John Sununu

Sununu Sits On TARP Oversight Panel, And On Board Of Firm Owned By Bank That Administers TARP

Zachary Roth | February 28, 2009, 12:00PM

John Sununu, who serves on the Congressional Oversight Panel monitoring the government's bailout program, has joined the board of a subsidiary to Bank of New York Mellon -- a firm that, in addition to receiving bailout funds, has been hired by the Treasury Department to administer the program.

Given that the Congressional Oversight Panel (COP) is charged broadly with assessing how the TARP program is working, in order to help Congress determine whether to continue injecting capital into the financial sector, the arrangement would appear to create a significant conflict of interest for the former New Hampshire GOP senator.

On Wednesday, the investment firm BNY ConvergEx Group announced that Sununu had joined its board of governors. "His experience as a thoughtful leader and champion of innovation makes him an ideal match for ConvergEx's entrepreneurial spirit," said company chairman Joseph Velli of Sununu.

According to its press release, the company is an affiliate of Bank of New York Mellon (BONY). Founded by Alexander Hamilton in 1784, BONY received $3 billion in TARP funds back in October -- less than some Wall Street firms, but not chump change.

Just as significantly, it was also picked to be the master custodian for the bailout funds. According to reports, that means it's charged with handling accounting and record-keeping for the program, and even with tracking limits on executive pay at banks that got TARP money.

Sununu was appointed to the COP by GOP Senate leader Mitch McConnell in December -- a little over a month after he was defeated by Democrat Jeanne Shaheen in his bid for reelection to the Senate.

Sununu's conflict, then, appears clear. As a member of the COP, he's in part responsible for evaluating whether taxpayers got a good deal through TARP, and for assessing whether Treasury and the banks are doing enough to track the bailout money, as well as whether banks are using the money to make loans, as they were supposed to. On the broadest level, COP's job is to help Congress figure out whether the TARP program is working as it should, and how to adjust it going forward. It's not hard to see how that responsibility could conflict with his activities as a member of the board of a company that both administers the TARP program, has received funds from it, and could potentially be in line for more.

In his work on the panel so far, Sununu has hardly been an advocate for taking a hard line on the banks. Earlier this month, the COP, which is chaired by Harvard Law professor Elizabeth Warren, released a report detailing the kinds of far-reaching reforms to bolster the financial regulatory system that the crisis has pointed up the need for. But Sununu and the panel's other Republican, Rep. Jeb Hensarling didn't sign on. Instead, they attached their own alternative report, that recommended an approach to financial regulation that was more friendly to Wall Street, and emphasized the need to rein in Fannie Mae and Freddie Mac, the government-backed mortgage firms.

No one answered a listed number for Sen. John E. Sununu in Portsmouth, New Hampshire.

We've also contacted COP to ask whether Sununu discussed his ties to Bank of New York Mellon with panel staff. And we're hearing there's more to this story ... so we'll keep you posted.

Bank of America

On Merrill Bonuses B of A's Statements Don't Match Reality

Zachary Roth | February 26, 2009, 6:29PM

As New York Attorney General Andrew Cuomo's investigation continues, it's becoming increasingly clear that Bank of America, and its CEO Ken Lewis, haven't been straight on the subject of what they knew about those outlandish Merrill bonuses.

ABC News yesterday revealed details of the agreement signed by the two banks back in September, when they agreed that B of A would take over Merrill starting January 1. According to it sources, the agreement says that bonuses "shall be determined by the company (Merrill) in consultation with the parent (Bank of America)."

The network added that the two firms at first agreed that Merrill could hand out up to $5.8 billion. That figure was then added to "under $4 billion" after a conversation between Merrill CEO John Thain and a top B of A exec Steele Alphin, who's a close Lewis confidant.

In other words, Bank of America had a clear role in working with Merrill to determine the amount of the bonuses awarded.

But that's not at all how B of A has represented things.

When the Financial Times first broke (sub. req.) the bonus story last month, B of A told the paper:

Merrill Lynch was an independent company until January 1 2009. John Thain (Merrill's chief executive) decided to pay year-end incentives in December as opposed to their normal date in January. B of A was informed of his decision.

And in his testimony before Congress earlier this month, Lewis said:

They were a public company until the first of the year, they had a separate board, separate compensation committee and we had no authority to tell them what to do, just urged them what to do.

It's not clear whether that that outright contradicts the language of the agreement, as ABC has reported it. But whether or not the agreement gave B of A formal "authority" to set Merrill's bonus levels, it certainly gave them an explicit role in the process (assuming ABC's sources are rendering the wording of the agreement accurately). Which is a lot more than B of A's few carefully crafted public statements on the subject have implied.

Thain, Lewis, and Alphin have all been subpoenaed by Cuomo (Thain has now "told all, says ABC), so you've got to think we'll be getting to the bottom of this soon. And it doesn't seem like it'll look good for the increasingly embattled Lewis when we do.

Bailout

Dems Tell Northern Trust To Repay Taxpayers For LA Spending Spree

Zachary Roth | February 24, 2009, 4:00PM

In what could be the first instance of a congressional committee citing reporting by TMZ (or maybe not!), Democrats on the House Financial Services committee, led by Rep. Barney Frank, have sent a letter to the CEO of Northern Trust bank, demanding that the bank re-pay taxpayers for a lavish spending spree -- featuring a Sheryl Crow concert and gifts of Tiffany's trinkets -- surrounding a recent golf tournament it sponsored for clients.

