Breaking the Bank (full documentary) | FRONTLINE
[Music] tonight on Frontline you're either growing or dying so we grew they created the largest bank in America he wants to give the middle finger to New York and to Wall Street Merrill Lynch is this hugely prestigious brand they had long sought this prize Jonathan was a hero Ken Lewis finally is on top of the financial world but it was troubled from the beginning the market was in complete chaos this became a game of survival there are major doubts suddenly the government took over you can't leave this room until you agree to take this money we nationalize the banks in the U.S on that day there is no power on Wall Street anymore the government holds all the cards that old way of putting on a party is over tonight on front line Breaking the Bank [Music] 2008 the housing bubble had burst there were the markets were teetering profits in the banking industry at 10 o'clock Easter time at Bear Stearns nobody knew how bad it was going to get on one weekend in September the entire American Financial system would be changed Freddie Mac are in it began with a phone call [Music] about four or five o'clock the various officials from the Federal Reserve started phoning the bank Chiefs cell phone started going off and they said you need to be down here at six o'clock we want to talk to you I got a phone call about five o'clock saying be at the FED at six o'clock that evening I was in Maryland's Midtown facilities and I I live in Westchester so I was trying to get out of the city early because the traffic's always bad on a Friday night I went by myself and for the most part the CEOs of the large investment Banks and Commercial Banks were all there by themselves so everybody converged to that point it was just the CEOs of the main houses and various senior advisors that night at the New York Federal Reserve the issue was Lehman Brothers wall Street's fourth largest Investment Bank heavily invested in the mortgage Market was in a death spiral bring everybody in the room the interested parties and you say look we have to solve this problem and you lock the door until they come up with a solution the Secretary of the Treasury Henry Paulson had convened the meeting Paulson thought perhaps he could get everybody together create a big old fund and try to resolve Lehman Tim Geithner the president of the New York Federal Reserve led the meeting Tim Geithner says somebody needs to buy Lehman you need to figure out how to rescue Lehman because otherwise they're going to go bankrupt inside the fed the picture of Lehman Brothers was a financial institution that was melting away before its eyes they'd said to us we collectively had to find a solution for this and this is the important part the government was not going to provide any form of assistance [Music] convening a council of powerful Wall Street Bankers came naturally to Hank Paulson he used to be one of them Paulson comes from the great breeds of Masters of the Universe that have come from Wall Street Henry Paulson came from Goldman Sachs he was a very powerful Wall Street figure Paulson made his fortune in the freewheeling 90s when the unregulated free market was King Paulson does not have the mentality of a regulator he has the mentality of an investment banker that the market rewards in the market punishes so you don't need a lot of Regulation and at the FED that night and throughout the weekend Paulson would push the bankers to handle the Lehman crisis on their own it was a very high stakes game of signaling that he was playing he he wanted to show these guys you know all of his old buddies on Wall Street that that they were going to need to step up and do something themselves but the bankers left the FED that night uneasy they knew that Lehman's books carried tens of billions of dollars in liabilities from toxic mortgages and they didn't want to touch it and they also knew Lehman wasn't alone it is about so much more than just Lehman it's about Merrell it's about City it's about all the banks everyone's carrying in the back of their mind a list a hit list of who's gonna who's next to go down and it's Merrell they're next in size they're next in problems they've already admitted that they have a whole bunch of toxic assets on their balance sheet you know the CEOs talked openly with John in the room thing in the room saying well you know if we try to save Lehman Brothers that's all great but we're going to be back here next weekend and we're going to be talking about Merrell I did not want to be the equivalent of Lehman the following weekend sitting there he was absolutely dead next and dead and next to the of two appropriate terms 53 year old John thain was one of the newest CEOs in the room a graduate of MIT and Harvard Business School his career had been a Rocket Ride he's been on Wall Street for years he was the number two guy at Goldman Sachs he was Hank Paulson's number two uh considered a very tough manager considered a pretty smart guy you know he had been this Golden Boy at Goldman Sachs doesn't get the top job though he's Passover for the top job and he jumped ship early perhaps smartly goes to the New York Stock Exchange as the CEO it's Mr fix it he could go into any situation any had with