CNBC "The Kudlow Report" Interview - Transcript

Interview

CNBC "The Kudlow Report" Interview - Transcript

CNBC "The Kudlow Report" Interview With Rep. Darrell Issa

Interviewer: Larry Kudlow

Subject: Criticism Of Fed Chief Bernanke's Perceived Strong-Arming Bank Of America-Merrill Lynch Deal

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MR. KUDLOW: Republican Congressman Darrell Issa has put Fed Head Ben Bernanke's credibility in question. Listen to what Mr. Issa said earlier today.

REP. ISSA: (From videotape.) What we see is threats being made in private, cover-up of the concerns in order to get the deal done. That's exactly what we don't let the private sector do. We can't tolerate government officials using their power to do.

MR. KUDLOW: All right. Joining us now is the ranking Republican member of the Oversight and Government Reform Committee, the aforementioned Congressman Darrell Issa.

Mr. Issa, thank you ever so much for coming on tonight.

REP. ISSA: Happy to be on, and thanks for giving me an opportunity to perhaps go beyond what we've already said and make people understand why we have this concern.

MR. KUDLOW: Well, that's the thing. Now, we got a lot of e- mails from viewers after you appeared earlier in the day. And many of them, not all of them by the way, but some of them said you're taking cheap shots at Ben Bernanke, who they regard as a responsible guy and who they regard as something of the savior of the banking system and the credit crunch. So I want to ask you, why are you taking Bernanke on, head on if you will? What is your response to those e-mail criticisms? They're saying it's cheap-shot type stuff. And what is your position?

REP. ISSA: Well, I certainly think you could contrast this a little like George Patton in World War II. We're not questioning whether he was a great general. We think Bernanke, Paulson and others played a critical role in getting us out of a crisis situation. What we are doing is second-guessing, which is part of what the Oversight Committee does, the actions that were taken that may have been inappropriate in this crisis, to make sure, particularly if the Fed is going to get additional authority going forward, that it's well- defined where those limits are. And we certainly have statements of former Secretary Paulson, we have e-mails, we have Lewis', you know, testimony under oath, Ken Lewis from B of A, all of whom say that in fact Bernanke was a participant in a threat.

MR. KUDLOW: But what is your new specific criticism from the subpoenaed documents that's going to be in the committee print tomorrow when Mr. Bernanke appears?

REP. ISSA: Well, I want to be careful not to be inappropriate relative to a hearing. But our already-released statement, which you have a copy of, details a number of e-mails which show that the staff was in fact trying to find ways not to inform the SEC as to certain determinations there that they felt might be adverse.

Well, we view that as a cover-up. Certainly, because of today, there's no question that we'll be talking to Bernanke about what some say was a threat. And he has outright denied that in a written statement this evening.

MR. KUDLOW: Now, look, I spoke today on background to some former Treasury officials during the Bush-Paulson era. Here's what they said about the SEC business. They said, first of all, it's the Federal Reserve who is the primary regulator. Secondly, the FDIC is the secondary regulator. Both of those were deeply, deeply involved. The SEC has never been involved in the financial rescue packages; so therefore, even though the SEC was finally informed in January, the right people, meaning the Fed and the Treasury and the FDIC, were deeply involved, and the SEC really didn't matter.

So are you sure you're right that this is such a big deal?

REP. ISSA: Well, I think, Larry, you know all of these regulators in the system. Their own statement tells me that we are right. First of all, the SEC has an issue related to full disclosure when there's a merger or other transaction that could affect stockholder value and stockholder confidence. So they should have been informed.

Secondly, the FDIC has a very interesting position in this. Sheila Bair felt that this was not a good merger and in fact was part of a team that dissented, as far as we can tell, that looked at other possible alternatives. So what we do is we have all these players having an argument and choosing not to include the SEC, even though this merger could have taken B of A down.

