Dennis Kucinich pointed out at a Congressional hearing Thursday that Merrill’s weekly losses in mid-November were greater than the losses in mid-December, and that Bank of America boss Ken Lewis got weekly updates on the investment bank’s losses. Lawmakers repeatedly said Lewis must have known much earlier than he claims about the heavy losses at Merrill, which lost $15.84 billion in the fourth quarter of last year.

That’s something that class action lawyers may latch on to, as they push their case over the Bank of America-Merrill Lynch deal, which hinges on what the bank disclosed and when.

Shareholders OK’d the deal on Dec. 5. Bank of America disclosed Merrill’s losses in January, after the deal closed. If shareholders knew of the losses before, the outcome could have been different.

Even just days before voting on the deal in December, shareholders appeared to doubt the likelihood of the merger going through on the original terms set in September. As of the close on Dec. 1, Merrill shares were still trading at an 8.3 percent discount to the Bank of America offer. 

At the Congressional hearing Thursday, Lewis said Ben Bernanke and Hank Paulson did not tell him what to tell shareholders. He said decisions on what to disclose to shareholders is made by “our securities lawyers and our outside counsel.”

But under questioning he also agreed with lawmakers that there was pressure from the government to complete the deal despite growing losses at Merrill. 

Clearly, Lewis was in a tough spot. But how would that play out in court?

A week ago, when the Fed and Treasury mesmerized the financial world with the results of “stress tests” and capital-raising targets for banks, nobody spent much time asking “what if they can’t raise the money?” There was a sense that authorities had washed away enough uncertainty in the sector to satisfy investors. In short order, healthier institutions started raising capital. Those that didn’t need any stepped up efforts to rid themselves of onerous state support.

Bank of America shares are on a tear after the bank raised nearly $13.5 billion through a stock sale. Along with money it raised by selling part of its stake in China Construction Bank, this put Bank of America about half way to filling its stress-test gap.

But when Regions Financial, a large U.S. Southeast regional bank that was stress-tested, announced plans this morning to raise $1.25 billion through stock offerings — also about half of what federal regulators told it to raise — investors balked, sending its stock down more than 8 percent.

Just goes to show that not everybody can fail a stress test and impress shareholders with massive ownership dilution. Regions’ trouble may be that aside from selling stock, it has far less to offer than bigger banks in terms of asset sales to make shareholders feel better about doubling down. If nothing else, the market reaction could put a scent in the air that might interest an acquisition-minded lender needing exposure in the U.S. Southeast. If such a creature exists, it might find many more stressed-out lambs in the U.S. financial pasture.

If Frankenstein isn’t scary enough for you, the enterprising folks at benandhank.com have Hank Paulson and Ben Bernanke masks ready just in time for Halloween!

That’s right — for the low, low price of $79.90 and you can get a latex mask of “Evil Hank” and “Evil Ben“. If you’re looking for a Halloween costume, though, move fast — Bernanke masks are sold out and only a handful of Paulson masks remain.

For the more thrifty consumer, Forbes has posted printable masks for its list of the scariest people of 2008. The magazine has included the Presidential candidates on this year’s list, as well as Paulson, Bernanke, Dick Fuld and Jimmy Cayne.

And if you’re still at a loss for a costume for Friday — how about going as the U.S. economy? Not much seems much scarier these days.