the New York Stock Exchange and a number of other settings and had taken companies that were having problems and had made them work and Merrill Lynch had plenty of problems once conservative and careful they'd abandoned caution for the quick Riches of exotic mortgage-backed securities they got into it very heavily they courted a lot of non-prime lenders and they let money to them bought their mortgages and sold them into bonds and they thought the gravy train would never end when Thane took over the housing bubble had burst and Merrill was a mess this was an opportunity to prove that he could be the CEO of a big firm he could get the job that he couldn't get at Goldman Sachs and he could turn Merrill Lynch around the thing had little time to turn Merrill around it's a little bit like you're in a very attractive boat that has a hole in it and you're trying to bail but more water is coming in faster than you can get it out and that's really what we were in over the course of really all of 2008. that September weekend as the crisis meetings at the FED wore on Thane realized he would have to act I really changed my thought process and just focused on all right what can I do to make sure that Maryland's doesn't go the way of leaving Hank Paulson was also worried about his former deputies Bank he had come to the realization that no one was prepared to buy Lehman but if Lehman failed Paulson had to keep the contagion from spreading to marrow threatening the entire economy every single part of Wall Street at this point is plugged into another part of Wall Street and if I go down I can now drag down that guy and if he goes down he can drag down that guy and he can drag down that guy and this is a huge web that connects everyone in these completely unforeseen ways so if just one company goes down in this case Lehman it can drag everyone else with them I think was super intense and super focused and super worried he's a warrior the calls he was getting were getting him really worried and you know not able to sleep because what are we going to do about this Paulson decided the key to reassuring the market was finding a buyer to keep Merrill alive and he had one in mind a bank outside of Wall Street it had been called a Pillar of Strength the super Bank of America Bank of America is the story of some of the most ambitious aggressive Bank builders on the face of the planet they're sharks but they're not Wall Street Sharks it's a different type of of uh of sea that these people are swimming around swimming in [Music] what had first been North Carolina National Bank had grown into a formidable Southern competitor to Wall Street Nations Bank Hugh McCall ran it in the 80s and 90s after the Civil War most of the capital in the South was wiped out what I saw as part of my goal in life was to see that we had our own banks in the South that could Finance Southern industry and Southern businesses and Southern individuals and I set out to do that and um candidly have been fairly successful at it they bought and bought and bought and they would buy One bank and then they'd buy another bank and get bigger and bigger and bigger even if they got bought by someone else they they were the ones who ended up taking over the show even the bank's name was acquired they bought the california-based chain Bank of America in 1998. you're either growing or dying there's no middle ground you can't hold what you have that doesn't work in them in business so we grew when he retired McCall chose one of his longtime mergers and acquisition specialists Ken Lewis to run it all well I'm really nobody when you look at my my background I I came from a very modest uh beginning and my mother raised my sister and I so a one parent family and and she was a nurse this is not somebody with an Ivy League ivy league background it's not somebody with blue-blooded parents I said somebody sort of driven by a need to prove himself especially to to prove himself against people from Wall Street someone once described Ken Lewis to me as the most competitive person in the history of the United States including the Union Army he practiced smiling which is not Ken Lewis's default expression he started wearing glasses to soften his his features he would talk and tape himself while talking to catch you know the pauses so this was quite a makeover for Ken Lewis he wants to give the middle finger to New York and to Wall Street and he wants to beat him at their own game and I think he Revels in it the idea that these guys in Charlotte can be beating up the guys on Wall Street Lewis took over at a critical moment when the rules limiting Bank mergers were being dismantled a race to become the biggest superbank was on he wrote out a wish list of companies he wanted to acquire or businesses he wanted to be in and one by one year after year he made that happen Fleet Boston MBNA Countrywide LaSalle U.S trust
