Behind Paulson's Muscle Act on Bank America

Like the BU med student who during his attacks of Craigslist women left easy to follow clues, clues that are usually ignored except in high profile cases, former Treasury Secretary Henry Paulson is probably discovering for the first time that high profile crimes bring out the detectives, lots of them. And they start digging up the clues. The spotlight just doesn't go away.

The latest to snoop around Paulson activities is the power hungry, New York State attorney general Andrew Cuomo.

Cuomo's brilliant aggressive investigation has uncovered the muscle put on Bank America that forced it to takeover Merrill Lynch. After BofA began doing its due diligence and learned how bad of a shape Merrill was actually in, they were going to pull the plug on the Merrill deal that they had previously announced. We now know from the Cuomo investigation that Paulson told BofA CEO Ken Lewis that he would be fired and the board replaced if they did not go through with the takeover.

There is a short side story at this point:

Paulson in his testimony during the Cuomo investigation claimed he was acting under the direction of Fed chairman Ben Bernanke. Since the news has broken publicly of his throwing Bernanke under the bus, he has recanted his statement that he acted at the direction of Bernanke. This, of course, suggests that Paulson may be have lied under oath and is vulnerable to the Martha Stewart treatment, i.e. jail time for lying to the government. If he wasn''t under oath, it is certainly an obstruction of an investigation. Still jail time in my book for Paulson.

Now back to the main event. Why was Paulson muscling B of A? Paulson's claim was that it was because of the dangers of systemic risk if the deal fell through. I doubt it. Remember, this was not a rescue at the time, BofA bid $50 billion in BofA stock for Merrill. When Paulson's around, it's usually about the billions, and there is usually a Goldman Sachs connection. Paulson was the former CEO of Goldman.

The key reason behind the muscle act is, of course, the $50 billion to Merrill shareholders. A Merrill that just happened to be run by former Goldman man John Thain.

If this was truly a systemic rescue issue as Paulson claims, then Paulson has a lot of explaining to do as to why Merrill shareholders were privileged to get $50 billion in BofA stock, when Bear Stearns was taken out at a huge discount and Lehman shareholders have been completely wiped out.

There was none of that. This was a $50 billion deal forced by Paulson. What it comes down to is that it was Paulson protecting another Goldman alum, damn the public, damn Bank of America shareholders, damn Ken Lewis, damn Ben Bernanke and damn the United States of America.

It's now public, Paulson is a lying thug. He is going to have to spend and spread a lot of money around to keep this from blowing up in his face. So that he doesn't end up being the bunkmate of Bernie Madoff. But, even with his cash, he may not be able to reach Cuomo. This might get interesting.