Judicial Watch said the Treasury initially said it had no records about the meeting. It didn’t release a transcript of discussions between government officials and bankers.

However, documents obtained under a Freedom of Information Act request confirm that Paulson and other Treasury officials gave nine major banks no options other than allowing the government to take $250 billion in equity.

Judicial Watch said on its Web site that after it made inquiries, the Treasury insisted on Feb. 4 it had no documents about the historic meeting.

Furthermore, “the cover-up continues, as the Obama administration protects Timothy Geithner by withholding a key document about his role in this infamous bankers meeting,” Judicial Watch president Tom Fitton said in a statement.

The group says suggested edits of the “talking points” for the meeting by Treasury Secretary Tim Geithner, then President of the New York Federal Reserve are being withheld by the Obama administration.

Saying the nine U.S. banks were “central to any solution” of the credit crisis, Paulson told their leaders in the meeting in Washington on October 13, 2008, to take the government aid voluntarily or be forced to by regulators.

“We don’t believe it is tenable to opt out because doing so would leave you vulnerable and exposed,” the document said, citing Paulson talking points. “If a capital infusion is not appealing, you should be aware your regulator will require it in any circumstance.”

Within four hours of the start of the meeting the CEOs wrote by hand the names of their institution and multibillion dollar amounts of “preferred shares” to be issued to the government, the documents show.

“These documents show our government exercising unrestrained power over the private sector,” Fitton said in a statement.

The banks were represented by Vikram Pandit of Citigroup Inc. (NYSE: C), Kenneth Lewis of Bank of America Corp. (NYSE: BAC), John Thain of Merrill Lynch & Co., now part of BofA, Jaime Dimon of JP Morgan & Co. (NYSE: JPM), Richard Kovacevich of Wells Fargo (NYSE: WFC), John Mack of Morgan Stanley (NYSE: MS), Lloyd Blankfein of Goldman Sachs Group Inc. (NYSE: GS), Robert Kelly of Bank of New York Mellon Corp (NYSE: BK), and Ronald Logue of State Street Corp. (NYSE: STT).

A spokesman for the Treasury, Andrew Williams, didn’t return calls seeking comment from Bloomberg News.

The Treasury has invested $199.1 billion in the bank-preferred share program, with $1.2 billion since returned by 12 institutions, according to government data, Bloomberg reported.

Despite his heavy-handed nature, Paulson succeeded at stabilizing the financial services industry, J.P. O’Sullivan, an SNL Financial bank analyst in Charlottesville, Va., told Bloomberg.

“It was a calming mechanism,” O’Sullivan said.

This isn’t the first time Paulson has been accused of strong-arming bankers to bend to his will.

As previously reported in Money Morning, Bank of America CEO Kenneth Lewis said in testimony before New York’s attorney general that Paulson and Federal Reserve Chairman Ben S. Bernanke pressured him not only to move ahead with a merger with Merrill Lynch despite reservations, but also to stay quiet about the mounting losses at the crumbling investment bank.

Lewis went on to testify that he felt Paulson threatened him with losing his job if he didn’t go along with completing the Merrill Lynch deal.

“I can’t recall if he said, ‘We would remove the board and management if you called it [off]‘ or if he said ‘we would do it if you intended to.’ I don’t remember which one it was,” Mr. Lewis said.

Source:  Watchdog Alleges Obama Administration in “Cover Up” of Docs from Treasury Meeting with Banks

Transparency has long been a cornerstone of both democracy and the free market, but Lewis’s testimony that implies the CEO of one of America’s largest financial institutions – an institution that received more than $20 billion in taxpayer money – neglected to alert investors and potential shareholders to the full scope of Merrill’s losses prior to his company’s acquisition. It also implicates two prominent government officials in that decision.

Lewis made the comments in testimony given before New York’s attorney general as part of an investigation into bonus payments at Bank of America. The Journal reviewed a transcript of that testimony, the paper reported today.

