Some voices on the Left contend that the current flood of government intervention in the economy serves as a corrective after years of unfettered capitalism.
Those who buy into this argument should consider the following passage from a Fortune article on Bank of America?s woes:
On Wednesday, Dec. 17, [BofA?s Ken Lewis] flew to Washington to discuss his options. At 6 p.m., he sat down with Fed chairman Ben Bernanke and Treasury Secretary Hank Paulson in the cathedral-like Federal Reserve building, renowned for its echoing vastness. Lewis told Bernanke and Paulson that because Merrill’s losses were so much worse than expected, BofA was in a position to invoke a “material adverse effect” clause from the merger contract to cancel the deal.
Bernanke and Paulson weren’t swayed. They told Lewis that the Fed’s legal staff had read the contract, and that under the law, BofA absolutely had to close the deal. They also said that a failure to buy Merrill would put the entire banking system at risk. They made it clear that renegotiating the price – a natural move in normal times – was not an option. The reason: It would take two months to issue new proxy statements and hold shareholder votes at both companies, while the fate of Merrill stayed in limbo. Bernanke and Paulson said they would provide a rescue package for BofA to ensure that it had adequate capital to complete the deal.
Technically the government did not have the authority to force Lewis to buy Merrill. But it hardly matters: In the current crisis bankers have little alternative but to do what Washington tells them. “The Fed and Treasury made it crystal clear,” says one person familiar with the talks. “Our position is your position.”
I wonder what Chet Arthur would have thought of such heavy-handed government intervention in the banking sector.