MR. KUDLOW: But you know, eventually, Ms. Bair did come onboard, and she did guarantee the assets of the new Bank of America-Merrill deal. And I just want to circle back, because the word "cover-up" is a very strong word, all right, and to some extent it challenges Bernanke's integrity, and it certainly challenges his credibility. And we are still in a tricky monetary and financial period, although things look to be better, but nonetheless. If the relevant agencies -- the Fed, the Treasury and the FDIC -- were all involved in this rescue mission, as they had been all last autumn and earlier this past winter, doesn't that really cover the ground? I mean, eventually, as some of your documents show that have been released by The Wall Street Journal this afternoon, the SEC was informed.

REP. ISSA: A month later, Larry.

MR. KUDLOW: All right. But are you basically criticizing Ben Bernanke on a process, an internal, bureaucratic process issue, or are you actually challenging his credibility and integrity?

REP. ISSA: Well, first of all, I think when we say Bernanke, we have to mean broader than just the man, because the cover-up, if you will, or the deliberate e-mails that talk about not releasing information, how not to have to release information, are staff level. And I think when you look at that, you have to look at the organization, not necessarily the man.

In the case of Bernanke, what we really have is a simple question that needs to be resolved. We have former Secretary Paulson and Ken Lewis both saying that Bernanke was involved in a threat. Chairman Bernanke clearly saying, in no way, shape or form was he. That's not what we really wanted to get to, but it's part of the hearing now. It's part of what Chairman Towns and I have agreed to do. It's part of the reason that we have had the subpoenas.

We've oversight and reform, and I want to stress that, because we know that going forward something like this will happen again. Are we sure that people understand where the lines are and not to be crossed? Today, we don't think they do. We'd like to make sure before the next crisis they understand that government cannot run roughshod over businesses. The rules, particularly those protecting stockholders, have to be observed, especially when you put six or seven bank executives behind closed doors and hand out money and then tell them that there are certain conditions. We've done a lot that it needs to be looked at.

Larry, you know I opposed the TARP. I opposed the opaque nature of $700 billion being handed out. So it's not surprising that I'm going to want to make sure that every cent was spent well and that rules of the road that are publicly announced are privately upheld.

MR. KUDLOW: But you know, the shareholders are still out there. I mean, the stock has appreciated. I mean, to some extent, at least under team Obama and team Paulson, they have allowed the shareholders to continue, they haven't blown them out of the water. And I want to ask you --

REP. ISSA: But not in this case. But Larry, let's be honest, if you're team Obama's team for Chrysler, you were blown out of the water at all ends.

MR. KUDLOW: Chrysler is completely different. I totally agree, they violated bondholder rights, and they creamed the shareholders. But I want to stay with the Bank of America story.

I spent a lot of time on deep background meetings and conversations with senior Bank of America staff. And they say essentially what Mr. Lewis told your committee when he was up there a couple of weeks ago, that look, yes, to a certain extent, Bernanke and Paulson put a gun to Lewis' head to complete the deal. That was your view, and they don't deny it. And I don't believe Mr. Lewis denied it in front of your committee.

But, but, but, but at that moment, if that deal had gone down, many fear that the entire banking system would have gone down with it; and therefore, Mr. Lewis' position before your committee, as his staff repeats this to me, was that Bernanke had a supervisory right to threaten a force of management, a change of management. Some people say it's called a cease-and-desist order, under extraordinary circumstances that it's something he had to do. How can you blame Bernanke for that? Because if you'd roll the clock back to last December, we were on the verge of a catastrophic global banking breakdown.

REP. ISSA: Well, in fairness, I can say that's just not correct. And it's not correct for two reasons. First of all, we gave $700 billion of authority that would have allowed them to simply buy Merrill Lynch and pay off all of its debts if it wanted to. So the dollars were there to do other options.

Secondly, discovery has shown they considered and had a backup plan. So quite frankly, when you threaten to fire the board if they don't go through with the deal and you have a viable backup plan you're not telling them about, that's the kind of heavy-handedness that you've got to question. Are we selling used cars? Or in fact, are we the U.S. government, and when we're dealing with honest people and honest companies, we have an obligation to be honest with them?

I think that's the questions we're going to try and resolve this week with Chairman Bernanke and in two weeks with former Secretary Paulson. And it's all about going forward, making sure the American people have confidence that their government will be just as even- handed behind closed doors as you would expect them to be in public.