Ken's eyes have always been bigger than his stomach that's part of his problem he's always been a deal maker I mean that's kind of his modest operandi that's how you know Bank of America was built so during that weekend meeting at the Fed Paulson's idea that Bank of America could be a Lifeline to Merrill was gaining traction on Saturday morning Thane made a fateful telephone call I walked outside of the Federal Reserve and called from my cell phone standing outside on the street John called and said I think we should talk I said Ken I think we should talk about a strategic Arrangement he said I'd like to do that Lewis's corporate jet was waiting at the Charlotte Airport I said I can be there around I think it was two o'clock and so I'll meet you at our apartment we agreed to meet at their corporate apartment in the Time Warner Center at 2 30 in the afternoon this is like music to Ken Lewis's ears because Ken Lewis had wanted to buy Merrill Lynch for a while they had long sought this prize and they had you know over the years approached Merrell several times Merrill Lynch has this big huge brokerage Network it basically deals with you know millions of small millions of small investors and you know small investors that are very rich too across the country through these brokerage offices that has 16 000 Brokers and probably manages through those Brokers trillions couple trillion dollars worth of assets so that's what he wanted for Ken Lewis it was the final crowning item on his list Merrill Lynch is this hugely prestigious brand it's a little akin to Holiday Inn getting to buy the Ritz hotel and and the Ritz is down on their luck and they turn the holiday in and they say will you save us and Holiday Inn says sure Ken Lewis waited alone for John thain at the Bank of America Corporate apartment in the Time Warner building it's just the two of us and um so I proposed to him that we would be interested in selling a 9.9 stake in Maryland to bank America and we would want them to provide us with a large credit facility But Ken Lewis hadn't flown to New York to take a minority position in Merrill Lynch I responded to John that's not really what I have envisioned here I want to buy the whole company not not invest nine to ten percent and Thane says well I didn't come here to sell Merrill Lynch and Lewis's response is well that's what I want you have to remember that you know I had only been the CEO of uh of Merrill Lynch for nine months so the last thing in the world that I want to do is sell the company that was a hard decision in the end Thane realized he had no choice he agreed to sell Merrill Lynch to Bank of America for 50 billion dollars it was just this really defining moment of these two men it was clear who had the leverage that weekend by late Saturday afternoon Lewis had sent his deal team over to Merrill to look at the books they would have to work fast Hank Paulson was adamant the deal had to be done by Monday morning in 48 hours you can't do due diligence you can't really take A bank's books go through them and figure out where their liabilities are where their risks are who's been hiding what in order to try and get a good bonus this year it's impossible to know within 48 Hours what you're actually buying the reason Paulson was so insistent was that with no buyers and no government bailout Lehman Brothers was headed for bankruptcy they had this meeting and one of the advisors Harvey Miller very well known bankruptcy lawyer on Wall Street and he warned them in this meeting this will be Financial Armageddon he warned them what to expect Monday morning if Lehman was put into bankruptcy Paulson desperately needed to give the markets some good news when they opened on Monday morning the way the government and Hank Paulson and Tim Geithner and Ben Bernanke were perceiving what was going to happen on Monday morning Bank of America was going to save the system because even though Lehman Brothers was going to go down the next Domino Merrill Lynch was going to stay up and that was very very important Hank in particular was very strongly encouraging me to make sure that I got a transaction done prior to the opening on Monday by Sunday evening at the offices of Bank of America's law firm the broad outlines of the deal were set but there was a problem the night that they are signing this deal the conversation is not about the Strategic imperatives of doing this deal the conversation becomes about how much money are we going to give to the management what kind of side letters can we have written to the into this contract you know they were supposed to sign the deal at 10 o'clock at night it ends up going to one two in the morning because they're talking about comp at a time when Rome is burning comp compensation bonuses the bankers from Charlotte were now dealing with Wall Street someone from the Merrell team left went out of the room and came back with a piece of paper for the top five Executives at Merrell the paper came back and it said 40 million dollars for Jonathan and other high eight digit figures for the other four on his team In the End Bank of America agreed to let Meryl spend up to 5.8 billion on the comp if you're Ken Lewis and you just ponied up this enormous amount of money for this company and five hours later the conversation is not how we're going to make a great combined company together but is how much money can we line Jonathan's Pockets with that would sour you too selfish things start to crop up at the very end and frankly it it extends things to the point that I have never really been real happy by the time that champagne