The splurge, which took $1.5 billion in bailout money last fall, was first reported earlier today by TMZ.com, the entertainment site.

TMZ offered a rundown of the trip's highlights:

- Wednesday, Northern Trust hosted a fancy dinner at the Ritz followed by a performance by the group Chicago.

- Thursday, Northern Trust rented a private hangar at the Santa Monica Airport for dinner, followed by a performance by Earth, Wind & Fire.

- Saturday, Northern Trust had the entire House of Blues in West Hollywood shut down for its private party. We got the menu -- guests dined on seared salmon and petite Angus filet. Dinner was followed by a performance by none other than Sheryl Crow.

There was also a fabulous cocktail party at the Loews. And how's this for a nice touch: Female guests at the Chicago concert all got trinkets from ... TIFFANY AND CO.

In the letter, Frank and his colleagues wrote that the spending "demonstrates extraordinary levels of irresponsibility and arrogance," and called on Northern Trust CEO Frederick Waddell to return the money to taxpayers.

In response to the TMZ report, a spokesman for the Chicago-based bank told the Chicago Tribune that the bank had committed to sponsor the golf tournament over a year before it got bailout money. He continued: "The reason Northern Trust sponsors the Open is it's an integral part of its marketing program. It's about client relationships and showing appreciation for clients."

The full letter from the Financial Services committee Democrats follows after the jump ...

Read more »

John Thain

Thain Must Dish On Bonuses, Rules Court

Zachary Roth | February 23, 2009, 6:34PM

That was quick!

John Thain has been ordered by a New York court to testify about those controversial Merrill Lynch bonuses, reports CNBC.

Earlier today, it was reported that New York Attorney General Andrew Cuomo, who is investigating the bonuses, filed a motion to compel Thain to testify, after the disgraced former Merrill CEO refused to answer questions about the issue, claiming that Bank of America had ordered him to stay mum.

Cuomo had subpoenaed Thain for testimony. He has also subpoenaed B of A CEO Ken Lewis, and another B of A exec, but does not appear to have taken their testimony yet.

Cuomo's probe is seeking to determine what Bank of America knew, and when, about Merrill's decision to award the bonuses, and about the massive losses that Merrill absorbed in the fourth quarter of last year, before it was formally taken over by B of A, but after the takeover had been announced.

Bank of America

Cuomo: B of A "Obstructing And Interfering" With Merrill Bonus Probe; Thain Staying Mum

Zachary Roth | February 23, 2009, 12:59PM

John Thain is staying mum about the billion-dollar bonuses he approved just weeks before Merrill Lynch came under the control of Bank of America.

New York Attorney General Andrew Cuomo, who is investigating the controversial Merrill bonuses, has filed a motion in court, seeking to compel Thain to talk about the subject, reports Reuters. Cuomo's office says that during his sit-down with investigators last week, Thain refused to do so, claiming that Bank of America has told him to keep quiet.

Cuomo's office is alleging that B of A is "obstructing and interfering" with his investigation.

That probe is seeking to determine what Bank of America knew, and when, about Merrill's decision to award the bonuses, and about the massive losses that Merrill absorbed in the fourth quarter of last year, before it was formally taken over by B of A, but after the takeover had been announced.

B of A CEO Ken Lewis was subpoenaed last week, and another company exec was subpoenaed, along with Thain, before that.

Late Update: A spokesman for Thain told the Associated Press that Thain "would answer questions about individual bonuses if compelled by the court order."

Bailout

Deutsche Bank Analyst: Overpay For Our Assets, Or You'll Regret It

Zachary Roth | February 12, 2009, 3:49PM

For a while now, it's seemed like Wall Street's message to government has been: We screwed up. But if you don't rescue us on our terms, you're all gonna be in trouble.

But you don't usually see that expressed quite as clearly as it was in a research memo sent out yesterday by a senior Deutsche Bank analyst, and obtained by TPMmuckraker.

In the memo -- one of Deutsche's daily "Economic Notes" sent out to the firm's clients, and to some members of the press -- Joseph LaVorgna, the bank's chief US economist, essentially, appears to warn that if the government doesn't pay high prices for the toxic assets on the books of Deutsche and other big firms, there will be massive consequences for the US economy.

Writes LaVorgna:

One main stumbling block to the purchasing of troubled assets has been pricing, specifically how does the government price a diverse set of assets in a way that does not put the taxpayer on the hook. However, this should not be the standard by which we judge the efficacy of the plan, because a more prolonged deterioration in the
economy will result in a higher terminal unemployment rate and a greater deterioration of the tax base. As such, the decline in tax revenues will crimp many of the essential services provided by the government. Ultimately, the taxpayer will pay one way or another, either through greatly diminished job prospects and/or significantly higher taxes down the line to pay for the massive debt issuance required to fund current and prospective fiscal spending initiatives.

We think the government should do the following: estimate the highest price it can pay for the various toxic assets residing on financial institution balance sheets which would still return the principal to taxpayers.