MR. KUDLOW: But in tomorrow's hearing, do you expect to criticize Mr. Bernanke and say to him, with respect to all the pressure that you put on Lewis to buy Merrill Lynch, to complete that deal, that he was overreaching beyond his traditional supervisory powers? Because that's the issue. You've got a lot of people up here on Wall Street, Mr. Issa, who believe that Bernanke had no choice, for the good of the entire system. And Mr. Lewis has said something very similar to you when he was there two weeks ago. Do you disagree with that?

REP. ISSA: Tomorrow we're going to say to Chairman Bernanke, I'm going to say that I thank him for his service and for making a lot of right calls and doing incredible work in a tough environment. Having said that, like any CEO, you make some calls that are right, some that are wrong.

The difference between a good CEO and a bad one is a good CEO says, you know, if I had it to do over again, I could have done this differently, and perhaps this was a mistake. People make mistakes, but it was done for the right reasons. The lessons have been learned going forward, we would do it differently. That's all he needs to say to put this behind him is that in fact things like threatening or allowing a CEO to believe he was threatened and some of the information to indicate that there were others who thought he was being threatened was inappropriate.

Again, remember, you threaten to remove a board because they don't do one thing to save somebody else's company when in fact you had other ways in your power to save them. We're just saying that we think that was, if true, inappropriate.

MR. KUDLOW: It was a pretty hairy period. I mean, I think you'll acknowledge it was a pretty difficult period. I mean, there was a lot of bait-and-switch going on. I mean, heck, the original TARP program was supposed to purchase toxic assets and wound up going into capital injections.

But I want to ask you one last question in this. Do you, at this point, have any evidence at all that Bernanke prevented Lewis from disclosing to shareholders the problems in the Merrill deal? The Bank of America people have said to me that that never happened. The Bank of America people said to me that they were not prevented by Bernanke or anybody else from disclosing in their normal filing in early January, which is all they wanted to do. That's where the rubber meets the road. Do you think that Bernanke actually prevented Lewis and his board from disclosing the Merrill Lynch losses or the difficulty of the deal to their shareholders? Because if that view prevails, then there are major legal consequences. Where are you going to come out on that one, sir?

REP. ISSA: Well, first of all, that's Dennis Kucinich's question, because he's been driving that every day. That seems to be what occupies the subcommittee chairman's time is trying to show that somehow this should be a stockholder's lawsuit for a failure to disclose.

The fact is that if Ken Lewis, as he said under oath, believed that going through this deal was in the best interest of the company, including in fact the risk that not going through was going to cause a meltdown, then in fact he had a reason to go forward with it and, on balance, thought it was a good decision. And I respect the fact that, one, he can't tell us that he didn't disclose because that's simply, if you will, a decision that, if he made it, he might as well just hand the keys over to the trial lawyers.

Secondly, and I think more importantly, it's not our main issue. Our main issue is not what he did or didn't do as a result of a threat. It's whether or not government used its heavy hand appropriately or, in this one or two cases, perhaps were a little misguided. You certainly saw the same thing, though, going back to Chrysler. You saw this with Chrysler that we got a bankruptcy deal offered to the American people that was inconsistent with what management would have done without government leaning on them.

MR. KUDLOW: Do you think, Congressman -- last one -- do you worry at all -- I mean, Bernanke has got six months in that job, whether he's reappointed or not. We are still in a delicate moment. Are you concerned at all that in this investigation, which is quite aggressive if not hostile, you're doing damage to Bernanke's monetary credibility, which is his other job?

REP. ISSA: I don't think so. I think we're going to support the fact that Bernanke, on balance, has been doing an excellent job, and that we're simply looking into these issues at an appropriate time. Waiting six months would cause too many people to say, why look at them at all? And they'd probably be right. As you know, our Countrywide investigation, many people say it was a year ago, why are you trying to get the names of people who got subtle bribes from Countrywide, over eight years ago, in some cases?

MR. KUDLOW: All right. Congressman Issa, we appreciate you very much tonight for laying out your case. We hope to talk to you again tomorrow evening, exclusively, after this Bernanke hearing is over. Again, sir, thank you very much.

REP. ISSA: Thank you.

END.

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