pours usually you're mad at each other but by then and uh and you you drink it politely and then leave and that was about how I felt with this one if you spend time and talk to people who are in that room that evening they would tell you the moment they signed the deal they knew there was a problem Lewis and thing finally signed the deal it would take effect on January 1st at Lehman Brothers they spent the night drawing up the bankruptcy papers the next morning as Hank Paulson planned the stock markets would wake up to the official announcement of the merger of Bank of America and Merrill Lynch the press conference was in Bank of America's beautiful new headquarters two of them came in and they paused and shook hands and it was actually an awkward moment because so many photographers wanted to capture it that they shook hands over and over and over and over and over again despite the bitter backroom dealings it was a moment of Triumph for Thane and Lewis it was a crowning achievement for both these men you know one of them had faced execution the other one his entire life had been driven to build the largest bank in the U.S and both of them managed to square the circle on that day Jonathan was a hero he got 29 a share for his shareholders that's what he's supposed to do he's supposed to be working for shareholders he was the guy who saved Meryl from falling down the same hole that had just sucked in Lehman for Lewis this day on September 15th he finally is on top of the financial World Bank of America would become the largest bank by assets in the country larger than City Group larger than JP Morgan Merrill had been saved Ken Lewis and Hank Paulson had each gotten their wish thank you [Music] that same morning in Washington announcing early this morning it will file for bankruptcy confirming it was particularly unsettling Hank Paulson and his staff were waiting to see how the markets would react to the Lehman bankruptcy and the Merrell merger we hope the mayoral purchase would stop the domino effect that was definitely the why we thought it would be good news on Monday morning and it looked like it might be true Paulson headed to the White House to reassure the markets good afternoon everyone I hope you all had an enjoyable weekend yeah the fed and the treasury thought that Lehman could go under without causing a major conflagration and that it would be a big event but it wouldn't cause a cataclysm but the American people can remain confident in the soundness and the resilience of our financial system Paulson had bet the markets would take care of themselves he would soon discover he was wrong everything freezes and that's what causes the crisis and it really started because Lehman Brothers went into bankruptcy no one forecasted that this was going to happen but it turns out that this one decision made all the difference Paulson had miscalculated the first sign of trouble the credit markets began to freeze the Hank was very nervous he was getting calls from large manufacturing companies that were struggling because of the credit markets being frozen then the banks stopped Lending the longer it went on the more trouble the economy was going to be in the Meltdown was happening I'm sure that Paulson is sitting there and he doesn't strike me as the most reflective guy necessarily but he must have been sitting there everybody was sitting there saying my God we may be presiding over the Second Great Depression this is the utter nightmare of an economic policy maker you're sitting there and you may have just made the decision that destroyed the world absolutely terrifying moment [Music] three days after Lehman's bankruptcy Paulson headed to Congress [Music] he had decided to dramatically change his approach at that point Paulson bowed to the inevitable one thing Paulson said to me in an interview is when the situation changes you have to be willing to change with the situation fed chairman Ben Bernanke joined Paulson for the Emergency meeting on Thursday late afternoon we go to Nancy Pelosi's office and there's a meeting of the senior legislators from both parties in both House and Senate it was obviously a big meeting I had no idea I was going to hear what I heard Paulson now believed government intervention was necessary and he'd need hundreds of billions from Congress to do it they said they needed authority to accuse 700 billion dollars to unstop the credit Market sitting in that room with Hank Paulson saying to us in a very measured tones no hyperbole no excessive adjectives that unless you act the financial system of this country and the world will melt down in a matter of days [Music] Bernanke said if we don't do this tomorrow we won't have an economy on Monday there was literally a pause in that room where the oxygen left Polson received the money 700 billion dollars known as tarp troubled asset relief program on October 12th he acted I got a phone call on Sunday from secretary Paulsen and he basically said can I need you to be in Washington Monday and he said I really can't tell you a lot about it with the Merrell merger not yet complete Paulson also invited John Thane he said be at the treasury at three o'clock tomorrow I I said well what's the topic you'll find out when you get