Worried? Treasury secretaries aren’t worried! (March 26, 2008):

But wait… sure they are! Safely out of the woods, Hank now takes off his game face.

“So as I say in the book, I stepped out of the room, because I didn’t want to do this in front of other people, took my cellphone out of my pocket and called my wife at home. I said ‘Wendy, this really tough. I’m scared. People are looking at me and I don’t know what to do. Pray for me.’” (February 1, 2010):

(h/t to re: the auditors on Twitter)

Surprise!

Neil Barofsky starts ripping Treasury a new one. Sounds like they withheld $10 bn in bailout funds from BAC after allocating it to Merrill in order to force that merger to come to fruition, which is inconsistent when you consider Wells was given all of the $25bn standard “large failbank” allotment before eating up Wachovia, and that these banks weren’t so healthy after all (shocker):

By size, Citigroup, JPMorgan Chase and Bank of America could have qualified for more, and the first two received $25 billion. But Bank of America was given only $15 billion in October, since Merrill Lynch was earmarked for $10 billion. The two companies agreed to a merger, though their deal had not yet been approved by regulators or shareholders.

Another company in the process of a merger was not treated the same. Wells Fargo was acquiring Wachovia, and it received both companies’ money at the start, according to the inspector general.

Mr. Barofsky’s office also says that regulators were wrong to tell the public last year that the earliest bailout recipients were all healthy. In truth, regulators were concerned about the health of several banks that received that first bailout, the inspector general writes.

I guess it’s not just that. There was a mystery failbank! WSJ finds a buried gem, a whodunit, if you will:

What’s intriguing about this one line buried in the 50-page report is Paulson’s suggestion that an institution other than Bank of America and Citigroup, which have not paid back TARP, was near death. And yet a year later, that bank still is unidentified, even though, having paid back the taxpayer funds, it has received the government’s imprimatur as to its balance-sheet health.

That parenthetical clause narrows that list to five institutions: J.P. Morgan Chase, Goldman Sachs Group, Morgan Stanley, Bank of New York Mellon and State Street.

So who is so big that they are The Failbank That Cannot Be Named? Hmm? There were rumors swirling around pretty much all of these other than the golden child that was JPM, so I don’t know.

To the sheer shock of…everyone, the TARP is beginning to do the unthinkable: turn a profit.

Nearly a year after the federal rescue of the nation’s biggest banks, taxpayers have begun seeing profits from the hundreds of billions of dollars in aid that many critics thought might never be seen again.

The profits, collected from eight of the biggest banks that have fully repaid their obligations to the government, come to about $4 billion, or the equivalent of about 15 percent annually, according to calculations compiled for The New York Times.

Profits would have been almost three times that had the government not bought at so far above their actual value at the time, so don’t everyone stampede to invest in any hedge fund Hank might start in the future. If, for some reason, any of you as private investors had bought what the government bought when the government bought it, today you’d be sitting on a 44% annualized profit.

Of course, this is just from institutions that have paid back the government. For every Goldman Sachs ($1.4b profit) and Morgan Stanley ($1.3b), there is an AIG who has not paid back the government and may never completely do so. But let’s save those losses for another day and another administration. Oh, and Fannie and Freddie, GM and Chrysler, and let’s not forget the Treasury guarantees on all those billions of dollars of mortgages, some of which will certainly default.

American taxpayers could still collect additional profits on their investments in two other big banks that have repaid their preferred stock but not their warrants: JPMorgan Chase and Capital One. They are expected to yield over $3.1 billion in gains for the Treasury in the next month or so, although the full tally will depend on how much they will pay to buy back their warrants.

[...]

But all the profits taxpayers have won could still be wiped out by two deeply troubled institutions. Both Citigroup and Bank of America are still holding mortgages and other loans that were once worth billions of dollars but whose revised values are uncertain. If they prove “toxic” because they cannot attract buyers, they could leave large holes in the banks’ balance sheets.

Neither bank is ready to repay its bailout money anytime soon, even though the banks’ stock prices have surged in the last month, leaving the government sitting on paper profits of about $18 billion between them.

Hey, at least someone is making stacks of money from C.

