Wait a minute: Politicos grandstand?
Deep within me there is an innocent child who feels dismay when politicians grandstand. That innocent child felt a surge of dismay last week, when New York attorney general Andrew Cuomo decided to sue Bank of America and its former CEO, Ken Lewis, for the offense of strengthening the bank’s balance sheet. When did that become a crime?
Cuomo says Lewis and his minions misled their shareholders about the condition of Merrill Lynch in late 2008, when BofA sought to acquire the ailing investment bank. While it’s true that Merrill Lynch was in worse shape than originally thought — two other global investment banks had already disappeared, and Merrill was next in line if not for the BofA deal — it’s not clear that Lewis set out to deceive anyone. Besides, the very last thing federal officials needed at the time was candor. They were scrambling to keep the economy from sliding into the abyss, and BofA’s takeover of Merrill was a key part of their rescue strategy. Well-informed shareholders could only have scuttled the plan. (The top federal officials who oversaw the BofA-Merrill deal, and who by some accounts browbeat Lewis into going forward with it against his better judgment, are conspicuously absent from Cuomo’s lawsuit.)
On top of all that, by the time Cuomo filed his case last week, it was clear that the Merrill takeover had been good for the very shareholders he purports to care about. The bank’s stock price has tripled in the past year, and Merrill’s operations have made a significant contribution to the company’s bottom line. As Bloomberg BusinessWeek reported:
Analysts Richard Bove of Rochdale Securities Inc. and Betsy Graseck of Morgan Stanley have praised the Merrill acquisition for diversifying Bank of America’s income and insulating the company from losses on consumer loans. Mark Calabria, director of financial regulatory studies at the Cato Institute in Washington, said Cuomo’s complaint contradicts facts unearthed in other probes.
“There is an argument for saying investors were misled, but all evidence indicates the Fed and Treasury strong-armed Mr. Lewis into not saying anything,” Calabria said.
In short, shareholders are actually better off than they would have been otherwise, and if any deceit occurred it had the fingerprints of many other people upon it. Cuomo wouldn’t cynically pursue Lewis just to look like a populist tough guy in anticipation of the New York governor’s race, would he?
Somebody please reassure my inner naive child that no one could be so craven. Somebody? Anybody?
February 11th, 2010 at 12:08 pm
Cuomo is a prique, but I find these sorts of comments rather unsettling, GD:
“Besides, the very last thing federal officials needed at the time was candor. […] Well-informed shareholders could only have scuttled the plan.”
You dutifully cite the standard economy->abyss bugaboo, too big to fail, etc.. The final implication is that we needed Federal shepherding more than we needed transparency.
That is why Dubya’s TARP and Obama’s stimulus have become opaque oceans of taxpayer largesse.
February 11th, 2010 at 12:22 pm
RLR: I point out those things not with approval, but as simple matters of fact. If Cuomo wishes to allege wrongdoing, he needs to round up all the alleged evildoers. The fact that he hasn’t is what makes the whole effort reek of political expediency.
By the way, “prick” is fine for this blog. Unless you’re referring to me.
February 11th, 2010 at 6:52 pm
to-may-to/to-mah-to
February 12th, 2010 at 1:20 pm
Regarding TARP/stimulus ==> political haymaking, the whole thing stinks to high heaven. We can all agree that Cuomo is a slimeball looking for advantage. Problem is, he’s not the only one, by far.
Glad to know that “prick” is OK in WAW-land. I’ll try to resist the urge to push the boundaries.