Thain knew the willingness of short-term lenders to keep funding Merrill would disappear rapidly if his firm lost the market’s confidence, as both Lehman and Bear Stearns had. Without short-term financing, Merrill would not be able to meet its obligations as they became due and the firm would fail. “I anticipated that the failure of Lehman would have caused very severe problems for Merrill Lynch,” Thain said afterward, “and the potential withdrawal of cash” would cause a severe liquidity crunch for the firm, with no easy solution.

By Sunday night of that infamous September weekend, Thain and Ken Lewis, the CEO of Bank of America, had cut their deal. “Acquiring one of the premier wealth-management, capital-markets, and advisory companies is a great opportunity for our shareholders,” Lewis said the next morning. “Together, our companies are more valuable because of the synergies in our businesses ... I look forward to a great partnership with Merrill Lynch.” Added Thain: “Merrill Lynch is a great global franchise, and I look forward to working with Ken Lewis and our senior management teams to create what will be the leading financial institution in the world, with the combination of these two firms.”

Even at the time, it looked to many like an odd union—a formerly high-flying Wall Street firm, founded in 1914, scooped up by the Wal-Mart of the banking industry, a Charlotte-based bank known for its brawn in commercial banking. Nonetheless, champagne toasts and all the usual corporate euphoria accompanied the announcement of the deal. For Bank of America, it was a move into the fast lane of high finance, and a validation of sorts: on October 19, a triumphant Lewis appeared on 60 Minutes, and to the question of whether he had conquered Wall Street, he responded, “We have, yes, we have won in that sense.” For Merrill, it was—if nothing else—a second lease on life.

Three months later—even before the deal closed—the engagement was on the rocks, the mood soured by staggering losses at Merrill, and Bank of America’s executives were looking for a way to break it off. What followed was an unprecedented series of steps, taken in December by Federal Reserve Board Chairman Ben Bernanke and Treasury Secretary Henry Paulson, to keep the two companies together.

Many of the most stunning details of the hidden negotiations between Paulson, Bernanke, and Lewis would have remained secret if not for the singular persistence of Andrew Cuomo, the New York attorney general, who in February took the depositions of both Lewis and Thain as part of his investigation into why Merrill, though reeling financially, had paid some $3.6 billion in bonuses to its employees before the deal closed. Cuomo has since released large portions of the depositions. The following account of the events that transpired during the waning days of the Bush administration comes from those transcripts, from the subsequent testimony of Lewis and Bernanke before Congress in June, and from interviews with insiders and knowledgeable observers. (Paulson, Bernanke, and Lewis all declined to be interviewed.) The narrative that emerges is troubling. It raises serious questions about the sanctity of legal contracts in post-crash America, and about the fast-evolving relationship between American government and industry.