Question

During the financial crisis at the end of the last decade, Merrill Lynch was acquired by Bank of America for $50 billion. The reason for the acquisition was that Merrill Lynch was unsure it could survive the crisis on its own. What really made headlines, however, was the disclosure that Merrill Lynch had paid out $3.6 billion in bonuses just before being taken over by Bank of America.64 These bonuses were paid while the federal government was spending hundreds of billions of dollars to bail out financial institutions like Merrill Lynch and/or intervening to persuade firms like Bank of America to do acquisitions to save firms like Merrill Lynch. Indeed, Merrill Lynch lost $27 billion in 2008. So, the "$3.6 billion question" one might say was: WHY? President Obama saw no good answer and blasted such bonuses as "the height of irresponsibility." The U.S. House of Representatives looked for a way to get the bonus money back. It passed legislation by a 328-93 vote to impose a 90% tax on the bonuses of anyone at a b

Answer 1

The merger of Merrill Lynch and Bank of America and the controversy over executive bonuses during the financial crisis highlight the complexity of the economic turmoil and government interventions like the Troubled Asset Relief Program (TARP) and the $700 billion bailout plan.

Step-by-step explanation:

The acquisition of Merrill Lynch by Bank of America for $50 billion during the financial crisis toward the end of the last decade was a significant event during a time of economic turmoil. This was notably marked by the controversy over Merrill Lynch's payment of $3.6 billion in bonuses just before the takeover. President Obama criticized these bonuses as irresponsible, especially given the fiscal year loss of $27 billion suffered by Merrill Lynch. The U.S. House of Representatives reacted by passing legislation aimed to recoup the bonus money by imposing a 90% tax on these payments.

The crisis itself was escalated by a series of events, including the collapse of major banks and the bankruptcy of Lehman Brothers, which led to the creation of the Troubled Asset Relief Program (TARP) and a $700 billion bailout fund provided by the Emergency Economic Stabilization Act. The financial system, which was heavily reliant on a few large banks and firms, received federal support to prevent a complete economic collapse.