Charlie Gasparino over at the Daily Beast points out a new development in the neverending Ken Lewis saga, which if true, may mark the beginning of the end of the "pristine" image of Ben Bernanke and Hank Paulson:

In defending former Bank of America CEO Ken Lewis against charges that he misled investors, his lawyers will call as witnesses former Treasury Secretary Hank Paulson and the current Federal Reserve Chairman Ben Bernanke, according to people close to the matter. The defense team, led by former US Attorney Mary Joe White, hopes to get Paulson and Bernanke to reveal that Lewis did not mislead the government about BofA's deteriorating financial condition in the aftermath of its Merrill Lynch deal. Those losses prompted a massive government bailout.

As we noted in our earlier commentary, a full prosecution against Ken Lewis would have to certainly implicate Bernanke and Paulson for the complicity in pushing Lewis to go ahead with the Merrill transaction. In reality the former CEO is just a fall guy for interests of Goldman Sachs, as personified by Bernanke and Paulson, and specifically by their actions, which having been disclosed previously, make it all too clear that Lewis had no other option but to acquire Merrill.

It is unclear if either Bernanke or Paulson have already given testimony to the state attorney general in preparation for bringing today's case, which includes civil fraud charges against former Bank of America CFO Joe Price. (A spokesman for Cuomo's office did not return a call for comment; a spokesman for Bernanke had no comment and a spokeswoman for Paulson didn't return an email request for comment. And a spokesman for Lewis declined to comment on the matter.) So far, both men have given testimony before Congressional committees on the controversial merger. Paulson address [sic] the matter in On the Brink, his new book about his role in the financial meltdown of late 2008.

Lewis's defense team, lead by Mary Joe White, had this to say:

...Lewis is being "public vilified by the political search for accountability for the financial meltdown." White also said that despite the initial problems with the merger-including the mounting losses that led to the government bailout-the merger has turned out to be an "unmitigated success for BofA." Merrill Lynch trading operations, like the trading operations of the other big banks, have taken advantage of historically low interest rates and borrowing costs to earn billions of dollars in profits, helping the banks to smoothe out losses from consumer and commercial real estate loans that continue to mount as economic conditions remain weak.

While we reserve judgment as to the "unmitigated success" of the transaction, which has only been successful to date courtesy of the trillions in backstops, guarantees, direct investments and a vertical yield curve, White is correct to an extent that Lewis is being made the fall guy here. To be sure, he is guilty of not simply stepping down when he was put in the position of having to decide between his job and lying to shareholders, which is precisely what happened in those fateful days in December of 2008. For his choice to proceed with the government's plan and to betray his fiduciary responsibility, he should be punished, whether just monetarily, or criminally, that is up to the AG to decide. However, the real masterminds behind the ML-BAC deal always were the two men who controlled America in late 2008 - Bernanke and Paulson. Should the two indeed be admitted as defense witnesses, the court should charge for admission: it will promptly refill the empty New York City coffers.