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Don Bernanke and Bank of America

By Justin Williams

On September 15, 2008, Bank of America agreed to buy up Merrill Lynch and its assets. Little did the American public know there were some vigorous backroom deals that made the transaction more like a hostile takeover than a friendly merger. And it has focused Congress' microscope even closer on the Federal Reserve and Chairman Ben Bernanke's actions in supposedly fixing the economy.

It is alleged that shortly after the deal was consummated, when Bank of America found out how bad off Merrill Lynch really was, BOA CEO Kenneth Lewis wanted to back out of the deal. Bernanke and his group of monetary capos, however, showed up and made Bank of America an “offer it couldn't refuse.”

If CEO Kenneth Lewis put a halt to acquiring Merrill Lynch, he was bluntly informed, the Federal Reserve and the Treasury were going to fire all of the firm's top executives. As Lewis said himself in front of Congress on Thursday, he could not believe “that they would make that threat to a bank in good standing.” But a bare-knuckled threat is exactly what it was.

Of course, Mr. Lewis should have been able to believe it. Because for those who have read deeply into economic literature, this unseemly scenario sounds way too familiar:

“[Austria] had banking problems throughout the 1920s, which were handled principally by merging failing banks into still-solvent banks. An enforced merger of the Austrian Bodencreditanstalt with two failing banks … was part of the reason that the Bodencreditanstalt in turn had to be forcibly merged with Creditanstalt in 1929. The insolvency of the Creditanstalt, finally revealed when a director refused to sign an ‘optimistic' financial statement in May 1931, sparked the most intense phase of the European crisis.”

This is a passage lifted directly from page 96 of Ben Bernanke's own book, “Essays on The Great Depression,” which the National Bureau of Economic Research published in 1991. That being the case, one would think that Bernanke would have learned from this essay that forcing a merger of any solvent bank with an insolvent bank would only lead to a much greater disaster.

Of course, Chairman Bernanke denies that he ever told the Bank of America board that they would all be fired if they revoked their merger request. But as Representative Jason Chaffetz (R-UT) pointed out, when the Fed holds the power of life and dearth, and strongly pressures Bank of America to do as its told, then by de facto it is a threat.

So not only does America have a secret organization that holds a monopoly on the currency and monetary policy, that very organization also now has complete and utter control over the nation's financial industries. As ALG News recently reported, the Fed will not only be allowed to hire and fire bank executives, but now they can even limit executive pay.

Now it seems that since the Obama Administration was unable to gain public support for nationalization, they have decided to create a mirage of an independent private sector – while actually allowing the Federal Reserve complete and ultimate control over every aspect of the financial industry.

It is obvious that the financial industry has quickly and unceremoniously been sucked into Soviet-style central planning, where the buddy – no, make that bully -- system rules over the profit system. Which makes the profit system no longer about making money. It is now about making the top guys, Obama and Bernanke, look good.

And despite all of Mr. Bernanke's belated protestations, why should the American people believe that the one single institution in America, the Federal Reserve, that ruthlessly controls who gets what government funds -- whether through loans like TARP or newly printed currency -- would be willing to hear opposition from a mere commercial bank?

As Lord Action once said, “Power tends to corrupt, and absolutely power corrupts absolutely.” It seems that the absolute power granted to the Federal Reserve during the financial crisis went straight to Mr. Bernanke's head. And the offers he's now making that can't be refused could well end up creating an “intense” banking crisis like that he wrote of in Austria of the Twenties that simply can't be resolved.

Justin Williams is a Contributing Editor of ALG News Bureau.

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