Paulson says he told BoA's Lewis that Fed could fire him

WASHINGTON -- House lawmakers accused former Treasury Secretary Henry Paulson on Thursday of bending to the demands of a major bank and keeping negotiations of a hefty bailout secret in his rush to stabilize the financial markets last year.

Paulson was defiant in his responses and admitted no wrongdoing.

"No one was tougher than I was in protecting the American taxpayer," he told the House Oversight and Government Reform Committee.

Paulson acknowledged in his testimony that last year he pressured Bank of America to go through with its plans to buy Merrill Lynch despite mounting financial losses. Paulson said he had warned the bank's CEO, Kenneth Lewis, that Lewis could lose his job if he dropped the deal or tried to renegotiate because doing so would exhibit a "colossal lack of judgment."

At one point during the discussions, Paulson pledged government aid to help Bank of America absorb some of the losses from acquiring Merrill. Paulson said he declined to put that promise in writing because the details would have been vague and would have had to have been disclosed publicly by the Treasury Department.

Paulson said he never told Lewis to hide potential losses from shareholders but kept negotiations private so as to prevent fluctuations in the market.

"We didn't want to overly scare people and make it worse," he said.

Bank of America eventually made the merger and accepted $45 billion in federal aid, including $20 billion tied to the merger.

Republicans and Democrats alike blamed Paulson for keeping Congress in the dark about the Bank of America dealings. Republican Rep. Jim Jordan accused Paulson of engaging in a "pattern of deception," while Rep. Dennis Kucinich, a Democrat, said Paulson turned a blind eye to evidence that the bank was withholding information from its shareholders.

Rep. Edolphus Towns, the panel's Democratic chairman, said Paulson was all too willing to promise Lewis money after Lewis threatened to back out on the deal.