Time and time again, members of Congress today asked former Treasury Secretary Hank Paulson to pull his microphone closer to him.
"We're having problems hearing you," noted House Oversight Committee chairman Ed Towns, D-N.Y.
Was it a microphone problem? Or as the old movie line goes, was it "a failure to communicate?"
Paulson and lawmakers argued over the still unsettled question of whether or not the government had improperly threatened Bank of America CEO Ken Lewis to prevent the bank from backing out of a merger with Merrill Lynch. Paulson allegedly threatened to remove the bank's board members last December, when Bank of America mulled pulling out of the deal, by exercising their "material adverse change" -- or MAC -- clause.
"I don't characterize it as a threat," Paulson said.
"I explained to him that the Fed could remove management," sighed Paulson, clearly frustrated at today's hearing. "I've told you three times."
Three times was not enough. Lawmakers weren't buying it.
"I don't think there's anyone in this room who believes that you guys didn't intimidate Mr. Lewis," argued Rep. Jim Jordan, R-Ohio.
Call it an explanation, intimidation or a threat. Whatever it was, a more important question then, one not bogged down in semantics, is: Was the government pressure justified because a failed merger could, in its opinion, have jeopardized the stability of the overall financial system?
Paulson said yes.
"I believe it was appropriate for me to explain to Mr. Lewis that the government was supportive of Bank of America," Paulson said, "and that it felt very strongly that if Bank of America exercised the MAC clause, that would show a colossal lack of judgment and would jeopardize Bank of America, Merrill Lynch, and the financial system."
Ultimately, Bank of America went through with the merger, and Lewis kept his job. The government gave them $20 billion in TARP bailout money. Crisis averted. So did the ends justify the means?
Many lawmakers said no.
"It looks like a marriage of convenience," said Towns. "Ken Lewis got what he wanted. And the Treasury and the Fed got what they wanted. All of this happened against the backdrop of unchecked government power, with no transparency or accountability."
He added bluntly, "In my view, this is unacceptable."
Many panel members also found it unacceptable that Paulson said he could not remember if his pressure on Lewis was the result of an explicit request by Fed chairman Ben Bernanke or merely his own impression of the Fed's position.
"You know, you're a very smart man," Rep. Dan Burton, R-Ind., told Paulson. "I don't think anybody's buying what you're saying right now."
Not only was there back-and-forth on Paulson's dealings with Bank of America, but also his overall actions to save the country's economy -- specifically, the implementation of the controversial $700 billion Troubled Asset Relief Program.
Paulson told lawmakers that he knew the situation last fall was dire, but attempted to avoid being too explicit in public.
"We didn't want to overly scare people and make it worse," he said, but the government feared that "a meltdown of the system could lead to chaos."
And so ensued the massive taxpayer bailout. But rather than purchase toxic assets off the banks' balance sheets -- as the program was originally designed to do -- Paulson quickly shifted gears and instead injected money into financial institutions.
"We needed to do something quickly, and the way we were able to do something quickly and make a difference, and make a dramatic difference, and prevent something very dire from happening was to make the change and inject capital," he said.
"You're talking about how you guys saved the economy and saved the world," responded an exasperated Burton. "We do have a meltdown going on right now!"
Today's hearing marked the third of three hearings that the panel has held about the Bank of America-Merrill Lynch merger. Lewis testified on June 11, Bernanke on June 25.
Ultimately, as the panel's ranking member, Rep. Darrell Issa, R-Calif., pointed out, "Wall Street would perhaps say that the ends justify the means -- we have, in fact, been saved. Here in Washington, we're Monday morning quarterbacks. Monday morning quarterbacks say, in fact, if we have to play again next Sunday, how do we do better?"
Following the mid-day recess, lawmakers on both sides of the aisle continued to level criticisms at the former Treasury chief. Both Rep. Marcy Kaptur, D-Ohio, and Rep. Cliff Stearns, R-Fla., hit out at Paulson for his ties to Goldman, where he served as CEO before taking the Treasury job in 2006. Citing Goldman's strong second-quarter report earlier this week, Kaptur stated that Paulson's $700 billion TARP plan was great for the bank, but not for taxpayers.
"The fact that a number of those institutions have done well and have paid back the taxpayer is something we should all be pleased about, rather than the reverse," Paulson said.
"You know, I wish you'd gotten a better deal for the taxpayers," Kaptur replied. "You sure got a good deal for a lot of your former clients."
"I think if you look at what the taxpayer is going to make on a number of these companies, it will have been good," Paulson argued. "But the biggest advantage for the taxpayer -- by far the biggest advantage for the taxpayer -- is what didn't happen: We did not have a collapse, we did not have double the number of foreclosures in Ohio--"
"Oh, they're happy, Mr. Paulson," quipped Kaptur. "You ought to come visit us in Ohio."
"I know how terrible it is," Paulson said. "I'm just telling you it would have been worse."
"If that's your best argument, that's not good enough," responded Kaptur.
A few minutes later, Stearns took his shots at Paulson for deviating from the original purpose of the TARP. The lawmaker accused Paulson of engaging in a conflict of interest, as he let Goldman competitor Lehman Brothers collapse but bailed out companies like AIG, which was then able to pay back the $12.9 billion that it owed to Goldman.
"You baited us all and then you switched it!" Stearns said to Paulson. "You started giving money to all these top 15 institutions, but for all these people who had the loans, you could have worked out a homeowner equity plan around this country to help the people who were having their homes foreclosed.
"You're helping AIG. You're helping Bank of America. You're bankrupting Lehman Brothers who was your biggest competition. Don't you think at some point you should have recused yourself and said, 'You know something, all my buddies at Goldman Sachs are over there, I really feel that I shouldn't be making these decisions and making Lehman Brothers go bankrupt, that I really should recuse myself.' The fact that you come in here and say you feel the pain of AIG is just outrageous."
"I'd like to respond to you because I find your statement outrageous," replied Paulson.
"Let me tell ya, I have the time, Mr. Paulson!" interjected Stearns.