The merger, originally valued at $50 billion, was announced on Sept. 15, about an hour before Lehman Brothers Holdings Inc (LEHMQ.PK) went bankrupt. Afraid the collapse of Merrill Lynch would cause further deterioration of panic-stricken markets, the government helped facilitate the deal with $25 billion of capital -$15 billion in October and another $10 billion in January – from the U.S. Treasury Department’s $700 billion Troubled Asset Relief Program (TARP).

Shareholders of Merrill Lynch and Bank of America voted to approve the merger on Dec. 5.  Lewis said in his testimony that he first considered backing out of the deal on Dec. 13 when Bank of America Chief Financial Officer Joe Price informed him that projected after-tax losses were “about $12 billion,” the Journal reported.

Merrill Lynch actually lost $15.84 billion in the fourth quarter. BofA posted a fourth-quarter loss of $1.79 billion, but was forced shift more weight to the U.S. taxpayer, as the government agreed to guarantee $118 billion of Bank of America assets, including commercial and real estate holdings and credit default swaps. Bank of America was required to absorb the first $10 billion of losses from its pool of assets.

Nearly 13% of the first $350 billion in TARP funds went to Bank of America.

“As we saw the anticipated loss accelerating, we reevaluated our rights under the deal,” Lewis said in BofA’s fourth-quarter conference call. “The government was under the view that walking away would cause significant concerns and serious systemic harm to the financial markets.”

Lewis elaborated in his testimony, saying that while he was not explicitly instructed to keep quiet about Merrill’s losses but that Paulson and Bernanke suggested his job would be jeopardized if he did.

“I was instructed that ‘We do not want a public disclosure.’” Lewis said.

Lewis went on to describe the conversation he had with Treasury Secretary Paulson in which he expressed his desire to abandon the deal:

“I can’t recall if he said, ‘We would remove the board and management if you called it [off]‘ or if he said ‘we would do it if you intended to.’ I don’t remember which one it was,” Mr. Lewis said. “I said, ‘Hank, let’s de-escalate this for a while. Let me talk to our board.’”

When asked by investigators if Paulson was “really asking Bank of America shareholders to take a good part of the hit of the Merrill losses,” Lewis said “Over the short term, yes.”

BofA shares have lost three-quarters of their value since the Merrill Lynch acquisition was announced.

Bank of America shareholders will vote on whether Lewis will keep his position as chairman and CEO at their annual meeting on April 29.

“I’d rather have this than gold.”

That’s what one well-known fund manager recently told Barrons. Why? This special group of investments is set to pay out $4,201 guaranteed cash next month. And they pay out juicy cash sums all year long. But they’re not income trusts, corporate bonds, or foreign bonds. In fact, only Martin Hutchinson is talking about them. Read his full report here…

Source: Bank of America’s Lewis Says Paulson, Bernanke Forced Merrill Takeover

“We asked for $700 billion to purchase troubled assets from financial institutions. At the time, we believed that would be the most effective means of getting credit flowing again,” Paulson said in a statement.

However, “it was clear to me by the time the bill was signed on October 3rd that… purchasing troubled assets – our initial focus – would take time to implement and would not be sufficient given the severity of the problem,” Paulson added. “In consultation with the Federal Reserve, I determined that the most timely, effective step to improve credit market conditions was to strengthen bank balance sheets quickly through direct purchases of equity in banks.”

Paulson said he was considering using remaining bailout funds on a second round of purchases of preferred shares in financial institutions. The Treasury has already committed $250 billion of the $700 billion rescue fund to the purchase of bank stock, and on Monday, used another $40 billion to prop up insurance giant American International Group. Inc. (AIG). That leaves just $60 billion of the initial $350 billion allocation available for use.

Paulson will have to appear before Congress to secure the second half of the $700 billion bailout plan.

Paulson also said he is working with the U.S. Federal Reserve to create a facility to bolster the market for asset-backed securities by funding consumer finance companies.

“With the Federal Reserve we are exploring the development of a potential liquidity facility for highly-rated AAA asset-backed securities,” Paulson said. “We are looking at ways to possibly use the TARP to encourage private investors to come back to this troubled market, by providing them access to federal financing while protecting the taxpayers’ investment.”

