Almost the entire fight to save the American financial system and punish those responsible for it has gone on in the executive and legislative branches. The third leg of the government, the judicial branch, has been silent.

The courts asserted themselves today as a judge rejected the $33 million settlement between Bank of America (BAC) and the SEC. The bank was accused of not properly disclosing when and why Merrill Lynch employees were paid bonuses as Bank of America bought the brokerage.

Several media reports about the judge’s decision say that he stated two major concerns. The first is that he fears that the judgment penalty may be paid out of money that the federal government advanced the bank. The other is that the agreement with the SEC “would leave uncertain the truth of the very serious allegations made in the complaint.”

Put another way, the SEC deal with Bank of America is a bit of a cover-up.

The Administration has claimed that its decisions will be more transparent than they have been under earlier regimes. Facts and figures about federal activities are posted online. Taxpayers can see where their money is going. Updates on the budget are given every month. But, the issue of how the credit crisis is resolved may be less clear. The Federal Reserve has refused to release some information about which banks it gave short term loans. It does not want to frighten shareholders or customers of those institutions. Now it turns out that a sitting federal judge is worried that what Bank of America did to deserve a fine will be kept from the taxpayers who helped support the financial firm.

The court’s decision could have far-reaching consequences if more and more decisions about the credit crisis by federal agencies come through the judicial system either for approval or after being challenged by one or more of the parties involved with the decision making process.

Bank of America may be forced to air more of the dirty linen that was part of its buyout of Merrill. The SEC gave it a way out of that, but it appears that the SEC will not have the last word in the matter.

Douglas A. McIntyre

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