there I said well who's coming you'll find out when you get there see you at three click seven other heads of the nation's largest banks received a similar summons they turn up at three o'clock and they all file into the conference room which is across the hall from Mr Paulson's office they were told to sit on one side of the table the titans of the finance world are arrayed almost like school children waiting to hear from the treasury secretary about a subject there probably by then slowly beginning to figure out John thane's seat was in the middle was put at the end at first I wondered why I was down toward the end and uh and then it hit me obviously that it was in alphabetical order and uh how else would you do it Paulson got right down to business because it's Paulson who's not a man who beats around the bush it became clear relatively quickly what he was proposing he says I've got here documents that say the U.S government is going to make an injection of capital into each one of your companies Paulson was about to spend 125 billion dollars of that tarp money from Congress they go through in a very very Rapid Way that each of us is going to take this taxpayer money the tarp money and he basically says you can't leave this room until you agree to take this money we're all going to do it for the good of the country for the good of the system and it's not really discretionary [Music] it was unprecedented in return for billions of dollars the government would take an ownership stake in the banks some bankers fought back there was a very contentious meeting lots of questions lots of doubts Richard kovasovich chairman of Wells Fargo led the charge kovacevic stood up say I don't want the money I don't need the money I don't want the money I wouldn't have nothing to do with this But Ken Lewis took a different view Ken Lewis says it's our patriotic duty to do this let's stop fighting do this deal right this moment we are so intertwined with the U.S that it's hard to separate what's good for the United States and what's good for Bank of America and so don't do it on the basis of being us being told do it on the basis that things could get a lot worse in America and therefore for us and and they're almost one in the same Lewis also knew that he could expect two tarp shares Merrill lynches and his own he also said look guys we all know how this is going to end we're going to sign this piece of paper so he played a little bit of the Elder Statesman role explaining reality although they all understood reality quite well and if any Bank didn't sign on Paulson had a potent weapon there's a threat in the background if you don't get with the program and if you don't sign this piece of paper tomorrow morning you could turn on the television and see Hank Paulson talking about your bank in a negative way and that's going to destroy you Paulson's notes prepared for the meeting show he gave the bankers no choice if a capital infusion is not appealing you should be aware that your regulator will require it in any circumstance Paulson gave each man a single piece of paper spelling out the conditions before they had to leave town that night they were told return this document with your signature on it and all nine of them did so the next day Paulson told the country about his new way of doing business today we are taking decisive actions to protect the U.S economy
we regret it in one day everything had changed that the treasury will purchase Equity stakes and a wide variety of Banks and thrifts I think we nationalize the banks in the U.S on that day seriously I substantially nationalized them the government got a lot of saying how that run a lot of constraints and a lot of um responsibilities a lot of downside risk was taken on that day government owning a stake in any private U.S company is objectionable to most Americans me included whether you like it or not whether we think we have control of these firms or not they're nationalized firms they're owned by the U.S taxpayer [Music] the Secretary of the Treasury had become the most powerful Banker in the nation oh this is the realm of the Puppet Master this is the realm of the we're going to give you some money but we're also going to tell you how to run the game I'm going to pull the strings I'm going to make it happen a certain way and use this bank as an instrument of some kind of plan to try to save this economy so Hank Paulson The Happy capitalist Warrior who spent his life pursuing and defending free markets is now the biggest interventionist treasury secretary we've had since the Great Depression as the fall wore on for Paulson one hopeful sign of life in the banking system was Bank of America the pending Merrill Lynch merger still looked like a good deal they were still a Pillar of Strength within a system where there was very little strength they looked like they were stronger from the outside but the view from the inside revealed something else the marriage between Bank of America and Merrill Lynch was already showing signs of strain almost from the beginning there was just he Ard huge frustrations about pairing up with you know with Bank of America people at Merrill Lynch compare themselves like the Tiffany's of Wall Street and they're meeting