Do you believe that the Fed or Bernanke abused its powers in its role related to other aspects of the financial bailout in its dealing with either the Bush or Obama administrations?
I think that if the Fed indicated that [the Bank of America/Merrill deal] was a marriage that must take place that becomes a problem because these are private companies and the Fed should not be allowed to force them to merge with any entity. That’s
what I’m troubled by. There are clearly some companies that are too big to fail but once we make a decision to bail them out, what do we do from this point on? We need to go to find out what we need to do to prevent these things from happening. I agree that some of these companies we could not allow to go under but what are we doing to correct that?The Obama administration is proposing that the Fed’s powers should be expanded to oversee other financial institutions that may cause systemic risk? Do you agree with that?
I would prefer to reserve my views and feelings until we complete this investigation. We are now finding there are some other people we need to talk to based on information we’ve received up to this point. When we spoke to Ken Lewis, we got one story; when we talked to Bernanke, we got another story. And now we’re being told that Paulson is saying something altogether different. We need to get to the bottom of it before I can make a decision as to whether I would support the Fed having additional power. I’m concerned that there’s a whole lot of back scratching. I’m on your compensation board and you’re on mine. To me, that’s a mess, and until we can sort this out and come up with some definite guidelines, I’m not prepared to say they should have additional power.
What are your impressions of Obama’s proposed financial regulatory overhaul proposal?
I have great admiration and respect for the president, and I’ve tried to be supportive where I can, but I’m not prepared to move forward until we collect additional information. I can then decide whether I’d sign on. He’s a very capable person and providing tremendous leadership, but I’m not sure that additional powers are what the Fed needs.
What specifically is your impression of the proposed Consumer Financial Protection Agency and the recent credit card reform proposals?
I’m not sure we need another agency. I think we need to make certain that the ones that we have are functioning in the manner that they should. Where was the SEC when all this happened? They had a role they didn’t perform. The FDIC raised questions but still went along. So I’m not sure that we need to create new agencies.
What about the credit card reforms the House recently voted for?
I think we have to reform because a lot of people are getting in trouble and don’t even realize they’re getting into trouble. The credit card companies are taking advantage of people so there should be some control over it. The main thing is that young people getting out of college get these cards and ruin their credit as a result. They have no jobs but still have these bills to pay. These things have to be put it check because they’re ruining their credit for life.
Minorities have had higher relative foreclosure rates or have been greater victims of subprime lending and other financial malfeasance. Should there be targeted measures to protect black consumers, investors, home buyers and homeowners?
We have to come up with something because of the number of foreclosures that are in the black community lets you know that there’s something rotten in the cotton. It says we must look at things differently because this is not an accident or a coincidence that all these people are losing their homes. So it’s very clear that a lot of people were put into bad mortgages because they
didn’t have a lot of knowledge. These companies targeted them. We have to correct that.What pieces of legislation will you or the CBC develop to protect African American consumers, investors, and home buyers?
First, we need to look at brokers who will give mortgages to individuals who don’t have jobs or the income to maintain the loans. There is a need for some sort of checks and balances. There have to be some penalties. We have to make sure that it’s considered a crime. If not, they’re going to continue to do it.
How closely are you working with the CBC’s Economic Recovery Task Force on providing opportunities for black financial firms as a part of the PPIP program related to TARP or the TALF program?
Very closely. We’re now looking to see how we can hold some hearings through my committee in conjunction with the CBC to get additional information about what’s really going on to assist minority companies that are being left out. Some are prepared to provide services but can’t get in the door. We want to make it possible for them to get inside.
What needs to be done to strengthen black community banks?
I really feel that we should encourage people to utilize them so that we can keep them open because that has a lot to do with how well your community does. They’re the ones that should be getting the bailouts.
Should they be given them access to TARP money as Rep. Maxine Waters proposes?
Sure, I do. They deserve it more than the others because they’re making loans to people in the community and that, to me, is crucial. Right now these big banks are getting TARP money but still not making the loans.