One leading economist described the memo to TPMmuckraker as a "ransom note" to the US government. And David Kotok of Cumberland Advisors, who writes such research memos for his own clients, acknowledged that the memo, like all such communications, could be interpreted as an attempt to influence policy-makers.

Still, seeing the memo as a threat to the government to drive the softest of bargains wouldn't be entirely fair. Kotok that cautioned that the effects of a single analyst's memo are limited: "Joe LaVorgna doesn't have enough clout to hold the US government hostage."

LaVorgna himself was blunt: "I don't write editorials," he told TPMmuckraker.

At the very least, the memo can be seen as a frank statement of position from the chief economist of a major bank: if the government doesn't cave and buy up all the banks' toxic assets at inflated prices, the country will suffer.

Nice fix we've got ourselves into.

Bailout

Morgan Stanley's Spin On Bonuses

Zachary Roth | February 12, 2009, 11:10AM

It's worth taking a second to knock down a piece of rapidly emerging spin about those "very generous" "retention payments" that Morgan Stanley announced for its financial advisers last week, (as well as those of Smith Barney, with which its soon to merge) according to audio obtained by the Huffington Post.

The New York Times reports:

James Wiggins, a Morgan Stanley spokesman, said that such payments were necessary and would come out of operating revenue, not government bailout funds.

Wiggins gave Huffington Post the same line yesterday.

But Dean Baker, of the Center for Economic and Policy Research dispenses with this quickly, writing on his blog at the American Prospect:

Since money is fungible, this comment doesn't make any sense.

Incidentally, a Morgan Stanley spokeswoman gave us the same line about operating expenses when we called about the payments yesterday. But, given that, as Baker says, money is fungible, it didn't seem worth reporting.

Bailout

Capuano To CEOs: "America Doesn't Trust You."

Zachary Roth | February 11, 2009, 4:17PM

Here's a great tirade from Massachusetts Democratic congressman Michael Capuano, form today's hearings with eight banks CEOs...

Some highlights:

America doesn't trust you anymore.

and:

Who was the brilliant person who came and said: Let's do credit default swaps? Find 'em. Fire 'em. Tell me you fired them.

But maybe the best part is when Capuano addresses the common refrain heard form banks that the money they gave out in bonuses was different from the bailout money they got.

Says Capuano:

Don't say: Oh, well we're not using that money for bonuses. C'mon! Money is all of a sudden not fungible in your entity. It's fungible everywhere else, but not in your entities.

Watch:

Bailout

McGraw Hill Spikes Book That Slammed Credit Ratings Agency It Owns

Zachary Roth | February 11, 2009, 3:04PM

Did McGraw Hill pull out of a book deal with a top financial blogger because it looked like the book would be critical of Standard & Poor's, the credit ratings agency owned by McGraw?

Portfolio reports that the publisher has dropped Barry Ritholtz's Bailout Nation. And Ritholtz -- a TPM friend and investment expert who runs an institutional research firm -- claims it's because he ripped S&P.

The major credit ratings agencies, S&P perhaps foremost among them, have been widely criticized (by TPMmuckraker, no less) for helping to enable the financial crisis, by sticking grade A ratings on toxic mortgage assets -- a move which pleased the investment banks, who are the ratings agencies' customers.

Ritholtz wrote in his original manuscript that the ratings agencies "conducted a form of 'payola.' "

He continued:

These three rating agencies were the key enablers in the housing crisis and the subprime debacle. They were the pimps to the fixed-income fund managers' johns. The investment banks whored out junk paper, and the ratings agencies were extremely well compensated for their role in helping to create the entire subprime fiasco. But for their imprimatur of triple-A respectability on garbage paper, it could not have danced its way onto the laps of so many drooling buyers.

When McGraw Hill complained, the writer agreed to take out that passage. But, according to Ritholtz, the publisher still wasn't happy, saying it couldn't verify his assertions -- a rationale Ritholtz, speaking to Portfolio, rejects as a manufactured excuse. The book's general take remained critical of the ratings agencies.

In a post on the blog The Big Picture, Ritholtz offers more details about the sequence of events, and claims that the contract he signed with McGraw gave him final edit rights.

He also adds that over the summer, a McGraw Hill publisher told him that the section on the ratings agencies would have to be handled "delicately and diplomatically."

In any case, the deal ultimately fell apart -- and the notion that it was because McGraw Hill couldn't stomach Ritholtz's frank criticism of S&P is tough to shake.

Portfolio adds the publisher's side:

McGraw Hill spokesman Steven Weiss this afternoon said the publisher dropped the book because of a conflict with Ritholtz over editing, not because of his criticism of S&P. "The material needed extensive corroboration across a range of topics. We could not agree on unified approach with the author for resolving the issues," Weiss said. He denied that the publisher dropped the book because of what Ritholtz had written about S&P. "It is simply not true," Weiss said. "We have a range of editorial entities that often report critically about the company and we support and encourage their independent voices."

Ritholtz told Portfolio that other publishers are interested in Bailout Nation. So we may even get to see the full unedited version of the book.

Bailout

Lewis: Yes We Raised Interest Rate On Credit Cards -- After Taking Bailout Money

Zachary Roth | February 11, 2009, 2:12PM

Here's another good exchange, this one between Rep. Maxine Waters and
Bank of America's Ken Lewis .