up with Walmart I mean it's just the Walmart of banking the average salary at Bank of America at this point is about 75 000 the average salary at Merrill Lynch is I think something like 235 thousand dollars so they have vastly different expectations for what it means to be a Merrill Lynch person versus a Bank of America person the Gunslingers go to Merle and the conservative Branch goes to B of A you know and I think one of the comments that were made by one of the workers at Merle I don't want to go work with a bunch of toaster salesmen and with the official merger looming there was trouble at the top between Lewis and Thane the issue those bonuses Thane was still a Wall Street man for having successfully sold Merrill to Lewis Thane wanted a cut of the Bank of America deal worth as much as 10 million dollars Thane had lobbied behind the scenes very hard the compensation Committee of Merrill Lynch to get a bonus which just infuriated people it at various levels including on the board in the end Thane didn't get his bonus but he made sure his top Executives did at the same time on Merrell's trading floor they learned thane's fourth quarter results were going to be disastrous they still had a lot of stuff on his balance sheet that was junk the assets continue to deteriorate that's what keeps happening the markets were brutal Merrell's toxic assets were eating a hole in the balance sheet there was a period where the loss estimates were jumping by sometimes two or three billion over two or three days that's a pretty big number as the mayoral loss is mounted up in New York in Charlotte Bank of America's stockholders were about to vote on whether to approve the merger there were people inside Bank of America who felt like this number was big enough to disclose that investors should know about this before they vote But Ken Lewis decided not to tell the stockholders he insists he didn't know the extent of Merrell's losses he says he had enough losses of his own we had this meltdown the economy was deteriorating such a rapid rate a lot of companies were having bad quarters we were seeing it in our own numbers and so I was dealing with that coming to realization hey we're going to have a loss and there's no he was kidding about it the merger was approved but by mid-December the truth about Merrell's balance sheet was unavoidable Ken Lewis has a meeting where he is told the projections for the losses that Merrill Lynch will have to report in the fourth quarter and the losses are enormous they are over 15 billion dollars they're larger than anything that has been announced previously Ken Lewis now knew the Merrell merger could break his bank I don't think he anticipated the market deteriorating the way it did and certainly he did not anticipate how stunning the losses would become I believe that's when Ken Lewis felt you know what I made a mistake here and this is happening at a time when Bank of America doesn't have a lot of excess Capital to offset those losses so it's very very bad news Ken Lewis wanted out of the deal I think there was a view that there truly was what they call a Mac a material adverse change something material had changed that they did not see coming Ken Lewis told Paulson he was considering invoking the Mac to get out of the Merrell deal Paulson was stunned he told Lewis to come to Washington immediately so Lewis Goes to Washington DC on December 17th to me with Bernanke and Paulson and tells them we can't do this the losses are too big we're going to pull out I can't say a lot about the negotiations but what I would say is they had their view of both what that would do to Bank of America and what that would do to the financial system Hank Paulson and Ben Bernanke say if you do that you'll destroy the tiny Shard of a banking system that we still have left remaining you can't pull out of this deal keep in mind these are men who have been through Lehman Brothers they don't want this they don't need it and it can't happen Lewis's options were limited his new powerful partner the Secretary of the Treasury was calling the shots the government had already had 20 billion dollars inside and Bank of America it's its regulator it's a bank it's really kind of hard to tell the government to go shove it when it says we need you to do this deal he is in a really tough spot he's he's almost downed if he doesn't damned if he doesn't Paulson got tough got a very strong voice got a very strong will I think he could convince anybody and in this case Ken Lewis that if you don't follow along if you don't go along with the program you won't be part of the program anymore meaning we'll toss you right out you have to buy Merrell and we will make sure that happens up to and including removal of management removal of the board from where Ken Lewis sought I've had several people describe to me the Bank of America thought it was a threat and they needed to do this there was there was a time where that discussion was held and uh but we we in fact um we in fact decided on our own not not anything to do with that that it was the best interest of all all involved to go ahead to go forward Ken Lewis blinked the full force of the government is being brought upon him the rules of the game have changed you