“Just had a long talk with Ben . . . says they think the MAC threat is irrelevant because it’s not credible. Also intends to make it even more clear that if they play that card and they need assistance, management is gone.”

In other words, Bernanke acknowledged to Lacker that if BofA management disclosed to shareholders the terrible state of Merrill, even in considering a withdrawal from the deal, Bernanke would fire them. This directly contradicts the Fed head’s public statement before Congress’s JEC.

At that time, Lewis was strongly considering a material-adverse-change clause to stop the Merrill deal. So Bernanke put a gun to Lewis’s head, but he won’t fess up about it. A House investigative committee will probably call Bernanke to testify on this subject. If so, the whole world will be watching. As former Reagan prosecutor Joe diGenova told me last night on CNBC, the Justice Department won’t prosecute Bernanke.

But his political and monetary credibility may suffer enormously.

Now the question is whether the Obama White House will issue a statement strongly supporting Bernanke, as they have in the past, or whether they will let the Fed head twist slowly in the wind. Perhaps my Larry Summers/King Dollar preference over Bernanke for Fed head next year is not so far fetched.

Summers vs. Bernanke? I’d Take Summers
Larry Kudlow

http://kudlow.nationalreview.com/post/?q=ODUyNzk4MGJhNTY3NmM5MWM3NjQwYzEwMjE0ZDA2MDQ=