In one moment, Waters -- a longtime foe of rapacious lending practices, asks the CEOs whether, after receiving taxpayer money, they increased the interest rate on the credit card holders.

Lewis admits his firm did....

Bailout

JP Morgan CEO: OK, We Didn't Use Bailout Money For Lending

Zachary Roth | February 11, 2009, 1:38PM

Here's an important moment:

Rep. Gary Ackerman gets JP Morgan CEO Jamie Dimon to admit that the $25 billion his firm got from the bailout did not trigger any new lending.

Watch the vid -- it's around 3:25 mark.

Bailout

Frank Stumps CEO: What's The Point Of Bonuses?

Zachary Roth | February 11, 2009, 11:33AM

A nice moment from the hearings...

Barney Frank declares, re: bonuses:

This notion that you need some special incentive to do the right thing troubles me.

Then he asks: What is it you'd do differently if you didn't get a bonus?

It's a question Frank had been previewing all week. He throws it open to any of the CEOs.

Morgan Stanley's John Mack is the only one brave enough to hazard an answer. But all he brief historical digression about how the bonus system became established at investment banks.

But Mack acknowledges:

Without question, given the risks we take today, and the size of our bonuses ... all that has to be looked at again.

Frank's conclusion:

So if there were no bonuses, we'd still get our money's worth.

Sounds about right.

Bailout

Morgan Stanley Exec Announced "Very Generous" Retention Award Last Week

Zachary Roth | February 11, 2009, 11:00AM

The Huffington Post has obtained audio of a conference call last week on which the co-president of Morgan Stanley, James Gorman, tells financial advisers at his firm and Citigroup's Smith Barney that they will be receiving "very generous" retention payments, and urging them not to call them bonuses.

The two firms are about to merge.

Gorman tells the advisers:

There will be a retention award. Please do not call it a bonus. It is not a bonus. It is an award. And it recognizes the importance of keeping our team in place as we go through this integration.

Gorman continues:

I think I can hear you clapping from here in New York," Gorman joked during the call, after announcing that the payments would be linked to '08 performance. "You should be clapping because frankly that is a very generous and thoughtful decision that we have made. We spent a lot of time kicking this around. We could easily have done it from the point of closing, which is obviously going to be somewhere in the latter half of this year or around the middle of the year. But we just decided... that it was right thing to do, to give you that certainty that it would be based off '08. '09 is a very difficult year... So that degree of anxiety, which many, many of you have emailed me about... is now off the table.

Huffington Post adds:
The payments, Gorman said, will be calculated based on performance numbers from 2008 instead of 2009, when the merger is expected to be completed. That decision virtually guarantees an increase in the size of the awards. While 2008 was challenging for the firms -- Morgan Stanley's client assets in fee-based accounts dropped 25 percent in the fourth quarter, and a round of lay-offs is expected -- 2009 is expected to be substantially weaker.

As I type this, I can hear Morgan Stanley's CEO John Mack bragging to Congress about the measures his firm has taken to rein in excessive compensation.

Bank of America

Your Help Needed!

Zachary Roth | February 11, 2009, 10:16AM

As we said, Barney Frank's committee has posted the CEOs' prepared statements on its website.

We're watching the hearings, which just began, but feel free to look through what the prepared remarks and send us anything good...

Bank of America

B of A's Lewis Defends Compensation

Zachary Roth | February 11, 2009, 10:00AM

The CEOs of the eight banks that received the most bailout money are about to testify before the House Financial Services committee, starting any minute. But the committee has already posted the CEOs' prepared statements on its website.

Here are some highlights:

Bank of America's Ken Lewis will say that executive pay and bonuses are intended "to grow our business, enhance profitability and generate returns for investors." That includes "the investors that are the focus of this hearing: U.S. taxpayers."

Citigroup's Vikram Pandit will say that he "removed the people responsible for Citi's financial distress."

JP Morgan Chase's Jamie Dimon will advocate a new bank regulatory system, which would include a "systemic risk regulator."

On compensation, Dimon will say:

Our employees worked harder than ever and performed admirably for the company and for clients under enormously challenging conditions in 2008. I believe the compensation we paid them was appropriate.

We'll be blogging the hearings as they happen, so stay tuned...

Barack Obama

Obama Advisory Board Member Is Senior Exec With Firm Under Federal Investigation For Tax Scam

Zachary Roth | February 10, 2009, 7:30PM

Last week, President Obama announced the members of his new Economic Recovery Advisory Board.

And one of the names piqued our interest:

Robert Wolf, Chairman & CEO, UBS Group Americas

That's because UBS isn't exactly the kind of company you'd expect Obama might want to associate with just at the moment. It's the subject of a widening federal investigation, being conducted by both DOJ and the IRS, into its offshore private banking services, focused on allegations that it helped an estimated 19,000 wealthy clients evade billions in taxes.

Last fall, Raoul Weil, who ran the firm's global wealth management and business banking division, was indicted in connection with the alleged scheme.

A few months earlier, a former UBS exec, Bradley Birkenfeld, pleaded guilty to helping a client evade millions of dollars in federal income taxes while with the firm.

Of course, there's no indication that Wolf had any connection to the alleged scheme. But it's worth noting that he and Weil did serve together on UBS's Group Executive Board. So it's not like they don't know each other, it appears. (Weil stepped down from the board temporarily after his indictment.)