Source: Paulson Amends TARP to Include Equity Stakes in Financial Firms and Assistance to Consumer Finance Companies

So along comes Stein with a mea culpa for missing the recent stock market crash.  OK, so a lot of genuinely smart people didn’t think it was going to be as horrific as it turned out to be.  But Stein chalks it up to just one little misstep of the otherwise brilliant Paulson-Bernanke-Geithner team.  “I did not foresee the catastrophic mistake, as I view it, by Treasury Secretary Henry M. Paulson Jr. to allow Lehman Brothers to fail,” Stein writes. “That failure left a gaping hole in the financial services industry, and blew away confidence that the Feds knew what they were doing.”

Actually, Stein is sort of onto something here.  At the time Lehman blew up, Paulson & Co. had already engineered the demise of Bear Stearns and the full government takeover of Fannie and Freddie.  Nothing appears to have happened to alter my hypothesis at the time of Lehman’s demise about why it was allowed to happen.  But looked at from the Paulson interventionist standpoint, it was a blunder of the first order.  Lehman’s downfall pretty well doomed AIG (NYSE:AIG) and put a host of money-market funds in grave danger.

At this stage, it was obvious to all that Paulson & Co. were pretty much making it up as they went along.  Stein writes, “After Lehman, I felt sure that the government would realize its mistake and issue blanket solvency guarantees to banks. But that didn’t happen, the stock market fell apart, credit went icy cold and the wheels started to come off the economy. This also took me by surprise.”

This smacks of disingenuousness, an after-the-fact conceit that, “If I’d been in charge, I’ve have known which levers and pulleys to manipulate to make everything just so.”  So what does Ben think ought to be done now?  Well, it has nothing to do with the free market he allegedly reveres.  “The need for the government to take action seemed so clear — and still seems so clear that I cannot believe a day passes without its happening. But the days pass, nothing happens, and I am proved wrong again. And I lose some of my life savings and it hurts.”

Yes, the government is now going to own a piece of insurance companies, just as they’ve moved to own a piece of banks — but government is “doing nothing” in Stein’s view.  It’s enough to leave you speechless.

But no, Stein has one more whopper to lay on us before bringing this column to its merciful end.

And, closer to home, a talented makeup artist who works with me almost daily in my TV appearances asked what happened to people in a recession. (She is young.) I said that fear and insomnia happened to most people but that a few million would actually lose their jobs and millions more would lose income.

“What do they do?” she asked, looking worried.

“They find other work or live off their savings,” I said. “They certainly cut back on their spending.”

“What if they don’t have any savings?” she asked. “I don’t have any savings,” she said. “No one I know except you has any savings.” She looked extremely worried.

This is perhaps the main lesson of this whole experience. It is basic but still unlearned: human beings must have savings. This is not just a good idea. It’s the difference between life and death, terror and calm. So start saving right now, and don’t stop until you die.

Ben, where the hell were you all these years when Alan Greenspan was — by his own admission to Jon Stewart — discouraging people from saving by slashing interest rates, thus encouraging them to speculate wildly, first on tech stocks, then on real estate?

The only redeeming thing about Stein’s column is a postscript in which he says a windfall profits tax on oil companies is a dumb idea.  Yes, it is, Ben.  But you and Kudlow and Cavuto and the rest of you shrieking jackasses don’t help make the case when you’ve been so stunningly, breathtakingly wrong about everything else when Greenspan and Bernanke and Bush were running this country off a freaking cliff.  So do us all a favor:  Just shut up.  SHUT UP!  Go away for a while.  Your “free market” patina is going to make it damn near impossible for genuine free-marketeers to state their case for the next couple of years, at least.  We’re left to cry, not unlike pathetic hardened communists confronted with the demise of the Soviet bloc, “But what’s been happening isn’t really a free market!”

Oh well.  If you can’t change any minds, at least you can take a step to recover from whatever whacking the market has recently dealt you.

Source: Ben Stein’s mea culpa