know Ken Lewis is on top of the financial services world but he's not in charge the government holds all the cards at the end of the day Paulson then explained the offer that Lewis could not refuse another 20 billion dollars and a promise to cover another 118 billion on Merrell's toxic assets the deal was kept a secret from stockholders from Wall Street and the taxpayers for almost one month then after the merger was completed [Music] the story broke City group and Bank of America have been losing money at a furious 82 Major Banks sank deeper into the red despite billions more from the government tumbled the stock market has been falling day after day and now news that the biggest banks need more money between January 15th and January 20th Bank of America's stock drops more than 45 percent the banks shotgun marriage with Merrill Lynch in September was on the runs reported more than 50 billion dollars in losses for the fourth quarter of 2008.
it's shocked DeMark and even the market was looking for something bad it wasn't expecting that it wasn't expecting a 15 billion dollar loss there are major major doubts suddenly about this bank's ability to make it through this crisis intact B of A stock starts to tank in ways it hasn't in decades it's down to like 1980s levels the magnitude of the loss obviously at Merrill Lynch really stunned people and so it was it was a bad day and it did shock a lot of people and to support a lot of people in a matter of days Lewis went from King of Wall Street to embattled CEO his shareholders were up in arms there was just an immediate public outcry they were just furious of what he had done they start calling for Ken Lewis's head they want to know why these losses weren't disclosed earlier why the talks with the government weren't disclosed earlier I mean what kind of deal maker was Ken Lewis anyway in effect by buying Merrell he had damaged Bank of America it felt at that moment that it was going to be tough for him to keep his job Bank of America needed to change the subject take the heat off Ken Lewis became a game of survival in Charlotte for Ken Lewis and he needed to blame somebody and somebody had to be responsible for what was going on that somebody was John Thane Thane paid out four billion dollars in company bonuses just days before his emergence Cuts he also was lavishly redecorating his office space to the tune of 1.2 million dollars courtesy all of a sudden this character who seemed like Clark Kent who seemed like this great guy this pillar of character and strength was really the villain hero becomes the villain he was thrown under the bus he makes a couple of stupid decisions definitely some stupid moves and public turns on him entirely it's pretty amazing not just the public on January 22nd CNBC had a scoop Sam Houston Cruise Line more news out of Merrell Charlie Bank of America Merrell Ken Lewis the CEO Bank of America will hold an emergency meeting with John thain the CEO of Merrill Lynch today I got a tip that Lewis was flying down to Merrell everybody knew that things on the ropes and then I went to the my sources of Bank America and they basically said yeah he's he's all but done CNBC has learned that Ken Lewis the CEO of B of A is meeting or going to meet with uh with John thain uh later this afternoon right here around 11 30 essentially to decide his future which will be very interesting I have CNBC on in my office so I can see the the headlines are you know that uh that uh I'm gonna I'm gonna get fired can flew from Charlotte to New York walked into to John's office and and said John is not going to work out and I'm sorry I wish you the very best and and then left it wasn't a very long conversation there really wasn't very much for me to say because this wasn't a negotiation thing was gone But Ken Lewis now faced a new problem the new president we arrived at this point due to an Era of profound irresponsibility disabilities I mean I'd like to throw these guys in the break I mean for years too many Wall Street Executives made imprudent and dangerous decisions I think in the greed they're thinking our Executives being rewarded for failure with Hank Paulson out of Treasury the new Administration was calling the shots from the White House there ain't going to be any 40 million dollar Jets being bought I mean it's been outrageous and I will not tolerate it as president the power on Wall Street has clearly shifted there is no power on Wall Street anymore the power is in Washington the chairman of the board of these Banks now lives at 1600 Pennsylvania Avenue now you need the approval of only one man he's a new board member Lewis's new board member was demanding that the banks fundamentally change the way they do business totally adamant on the part of the president we got to come in with a bang it's like you're moving into a new house and the roof's on fire and the basement is flooded and there's gas in the kitchen there's a dog in the backyard the question is how do you make this house livable and the answer is you demand accountability and responsibility and where there need to be fundamental changes require these companies to make fundamental changes and on Capitol Hill the mood was no different [Music] with their vaults now filled