Testimony has been released in the Wall Street Journal showing that Federal Reserve Chairman Bernanke and then-Treasury Secretary Paulson forced Bank of America President Kenneth Lewis to go through with a deal to purchase distressed brokerage giant Merrill Lynch.
Paulson and Bernanke apparently argued to Lewis, who wanted out of the deal after Bank of America analysts had delved into Merrill’s financials, that backing out of the deal would make Merrill’s poor financial health public and kill investor confidence, potentially causing a meltdown in the financial system. For good measure Paulson and Bernanke also threatened to remove the management and board of directors at Bank of America, including Lewis, if the deal did not go through.
In the financial industry we have a term for this. It’s called securities fraud, and it is a crime. In this case, the U.S. Treasury, as well as Bernanke and Paulson personally defrauded investors of billions of dollars, not just by failing to disclose Merrill’s dire circumstances, but by taking action specifically aimed at deceiving investors and spread false confidence.
Not that it was their first trip around the block. Since the fall, Bernanke and Paulson regularly acted outside the law pursuing “noble” motives. By now it’s common knowledge [I hope] that together they raided the Treasury and used taxpayer dollars to help bail out their cronies on Wall Street and further spread the government’s sphere of influence in our nation’s economy.
I’m sad to say that it seems we are entering new era in this country. One that will have a degree of government ownership and control in business that Americans never would have dreamed of a generation or even one year ago.
We can debate whether the recent growth of government is right or wrong until we’re blue in the face, but talk is cheap. For better or for worse, it is what it is. Que sera, sera. The more important question we as investors must face is this: How can we profit from these changing circumstances?
Everybody has political opinions, beliefs and tendencies. While there’s absolutely nothing wrong with having and expressing opinions, as I’ve written in previous columns [seel Jan. 11 blog], the most important thing when it comes to investing is maintaining objectivity.
There is a time and a place for debate, but when the dust settles and one candidate or policy comes out on top, we must accept circumstances for what they are and move on. Focusing on reality, not the ideal, allows us to assess the situation without emotion or bias and make the best decisions possible with regards to our investments.