You'd think President Obama could have rounded out his advisory board with someone from a firm that's not under federal investigation for helping rich people cheat on their taxes -- especially given the current financial climate. Guess not.

Bailout

Obama: Nationalization "Wouldn't Make Sense"

Zachary Roth | February 10, 2009, 6:57PM

In the wake of Tim Geithner's speech this morning, laying out the Treasury's plan, such as it is, for Bailout 3.0, most smart observers have concluded that the Obama administration has at least left the door open for a possible nationalization of failed banks at some point, if it decides circumstances warrant that step.

But in an interview with ABC News' Nighline, set to air tonight, the president seemed to all but rule out that idea. He told ABC:

[Sweden"] took over the banks, nationalized them, got rid of the bad assets, resold the banks and a couple years later, they were going again. So you'd think looking at it, Sweden looks like a good model. Here's the problem -- Sweden had like five banks," he said, laughing. "We've got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the, the problems in terms of managing and overseeing anything of that scale, I think, would -- our assessment was that it wouldn't make sense. And we also have different traditions in this country.

True, Obama, like Geithner, has always seemed skeptical of nationalization. But his answer to ABC would appear to go further than he yet has in declaring that he'll avoid adopting any version of that approach.

Of course, things might look different once we get done with these "stress tests," and find out how many major banks are truly insolvent. But as of now, the president seems dead set against even short term nationalization.

Barack Obama

Ex-IMFer On Geithner's Speech: "This Is Not A Plan"

Zachary Roth | February 10, 2009, 12:30PM

Timothy Geithner's speech laying out the Treasury's plan for bailout 3.0 struck us as devoid of key details that might have settled some of the uncertainty and confusion surrounding the Obama administration's approach.

That's how it struck Simon Johnson, the former chief economist for the IMF, too.

Johnson told TPMmuckraker that the Treasury Secretary's speech laid out some important principles, especially in regard to the need for transparency and accountability. And he said that Geithner's willingness, in contrast to his predecessor, Henry Paulson, to criticize bankers and policy-makers -- implicitly himself -- was also welcome.

But then, said Johnson, the speech went into "Paulson-land," as Geithner said he would take input from the public on the public-private investment fund the Treasury is considering creating.

That lack of specificity, said Johnson, isn't helping restore confidence, pointing to a sharp drop in the market today, especially in the financial sector. "The market is responding to vagueness," said Johnson. "This is not a plan. In the annals of plan-announcing, this is very vague."

The "stress test" that Geithner discussed today, said Johnson, is a promising idea, but again wasn't fully enough fleshed out to know whether it'll be effective. The proposal, used effectively by Sweden in the early 90s, would require banks to lay their cards on the table, allowing the government to make a rough -- and conservative -- valuation of their assets. That would then allow the government to take over those banks that are truly insolvent, rather than continue to try to prop up failing institutions and suffer a "death by a thousand paper cuts."

Johnson had harsh words for the administration's plan, announced late last week, to modestly limit executive compensation. He called it "a joke," and said Geithner had lost credibility because of it. "No one in the markets is buying those [limits] as meaningful."

Geithner will testify before Senate committees this afternoon and tomorrow morning. So we'll see how many more details we get then. But it looks like this is all still a work in progress.

Bailout

Thain: "I Don't Know How These People Can Run This Company Without Me"

Zachary Roth | February 9, 2009, 11:33AM

We're getting way past flogging a dead horse territory here, but yesterday, in a rich and lengthy rundown on the troubled Merrill-Bank of America marriage, the New York Times had some great new details about John Thain's narcissism and self-delusion (a subject close to our hearts). Still, as entertaining as those are, this is definitely a story in which no one comes out looking good.

As for Thain, the former Merrill CEO, we learn that he believed he was entitled to that $40 million bonus he initially requested, on account of his "deal-making heroics", in the Times' words, in putting together the agreement with B of A.

His actual record, of course, was less heroic. The Times reports that Thain put a lot of effort into self-promotion, bringing in Margaret Tutwiler, with whom he had worked at the New York Stock Exchange, to run communications for the firm. Tutwiler -- a veteran of Republican Washington, who was George H. W. Bush's press secretary and in 2003 ran the State Department's unsuccessful effort to boost America's image abroad -- "largely spent her time cultivating Mr. Thain's image." (Thain, of course, was a major John McCain backer, who was mentioned as a possible Treasury Secretary in a McCain administration.)

For instance:

Ms. Tutwiler quickly scheduled a series of interviews for Mr. Thain from Merrill's trading floor. As the cameras flashed, he shook hands with the troops. When the cameras left, so did Mr. Thain.

But in terms of substance, the Times makes clear there were numerous missteps. Before the B of A takeover, Thain might have made moves to mitigate the damage done to Merrill by the toxic assets on its books, but didn't.

First:

For months, there were inquiries from hedge funds and other buyers about a range of mortgage assets and securities, but Merrill's mortgage desk was blocked from distributing price lists because Merrill's management refused to agree on market estimates, according to Merrill insiders.

