Congresswoman Speier questioned Federal Reserve Chairman Benjamin Bernanke today about last year’s decision to allow Lehman Brothers to fail and his role in Bank of America’s purchase of Merrill Lynch.  The video can be seen here.

Speier’s first question involved Lehman Brothers, whose failure last fall resulted in substantial losses by local governments who held much of their operating funds in highly-rated Lehman bonds.  In San Mateo County alone, public agencies lost in excess of $150 million.  

“Mr. Bernanke, what went into your decision to allow Lehman to fail?” Speier began.  

“We were unable to save it through legal means,” Bernanke answered, going on to say that there was no mechanism in place to allow them to save Lehman Brothers. 

Speier pressed on:  “If you had TARP funds at the time, you would have saved Lehman Brothers…?” 

Bernanke:  “I believe we would have at least given that a try.” 

This is an important point for Speier because she and Congresswoman Anna Eshoo (Menlo Park) introduced legislation in January to compel Treasury Secretary Timothy Geithner to use TARP (Troubled Asset Relief Program) funds to make public agencies with Lehman investments whole.   

Congress included language in the Emergency Economic Stabilization Act (which created TARP) giving the Treasury Secretary that authority.   “My hope is that Chairman Bernanke’s testimony will prod Secretary Geithner to do the right thing and allow TARP funds to be used to help our schools, hospitals and first responders,” she said after the hearing.

The principle purpose of the hearing before the House Committee on Oversight and Government Reform was to examine Bernanke’s role in Bank of America’s purchase of Merrill Lynch.  Some on the committee voiced concern that the Fed used coercion and threats to force B of A President Ken Lewis to go through with his company’s purchase of the investment firm.  The Congresswoman asked, since Bank of America received $45 billion in TARP funds and they paid $50 billion for Merrill Lynch, did that mean in effect that taxpayers subsidized B of A’s purchase of Merrill Lynch?  Bernanke’s response was that the money given to B of A was a loan and taxpayers can expect to have that money repaid.

“A lot of money has changed hands over the past eight months and most of it belonged to the taxpayers,” Speier said after the hearing.  “It is my responsibility as a Member of Congress to follow the money and make sure that the taxpayers are getting the best return on that money as possible.   Time will only tell how much the taxpayers are actually repaid.”