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Dateline: USA, February 22, 2010 The Case for Ken Lewis to Head AIG-Louie Mae If one does not believe that the USA housing bubble (and its disastrous economic effects) had its antecedence in the federal government’s determination to spread “home ownership” in ways that were totally independent of any sound financial basis, then read no more. For, with all due respect, it suggests that the reader is in an information bubble that will have to burst before believability can be achieved, and thereby appreciate the ongoing financial danger that government run Fannie Mae and Freddie Mac represent. For those who are aware of how banks were exhorted by their regulators, at the behest of the political leadership, to make unsound mortgage loans, we will assume you also understand that, bubble bursting notwithstanding, Fannie Mae & Freddie Mac (or rather Chris Mae & Barney Mac) are still carrying on as they were in the pre-bursting days. Oh! With one exception. Now there is no limit on how much these two aggregators of dubious IOUs can take from the federal coffers for on-going bail-outs. To say that this is absolutely insane fails to properly express the incurability of the situation. And, it cries out for the need for an Electorate Advise & Consent process to take Fannie and Freddie’s hands out of the federal coffers. But the hand-severing operation must be done with financial surgical precision while fighting off the ever present danger of contracting politically-introduced economic infections. On the other hand, executed deftly, the stage would be set to make it easier to deal with ways to reduce the national debt meaningfully, and thereby set in motion predicates for real economic and associated jobs growth. In this respect, the Electorate has two issues that have to be addressed. The first issue is to replace enough of the administration and congressional incumbents who have protected, aided and abetted the Mae and Mac (some of whom are expecting to follow earlier incumbents to riches in future positions at Fannie and Freddie.) Unfortunately, the replacement process cannot be completed until the 2013 elections. The second issue is to find a person who can take Fannie and Freddie’s hands out of the federal cookie jar, and then to shepard them as they make the transition to a private or publicly traded company. We have identified a person experienced in retail banking, and especially grounded in the workings of the mortgage sub-industry, He has an enviable track record in the integration of financial organizations into one well-structured and sustainable entity. And recently, he has demonstrated the ability to perform end-runs around politicians with vested interests in keeping the government in charge of Fannie & Freddie The man is Ken Lewis, the departed Chairman & CEO of Bank of America. The very man whom New York Attorney General Andrew Cuomo recently has charged with fraud for allegedly not providing Bank of America shareholders with more details (that Lewis possessed) about the then current quarter earnings prospects for Merrill Lynch prior to the Bank of America shareholder vote to acquire Merrill Lynch. Let’s assume Andrew Cuomo is correct in his assertion that Ken Lewis, et al, deliberately, with malice of forethought, withheld from Bank of America equity holders the accelerating deterioration of Merrill Lynch’s P&L (for that particular quarter). In a similar vein, it would be fair to assume that it was because the bank’s senior management/board were motivated by a desire to grab hold of Merrill, the asset. Arguably the last asset needed to turn what was once a regional bank ultimately into a financial institution large enough to figuratively move the epicenter of Wall Street to the Carolinas. And in the process, lead to creating an international financial powerhouse producing salivating shareholder value. (Philosophically, would providing shareholders with a single statistic that was fleeting-in-importance and riddled with subjective asset valuations, totally out of context relative to a grand strategic plan and the long term intrinsic value of Merrill Lynch, be itself an act of defrauding the shareholders of the bank’s mega growth potential?) The Merrill acquisition, while later proven to be astute and profitable, under any circumstances was risky. Far more risky, at the time, than the acquisition of Countrywide. But Lewis and the board, as constituted when Lewis was Chairman, had a proven record of successful acquisition integration. More of a certainty than an assumption, this prowess has been substantially eradicated from the bank’s new leadership by Washington. (We could, but will not, cite two very public indications of integration missteps made by the bank’s new management.) Yet, despite bailing out Countrywide and Merrill Lynch, the political leadership in Washington pushed Lewis out of Bank of America. Why would Washington want to depose Lewis and the board that put him in charge? Certainly not because he saved the regulatory bacon by absorbing Countrywide, and then, Merrill Lynch. Most probably because Lewis, et al were better poker players than Washington. Of course he would acquire Merrill, and not let this coveted asset’s image be tarnished by having to go into bankruptcy. Even though, as was the case with Countrywide, Lewis would have been able to acquire the firm for far less once it was driven into bankruptcy. A tactic comparable to what Barclay accomplished by (deliberately or not) facilitating Lehman’s having to file for bankruptcy. Once Lehman was in bankruptcy, Barclay was able to acquire selected assets on the cheap – already resulting in doubling its reported profit. But Lewis is not a reckless acquirer. He held-up Washington for a safety net – just in case. Was he bluffing about threatening not to consummate the acquisition of Merrill that the government so desperately needed to occur? Probably, yes. But it was, nonetheless, prudent to do so. We suspect that even his well-publicized in-artful assertion that he “would not suck-up to regulators” was in support of adding veracity to his threat to walk away from acquiring Merrill without a safety net. That he out-foxed Washington is most probably the sin for which he was stripped of his Chairmanship, for his competence-proven board to be ripped apart, and for leaving Lewis with no choice but to resign to stop political/regulatory attacks on the bank. Ironically, Andrew Cuomo may find himself also being out-foxed by Lewis. Cuomo may have unintentionally created a platform for Lewis to very publicly exhibit his financial asset-building prowess, and therefore serve as a precursor to Lewis emerging, in 2013, as the then administration’s leading financial reformer. At the very least, as the Czar in charge of privatizing Fannie & Freddie – possibly into an entity we’ll call AIG-Louie Mae. The Electorate would be wise to call for Lewis to lead the privatizing of Fannie & Freddie. And, for reasons that require a separate article, the nation would be well-served if the resulting company included AIG. Return to Home Page