From Twitter, I’ve found an interesting Newsweek story on the blame game between Hank Paulson and Dick Fuld over Lehman (was Lehman the disease that took down the financial system, or just a symptom of it?), and why he should be glad Benny had his back. Some extractions:

In retrospect, it appears that Paulson was not the callous titan of Wall Street, but rather an earnest, sometimes bewildered man caught in a whirlwind he could not tame or even fully understand. He did the best he could, reaching, sometimes lurching for answers, but in the end he was rescued by the sort of nerdy professor type who might have been devoured on the trading floors of Wall Street. To the extent that there was a hero during those weeks, it was arguably Ben Bernanke, the quiet, shy chairman of the Federal Reserve, whose problem-solving and salesmanship before a skeptical Congress were critical to avoiding financial disaster.

…Paulson does not seem to have grasped the urgency of the looming disaster. Although top financial experts were warning about the housing bubble back in 2006, Paulson—by his own admission—was not paying much attention to the way banks were slicing and dicing mortgages and selling them as complex securities. “I didn’t understand the retail market; I just wasn’t close to it,” he told NEWSWEEK. But while he was at Goldman, he had lobbied Congress—successfully—for new rules allowing investment houses to at least double the amount of leverage they could carry.

…It was Bernanke who persuaded Paulson to go to Capitol Hill for massive bailout money, but it was a very tough sell, and Paulson nearly blew it. Congress originally rejected the bailout and approved it only with last-minute revisions—and after the stock market had plummeted. Bernanke’s low-key but incisive manner worked better with lawmakers than Paulson’s bluster. With the House resisting Paulson’s proposal to give him virtually unlimited authority to disperse funds to banks, House Speaker Nancy Pelosi announced that she was getting ready to leave town the weekend after Lehman’s collapse and would be back Monday. Bernanke quietly but forcefully piped up, “We may not have an economy on Monday.”

Paulson’s not the only one coming out with a book; I’ve also recently been following a former Lehman VP on Twitter, who is decidedly in the Lehman-should-never-have-failed camp, I think. I don’t think the LOLFed Lehman tag is going to get to enjoy retirement for a while yet.

Ken Lewis, when asked by NY’s attorney general Andrew Cuomo why he didn’t disclose many important details about Bank of America’s faildeal to buy Merrill to shareholders until the damage had been done, places the blame firmly on Bernanke and Paulson:

Federal Reserve Chairman Ben Bernanke and then-Treasury Department chief Henry Paulson pressured Bank of America Corp. to not discuss its increasingly troubled plan to buy Merrill Lynch & Co. — a deal that later triggered a government bailout of BofA — according to testimony by Kenneth Lewis, the bank’s chief executive.

Mr. Lewis, testifying under oath before New York’s attorney general in February, told prosecutors that he believed Messrs. Paulson and Bernanke were instructing him to keep silent about deepening financial difficulties at Merrill, the struggling brokerage giant. As part of his testimony, a transcript of which was reviewed by The Wall Street Journal, Mr. Lewis said the government wanted him to keep quiet while the two sides negotiated government funding to help BofA absorb Merrill and its huge losses.

Screw your duty to the shareholders! Your duty is to the state, which doesn’t believe we need any transparency in this-here system. Shareholders approved the deal without the info regarding the fail, and not only would they probably not have done so given the details, it would’ve have been an OMG EVEYBODY PANIC moment. The omerta surrounding this deal was long-rumored, and now Ken Lewis wants us to believe that is the truth:

“Isn’t that something that any shareholder at Bank of America…would want to know?” Mr. Lewis was asked by a representative of New York’s attorney general, Andrew Cuomo, according to the transcript.

“It wasn’t up to me,” Mr. Lewis said. The BofA chief said he was told by Messrs. Bernanke and Paulson that the deal needed to be completed, otherwise it would “impose a big risk to the financial system” of the U.S. as a whole.

Lewis also claims Paulson threatened to remove him and the entire board if they balked on the deal; the Fed has declined to give Cuomo all the information he’s looking for, citing regulatory privilege. When Bernanke (and Paulson) play the STFU or GTFO card, they play it but good.

It’s worth noting that Ken Lewis has tried to throw everyone under the bus but Ken Lewis for this deal, though. Prior to this, he blamed John Thain effusively.

ETA – and here is Cuomo’s official letter on the subject, including information on Benny’s citation of privilege. Hat tip to Zero Hedge:

Cuomo Letter