with taxpayer dollars Lewis and the other Bankers were fair game we're gonna have to do this every now and then they're going to be cool before Barney Frank and the you know the rest of Congress and they're going to have the congressional committees and they're going to get like you know yelled at and grandstand upon let me be frank my constituents in Illinois are angry and so am I what did the banks do with the taxpayers money I cannot believe no one's prosecuted you on this I think most Americans when they saw that thought of the heads of tobacco that's where we're at we have an industry that's just vilified to that point and the frustration is so high it was chilling to watch that I mean just to see them all lined up next to each other as a matter of fact Bank of America you paid yourself 30 million dollars in fees just to accept our top money I don't know what you're talking about the whole thing frankly had a bit of political theater element to it that particular hearing there seemed to be a little bit of a contest to who could get these guys by the Scruff in the neck and slap them around the most it was clear we were there to take a public whipping and we did I just tried to think of it that way and think of it as you know this too will pass and just get through it there's been a wide speculation that some of our larger banks around the nation may end up being nationalized do you feel that your bank should be considered one of those banks at risk are you talking to me yeah absolutely not I don't know why you would ask the question I think we saw in Ken before Congress the defiance sometimes impatience and pride anger competitiveness all the qualities that have been there for a long time [Music] then the president insisted Lewis and the other backers come to the White House the CEOs came to the White House I'm not exactly sure what they were expecting but the president was firm with them and said the American people blame you personally for Where We Are the president made it pretty clear when he talked to us you know we're between you and the pitchforks guys and you need to just acknowledge that the president said you guys need to get with the program because the only thing between this massive backlash against you is if we can get the economy back on track it was a new day the president openly signaling that he was in charge insisting they increase lending and limit executive compensation and foreclosures or else since that meeting Bank of America stockholders stripped Ken Lewis of his chairmanship Federal Regulators ordered him to find new directors and he had to sell off parts of his company to raise cash to satisfy new government regulations Lewis says he now deeply regrets taking the tarp money from Paulson both times and all that has followed little did I know the pain that would invoke with the Congress giving us the whipping that day the constant articles and in the paper about how bad we are and then things around compensation and and how you run your bank it was a clear example of no good deed goes unpunished but at the White House they have little sympathy for Bankers complaints they created the structures themselves that got them into this position it wasn't the government who created this problem they created this problem maybe they find it inconvenient that there's a whole lot of responsibilities that come along with the government being their lender of Last Resort and saving them when they actually fell into the to the pit of fire but you know that's where we are [Music] as far as Washington is concerned they're still sorting through the financial wreckage this is the kind of disaster like the aftermath of the Great Depression and the crash of 29 that causes people to say there's something fundamentally wrong here there's something fundamentally broken and we can't fix it with a new agency or or you know just a piecemeal approach we have to kind of tear down the structure and start all over foreign but whatever happens the era that propelled John Thane Ken Lewis and Hank Paulson to the top of the financial world is over well party's over [Music] the financial institutions are down for the count this is one of those pivot Points in American history that old economy that old way of looking at things that old way of putting on a party it's over it's over [Music] next time on Frontline worlds in Ghana it's the dirty little secret of the high-tech industry do you know who has access to your recycled hard drive if somebody gets your hard drive you can get every information about to you and in Egypt a competition to turn around the Middle East some people who laughed at me are now shareholders these stories and more on the next Frontline world [Music] front lines breaking the bank is available on DVD to order online visit shop pbs.org or call 1-800 play PBS thank you front line is made possible by contributions to your PBS station from viewers like you thank you with major funding from the John D and Catherine T MacArthur Foundation committed to building a more just verdant and peaceful world and additional funding from the park Foundation additional funding for this program is provided by The Corporation for Public Broadcasting and the Nathan Cummings Foundation [Music]