And:

Despite the fact that Mr. Thain inherited these assets, Merrill insiders say they could have been hedged -- moves well within Mr. Thain's purview as head of risk management at the firm. Yet he never did so, according to three people who worked closely with him. An individual familiar with Mr. Thain's thinking said that Mr. Thain didn't believe hedges would have been effective.

Losses in those so-called legacy assets would reach $10 billion in the quarter.

Unsurprisingly, Thain wasn't too popular with B of A rank and file. When news broke of his firing last month, reports the paper, "[s]pontaneous applause broke out across the trading floor and bets were placed on which one of Mr. Thain's highly paid lieutenants would be next."

But at least he kept believing in himself. After his ouster, the Times reports, Mr. Thain paced the halls of Merrill, venting his frustration to at least two people. "I don't know how these people can run this company without me," he told them.

Not that Bank of America and its CEO, Ken Lewis, come out looking much better. Since last month, Merrill and B of A have been squabbling over what the latter firm knew, and when, about Merrill's massive fourth-quarter losses, and its decision to award bonuses -- subjects being probed by the New York and North Carolina attorneys general (B of A has provided "reams of documents" to the NY investigators, says the Times). And the evidence is mounting that Bank of America knew, or should have known, just about everything.

The Times reports:

Although Mr. Lewis contends that he was surprised by the magnitude of Merrill's losses, his financial team on the ground in New York had daily access to Merrill's trading books, which would have allowed them to detect the mounting exposures.

To be specific:

A Bank of America executive was sent to New York from Charlotte to act as an interim chief financial officer and had daily access to Merrill's profit-and-loss statements.

Likewise, Bank of America was well aware of the $3.2 billion in bonuses that Merrill paid to its rank and file in late December. The two companies had agreed in September that Merrill might pay up to $5.8 billion, according to a private agreement reviewed by The New York Times.

That "Bank of America executive," by the way, appears to be J. Steele Alphin, B of A's chief administrative officer and a close confidant of Lewis, who Thain has claimed knew about the bonuses, and who has been subpoenaed by the New York investigators.

And according to one Times source, at a December 9 B of A board meeting, Lewis did not question Thain about Merrill's losses, even though 60 percent of those losses were already visible. Nor did Lewis tell his shareholders, who two days earlier had voted to approve the merger, about the Merrill losses.

Indeed, Lewis may have been kept as much important information from Thain as vice versa. We knew that, after seeing the losses, Lewis had gone to the government during the last two weeks of December, requesting bailout money to help digest Merrill. What we didn't know is that, according to one source, Lewis didn't tell Thain about his talks with the Feds till January 5.

Like we said, there aren't many heroes here.

Bailout

Another AG Probing Merrill Bonuses

Zachary Roth | February 6, 2009, 1:38PM

It looks like New York Attorney General Andrew Cuomo and Neil Barofsky, the inspector general for the bailout, aren't the only people interested in looking into those bonuses Merrill gave senior execs just before the company came under the control of Bank of America.

North Carolina Attorney General Roy Cooper has issued an "investigative demand" to B of A for documents related to the bonus awards, reports the News and Observer of Charlotte. Cooper, it seems, wants to know what B of A knew about the controversial December bonuses, and when it knew it.

Bank of America, which is based in Charlotte, is required to respond by March 4.

Despite Merrill's massive fourth-quarter losses and generally dire position, the firm's then-CEO John Thain, and the company's board, approved paying the bonuses on an accelerated schedule, apparently in an effort to get them paid before B of A took contol Jan 1.

Since the bonuses came to light, Thain and B of A have given conflicting accounts as to when B of A knew about them, and about Merrill's losses.

The paper adds some detail on the legal tools that might be available to Cooper:

Under N.C. General Statutes, the state Justice Department has the power to investigate the affairs of all corporations and persons doing business in the state. Typically, this authority is used to probe businesses accused of defrauding consumers. In this case, the attorney general has multiple avenues to pursue, depending on what the documents show, a person familiar with the matter said.

The payment of the bonuses could violate the uniform fraudulent transfer act, which restricts the transfer of assets outside of normal business practices, the person said. Typically, this act is applied to debtors in bankruptcy cases who owe creditors, but it could be extended to aggrieved shareholders. Cuomo has used this law in his investigation of insurer AIG, which agreed to freeze more than $600 million it planned to pay out in bonuses.

Cuomo has reportedly issued subpoenas to Thain and B of A's chief administrative officer as part of a probe into the bonuses, which is itself part of a broader investigation announced last fall, of executive pay on Wall Street.

Cuomo is working with Neil Barofsky, the bailout inspector general.

Bank of America

How Theresa Hatt Caused The Financial Crisis

Zachary Roth | February 6, 2009, 11:23AM

Last month, Theresa Hatt died at 52, after a brief struggle with cancer.

Hatt, who lived in Portland, Maine, and worked for the city of Scarborough, had had several credit cards in her name. So, shortly after her death, Hatt's son, Paul Kelleher, began the sad task of calling his mother's creditors, to inform them of her passing.

The calls were uneventful, if depressing, until Kelleher got to Bank of America. Here is how he says his conversation with a representative of the company's estates unit went:

Paul Kelleher: Yes, I'm calling to inform you that my mom died on the 24th of January.

Bank of America Estates representative: I'm sorry. Oh, it looks like she never even missed a payment. That's too bad. Well, how are you planning to take care of her balance?

