The Great Depression Online

Great Depression Online Archive Issue:

Scoundrels on Parade

Great Depression Online
Long Beach, CA
May 05, 2009

Inside This Issue You Will Discover…

*** Banker of the Year
*** Caving Under Pressure
*** Scoundrels on Parade
*** And More

“The hardest tumble a man can make is to fall over his own bluff.”  -- Ambrose Bierce

Banker of the Year

On December 4, 2008, Bank of America Chairman and CEO Ken Lewis made history.  He became the first man ever to win Banker of the Year…twice.  To honor the occasion, American Banker put on a black-tie award gala, which was attended by a who’s who of mucky mucks, at the posh Plaza Hotel in New York City.

According to American Banker…

“Lewis seized strategic opportunities created when financial services rivals stumbled, and in the process expanded his company’s reach in two key financial services businesses.  He turned the company into a mortgage powerhouse with the acquisition of Countrywide Financial Corp. and followed with a deal for Merrill Lynch that establishes BofA as a leader in wealth management.”

In her keynote address, FDIC Chairman Sheila Bair remarked that “The future of banking will depend a great deal on how bankers embrace their role in maintaining the public’s trust.”

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“Ken Lewis has made his bank an exemplar of how a big U.S. bank should behave in a crisis environment.  BofA has acquired weakened institutions but has nonetheless championed their strategic value,” said David Longobardi, editor in chief of American Banker.  “He’s communicated aggressively with investors, and spoken out publicly in a way that inspires confidence.”

Unfortunately for Lewis, the deals that made him Banker of the Year – for the second time – have now become his undoing.

Caving Under Pressure

Last Wednesday Bank of America shareholders put it to a vote.  They elected to split the Chairman and CEO positions.  The dual posts were held by Lewis since 2001.  Now, thanks to the shareholders, his market share of the company’s management has been downgraded to just CEO.

He’s lucky they didn’t bring the hot tar and feathers…considering he duped shareholders through sins of omissions.

Several weeks ago Lewis’s testimony to New York Attorney General Andrew Cuomo was released and showed he’d neglected to disclose some critical information about Merrill Lynch’s balance sheet.  What’s more, he pointed fingers at the former Treasury Secretary and Federal Reserve Chairman as the impetus for leaving out these details.

“Lewis was pressured by senior government officials Henry Paulson [former Treasury Secretary] and Federal Reserve Chairman Ben Bernanke in mid-December to keep quiet about losses at Merrill Lynch ahead of the closing of their merger on January 1,” reported Reuters.

According to the account released by Cuomo, Paulson told Lewis regulators could remove him and his directors if they were to back out of the Merrill Lynch deal.

In short, under pressure from Paulson, Lewis caved like an unreinforced masonry block building in a Mexico City earthquake.

Scoundrels on Parade

“In a speech,” reported Bloomberg, Lewis “said the Merrill Lynch purchase ‘was not about a selfish desire to keep our jobs.  Every member of this board, including me, would be all right if we had to leave the company.’”

So if it wasn’t about directors keeping their jobs, why not disclose the critical information?  In other words, if the Merrill Lynch acquisition was such a good deal, despite the losses, why not pass these facts along to shareholders to decide?

In lamenting the passing of Freddie Mac CFO David Kellermann in last week’s GDO (A Good Man in a Bad Trade), remember, in a similar situation, Kellermann stood up to regulators and disclosed the $30 billion cost to the company of carrying out the Obama administration’s housing recovery plan.

We did not recite all this just to criticize Lewis or to point fingers at his transgressions.  Of course we did it for all these reasons…and more.  In particular, we did it for a little entertainment and in the hopes of finding some instruction.

Here’s what we discovered…

…for every honest banker there are 100 dishonest bankers. 

…for every shady deal that sees the light of day there are 10 more hidden in the darkness of night.

…and that we’ll come across many more CEOs of questionable character before this financial bust is over.

“‘The key issue here is transparency, and shareholders’ right to know crucial facts about the acquisition of Merrill Lynch,’ said Connecticut treasurer Denise Nappier, who runs the $20 billion state retirement fund and,” as reported by, “has demanded Lewis’s resignation.”

Dick Fuld, Daniel Mudd, James Cayne, Franklin Delano Raines, Alan Fishman, Ken Thompson, Angelo Mozilo, Richard Syron, Kerry Killinger, and now Ken Lewis…the list of frauds lengthens with each passing day.

Too bad it took an epic financial fiasco to put the scoundrels on parade.


M.N. Gordon
Great Depression Online

P.S.  If you’re celebrating Cinco de Mayo today, you may want to take a moment to remember what you are celebrating.  In the U.S., this day’s often mistaken for Mexico’s independence from Spain.  Rather it’s celebrated to commemorate the Battle of Puebla, which took place between Mexico and France.  What the French were doing in Mexico – like most things – had to do with money.  Learn more in this GDO classic, written direct from Puebla Mexico last summer: The Battle of Puebla.


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