Lawmakers slam Paulson on BofA-Merrill deal

By Mark Felsenthal and Alister Bull

WASHINGTON (Reuters) - U.S. lawmakers on Thursday ripped into former Treasury Secretary Henry Paulson over the government's role in Bank of America's merger with Merrill Lynch and other actions to cope with the deep financial crisis that gripped the country last year.

Lawmakers renewed criticism that Paulson and Federal Reserve Chairman Ben Bernanke suppressed information about the deal and bullied Bank of America executives into going through with it despite worries about newly identified losses at Merrill.

"The American people, investors and the Congress were kept in the dark," Rep. Edolphus Towns told Paulson at a hearing.

"There was no oversight to determine whether this arrangement made sense. In my view, this is unacceptable and must be prevented from happening again," said Towns, the New York Democrat who chairs the House of Representatives Oversight and Government Reform panel.

Lawmakers broadened their attacks, angrily asking Paulson, a former chief executive of Goldman Sachs, to explain changes in administration policy during the crisis and saying he had conflicts of interest in decisions involving Wall Street firms.

"You don't feel any kind of scintilla of ethics on this thing at all?" Florida Republican Rep. Cliff Stearns asked.

"Totally," replied Paulson, who maintained his composure throughout most of the three-and-a-half-hour hearing but showed exasperation on one or two occasions. "I operated very consistently within the ethics guidelines I had."

"INTIMIDATION AND DECEPTION"

Government pressure on Bank of America Chief Executive Kenneth Lewis to go through with the deal came to light in April and has become a focal point of congressional ire over extensive bailouts of the financial system.

Paulson gave little ground during Thursday's hearing, acknowledging that he told Lewis the bank's management and board could lose their jobs if the company backed away from the merger, but arguing he had done nothing inappropriate in warning Lewis that such a move would be a colossal blunder and might have repercussions.

"I was attempting to send a very strong message to Ken Lewis," he said.

While lawmakers failed to uncover any glaring instances of wrongdoing, the tone of the hearing reflects a high degree of public resentment against perceived government favoritism toward large financial institutions and Wall Street, and signals a combative mood in both political parties as Congress gears up to strengthen financial oversight in the wake of the crisis.

"As most people look at this, they see a clear pattern of intimidation and deception," Rep. Jim Jordan, an Ohio Republican, said on Thursday.

Bernanke and Lewis testified at previous hearings, and Towns said he plans to ask Federal Deposit Insurance Corp Chairman Sheila Bair and former Securities and Exchange Commission head Christopher Cox to appear before the panel after the August congressional break.

Bernanke had argued earlier the Fed had done nothing illegal or unethical in its efforts to convince Bank of America not to end the merger. Lewis told the panel that authorities expressed "strong views" but said he would not characterize their stance as improper.