PK: I'm not going to. She has no estate to speak of, but you should feel free to just go through the standard probate procedure. I'm certainly not legally obligated to pay for her.

BOA: You mean you're not going to help her out?

PK: I wouldn't be helping her out -- she's dead. I'd be helping you out.

BOA: Oh, that's really not the way to look at it. I know that if it were my mother, I'd pay it. That's why we're in the banking crisis we're in: banks having to write off defaulted loans.

"I lost it there," Kelleher, a mild-mannered 30-year-old who lives in Brookline, Mass., where he works remotely for a Washington DC-based non-profit, told TPMMuckraker. When pressed, he said, the estates rep backed off that last claim, but only a little, continuing to suggest that cases like his mothers had played a role in the financial crisis.

The rep's apparent intention, as Kelleher described it, was to mislead him into believing that he was obligated -- at first legally, then, failing that, morally -- to cover his mother's debt (which, in any case, was not large: she had had a $1000 limit on her card). Of course, Kelleher was sophisticated enough to know that's not true. But how many other less savvy callers in similar situations, he wondered, might respond to the rep's breezy "how are you planning to take care of her balance?," with a confused "I guess I'll mail in a check"?

And what bothered Kelleher as much as the estate rep's insensitivity, not to mention her apparent effort to deceive, was the impression he got that she wasn't winging it.

"It seemed rote," Kelleher said. "It was too naturally delivered to have been a misstatement."

That impression was strengthened when Kelleher eventually spoke with the rep's supervisor, Eric Davis. Kelleher said that when he recounted his conversation with the rep, Davis apologized -- for what, exactly, it was unclear -- but told him: "That's not how she meant it."

From his conversation with Davis, said Kelleher, "it sounded like [the rep's approach] was encouraged."

How strongly encouraged, we wondered? And how common was this particular rep's approach? So we tracked down a former rep for Bank of America's collections unit. And according to the former rep, Kelleher's interlocutor was doing just what she was told .

The former rep, who worked until quite recently at B of A's Belfast, Maine-based collections unit, described for TPMmuckraker a system in which staffers responsible for making collections were routinely encouraged to mislead customers or those calling on their behalf, and were financially incentivized to do all they could to get payments.

Kelleher's reported conversation, the former rep said, "sounds like how I would have attempted to collect" in such a situation. "I would have asked: 'How do you plan on paying for this?'"

The rep said that employees were encouraged to walk right up to the line of actively deceiving a caller about the consequences of non-payment. "As long as you don't get caught [lying]," the former rep added, "there's no really no punishment." The former rep did not work in the estates unit, but confirmed, based on direct knowledge of B of A's practices, that it operates similarly to the former rep's own unit.

The former rep said that employees responsible for collections receive "feedback" about their phone performance from managers who monitor the calls. (When you hear "this call may be monitored for quality assurance purposes", the "quality assurance" oftentimes isn't quality of service from the customer's perspective -- it's quality of performance from the rep, who's being trained to be as effective as possible at extracting money from callers.)

The former rep added that if a manager had listened to the performance of Kelleher's rep, he would likely tell her: "Good job!" By contrast, if he had heard the rep failing to make any serious effort to convince Kelleher to pay his mother's debt, he would have told her "that was not a good 'listening score,'" -- the term gets at the precision with which a rep's phone performance is monitored -- and would have encouraged her to take a tougher approach.

There are also more direct ways to ensure that collections agents play hardball.
"We were obligated to collect 45 percent of the debt that rolled in to us," said the former rep, adding that that figure fluctuated. Employees who consistently failed to meet that baseline might be fired. "People lost their jobs all the time for non-performance."

And there were bonuses of us as much as $5000 a month for reps who successfully brought in a certain percentage of "collectible money", said the former rep, using the industry's cold-blooded jargon.

What's the larger point here? Well, here's one: When the automakers were asking Washington for a bailout recently, there was a lot of talk about insisting on conditions -- like requiring that they build more fuel-efficient cars -- that would be in the national interest. Bank of America and its competitors have already taken billions in taxpayer dollars. So it seems logical to insist on a similar set of public interest conditions -- and the industry's range of deceptive and rapacious lending practices would be a natural place to start.

Neither Eric Davis, the B of A supervisor, nor B of A's public relations office immediately responded to a request for comment.

Late Update: A Bank of America spokeswoman declined to comment on "allegations by former associates."

Barney Frank

Committee: Don't Worry, CEOs Will Testify

Zachary Roth | February 5, 2009, 12:21PM

Remember that saying about catching more flies with honey than with vinegar?

Yesterday we wrote that the House Financial Services committee, chaired by Rep. Barney Frank, had invited the CEOs of eight big banks -- including Bank of America, Goldman Sachs, Citi, and JP Morgan -- to testify. But, we noted, the committee wouldn't say whether any of the CEOs had accepted the invitation -- leaving the possibility that they might just say no. Any thought given to issuing subpoenas, we wondered.

It looks like that won't be necessary. Steve Adamske, a spokesman for the committee, confirmed to TPMmuckraker that all eight CEOs would indeed testify. Adamske said that subpoenas weren't necessary, since the political optics of not showing up would be too harmful for the banks. He said committee staff is working with the banks to schedule the CEOs' appearances.

