Gold News

Bigger Than Watergate?

The gathering storm over Bank of America's forced takeover of Merrill Lynch...

FOX NEWS anchor Bill O'Reilly apparently referred to a recent story out of America's capital as "bigger than Watergate," writes Olivier Garret, CEO of Casey Research.

Whether the story is bigger than Watergate or not, it is definitely a scandal of huge proportions.

To sum up, on April 23rd 2009, New York Attorney General Andrew Cuomo sent a letter to chairman of the US Senate Committee on banking, Chris Dodd. He copied it to chairman of the House Financial Services Committee Barney Frank; SEC chairwoman Mary Schapiro; and chairwoman of the Congressional Oversight Panel, Elizabeth Warren.

Cuomo's letter outlined how former Treasury secretary Hank Paulson and Fed chairman Ben Bernanke forced Bank of America's acquisition of Merrill Lynch – even though Bank of America CEO Ken Lewis and his board of directors tried to pull the plug on the deal after it became clear that Merrill Lynch was far deeper in debt than it admitted.

In the words of Attorney General Cuomo himself:

"Immediately after learning on December 14, 2008 of what Lewis described as the 'staggering amount of deterioration' at Merrill Lynch, Lewis conferred with counsel to determine if Bank of America had grounds to rescind the merger agreement by using a clause that allowed Bank of America to exit the deal if a material adverse event ("MAC") occurred.

"After a series of internal consultations and consultations with counsel, on December 17, 2008, Lewis informed then-Treasury Secretary Henry Paulson that Bank of America was seriously considering invoking the MAC clause. Paulson asked Lewis to come to Washington that evening to discuss the matter."

Bank of America's attempt to exit the merger came to a halt on December 21, 2008. That day, Lewis informed Paulson that Bank of America still wanted to exit the merger agreement. But according to Lewis, the Treasury secretary then advised Lewis that, if Bank of America invoked the MAC, its management and Board would be replaced.

Since then, Ken Lewis has been sacked as chairman of the board at Bank of America...even though he might well have been the only conscientious and honest player in this scheme. And now the sharks have started to turn on each other.

According to Cuomo, Paulson "largely corroborated Lewis's account" and informed the attorney general's office that he "made the threat at the request of Chairman Bernanke."

Bernanke, to date, has so far chosen to keep his mouth shut.

The key factor here is not that the Devious Duo forced Bank of America into a merger it didn't want. Granted, that's an unheard-of interference of government in the free market, but we're quite sure that the Powers-That-Be could sweep it under the rug by invoking the "greater good".

No, the part of the story that could really break Paulson and Bernanke's necks is the failure to inform the Securities and Exchange Commission (SEC), as well as Bank of America's shareholders, as to the extent of toxic waste Bank of America was forced to accept.

Because that's fraud, pure and simple. And it's a pretty good sign that this is not going to go away. Some of the Casey Research editors – yes, we do have bets out – think it's going to be huge, especially since the scandal happened on President Bush's watch and the Democrats are in control of Congress. Chances are that either Paulson or Bernanke is going down, depending who cuts a deal with prosecutors first. Their "friends in high places" may be able to keep the Justice Department out of it, but they won't be able to control ambitious state officials like Cuomo.

There's blood in the water, and this is a career maker for a prosecutor.

So what happens when the highest financial officials in the US government are unmasked as crooks? Will there be riots in the streets? Will the average American pick up his torch and pitchfork and march on Washington DC? Probably not. But it may happen at some point as we move deeper into the Greater Depression, a term coined by Doug Casey, our resident contrarian investment guru, to describe the grinding economic slump we've entered since the debt-and-fraud bubble burst in US housing and finance.

Doug Casey is a world-renowned investor and author, whose book Crisis Investing was #1 on the New York Times bestseller list for 29 consecutive weeks, a record at the time.

He has been a featured guest on hundreds of radio and TV shows, including David Letterman, Merv Griffin, Charlie Rose, Phil Donahue, Regis Philbin, NBC News, and CNN; and has been the topic of numerous features in periodicals such as Time, Forbes, People and the Washington Post.

His firm, Casey Research, LLC., publishes a variety of newsletters and web sites with a combined weekly audience in excess of 200,000, largely high net worth investors with an interest in resource development and international real estate.

See full archive of Doug Casey articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn



Market Fundamentals