So it looks like we'll get to hear straight from the horses' mouths about what the banks have been doing with the bailout funds. Sometimes asking nicely gets results.

Ben Bernanke

Report: Bernanke Threatened B Of A Over Merrill Deal

Zachary Roth | February 5, 2009, 11:45AM

We already knew, that, after it got wind of Merrill Lynch's massive fourth-quarter losses back in December, Bank of America had thought about pulling out of its deal to buy the troubled investment bank -- before being talked into it by the federal government.

But today, the Wall Street Journal adds some fascinating detail (sub. req.) about the level of hardball that the government played in making sure the deal went through.

Bush Treasury Secretary Henry Paulson and Fed chief Ben Bernanke reportedly warned B of A CEO Ken Lewis that if his firm pulled out, Merrill would collapse. They added that such a move, in the Journal's words "could undercut confidence in Bank of America, both in the markets and among government officials."

But that was just the start. Two days later, on a conference call, Bernanke told B of A that if it abandoned the Merrill deal, and came back to the Feds in the future seeking more bailout money, the government would consider removing the firm's executives and directors.

The threats, of course, seem to have worked, since Bank of America went ahead with the deal -- getting an additional $20 billion in bailout money to help digest Merrill.

Bernanke and Paulson may have been right to take such a hard line. But the episode suggests the level of control of day-to-day control that the government has had over the financial sector, since stepping in to rescue it last fall. Nationalizing the banks is still seen, in the mainstream debate as an extreme solution. But if the Feds are essentially making major operational decisions for the big banks, some would say they've been nationalized already -- it's just that no one wants to it.

Bailout

What, No Subpoena? Frank Invites Bailed Out CEOs To Testify

Zachary Roth | February 4, 2009, 5:38PM

Barney Frank, the chair of the House Financial Services committee, has invited the heads of the first eight banks that received bailout funds to testify at a hearing next Wednesday on the bailout, reports CNNMoney.com.

Those CEOs are:

Ken Lewis of Bank of America; Jamie Dimon of JPMorgan Chase; Vikram Pandit of Citi; Ronald Logue of State Street; Robert Kelly of Bank of New York; John Stumpf of Wells Fargo; John Mack of Morgan Stanley; and Lloyd Blankfein of Goldman Sachs.

But notice that word "invite." It appears that the corporate titans are free to choose not to attend -- even though Frank is seeking crucial information about what their firms did with the hundreds of billions in taxpayer money we gave them.

Indeed, CNNMoney.com adds:

A press secretary declined to comment on whether any of the CEOs have accepted the invitation.

So it sounds like a real possibility that at least some of those CEOs might just go ahead and decline Frank's polite invitation.

We've contacted the committee's press office to ask whether subpoenaing the CEOs was considered, or might still be in the future. We'll let you know what we hear.

Bailout

Markopolos: Madoff's Mob Ties Made Me Fear For My Life

Zachary Roth | February 4, 2009, 11:45AM

For a while now, there have been suggestions that Bernard Madoff had ties to organized crime. And Harry Markopolos just told Congress that those alleged connections made him fear for his life as a whistleblower working to expose Madoff's scheme.

When a committee member referred to Markopolos' "paranoia" about his safety, he responded by referring to Madoff's "dirty money."

Here's the full quote:

I don't consider it paranoia. And the reason is, Mr. Madoff was running such a large scheme of unimaginable size and complexity, and he had a lot of dirty money. And let me describe dirty money to you. When you're that big and you're that secrective, you're going to attract a lot of organized crime money, and which we now know came from the Russian mob and the Latin American drug cartel, and when you are zeroing out mobsters, you have a lot to fear. And he could not afford to get caught, because once he was caught. And if he would've known my name and knew he had a team tracking him, I didn't think I was long for this world.

Barack Obama

White House Announces Exec Pay Limits

Zachary Roth | February 4, 2009, 11:14AM

As expected, the White House has just announced new restrictions on executive pay to be issued by the Treasury Department, in response to public outrage over cases of CEOs of bailed out firms raking in millions.

The limits set a limit of $500,000 on executive pay, for those firms receiving "exceptional financial recovery assistance" -- that is, firms that negotiated "bank-specific" deal with Treasury, including Bank of America, AIG, and Citi. Any pay beyond that must be made in restricted stock that can only be paid once the government has been paid back.

The restrictions also would give shareholders more say on executives' pay, and would make it easier for the government to "claw back" the pay of executives who had engaged in deceptive practices, among other provisions.

Last week, President Obama called the billions paid out in Wall Street bonuses last year "outrageous."

The White House's press release, with a detailed description of the new rules, follows after the jump ...

Read more »

Bailout

Obama Planning Bailout Board

Zachary Roth | February 2, 2009, 11:41AM

In an interview with NBC's Matt Lauer that aired this morning, President Obama offered a concrete proposal intended to help his administration ensure that bailout money is spent more wisely than it has been until now.

Obama referred to "an independent board ... that actually looks at these programs, and the money, before it goes out the door."

Watch the clip:

Of course, how effective such a board will be is still entirely to be determined. But at least nominally this adds to the evidence that the new Congress and administration appear to understand the need to exert much tighter control over the bailout money than we saw initially.