Andrew Sorkin - Too Big to Fail - The Inside Story of How Wall Street and Washington Fought to Save the FinancialSystem--and Themselves

“You have to call your cousin,” he insisted. “If there was ever a time to call the president, now is the time.”

Walker, a second cousin to President Bush, was hesitant about using his family connections.

“I don’t know,” he said.

“You’ve got to do it, George,” Felder said to him. “The whole fucking firm is going down. Someone’s got to stop this!”

He placed the call but ended up leaving a message with the White House operators. The call would go unreturned.

With bankruptcy seemingly less than hours away, a new problem suddenly confronted Steven Berkenfeld, Lehman’s managing director: $18.5 million in unpaid bills from Weil Gotshal, the law firm he had hired to work on the bankruptcy filing. The debt, which was for previous legal work, was minuscule compared to the billions of dollars Lehman owed all over Wall Street. But it would prevent Weil and Harvey Miller from representing Lehman in Chapter 11. Since Weil was officially a creditor of Lehman, it would constitute a conflict of interest that a judge could use to throw Weil off the assignment.

To Berkenfeld, it was critical that Weil be involved in the case. After all, its lawyers knew the firm the best, and Lehman’s filing was due in almost record time. For Stephen Dannhauser, Weil’s chairman, the assignment was also of paramount importance: Judging from the size and complexity of the Lehman filing, which promised to be even bigger than Enron’s, the fees were likely to be well over $100 million.

Dannhauser had instructed Berkenfeld to pay Weil immediately, in advance of the bankruptcy, with cash sent by wire directly into the law firm’s accounts. Even this approach had risks: Being on the receiving end of such a payment could result in a law firm’s being disqualified from a case.

Still, with all of the pressure Lehman was under, Berkenfeld made the effort.

Because it was Sunday, there was only one place that the firm had cash available to wire——JP Morgan—and Berkenfeld had accordingly called over and made the request.

But now Dannhauser had called to say that the transfer hadn’t gone through: JP Morgan had frozen Lehman’s account, a decision that, Dannhauser was told, “came from the top.”

Berkenfeld immediately dialed JP Morgan’s general counsel, Stephen Cutler, and furiously demanded what it meant that the decision had “come from the top.”

“Look, I don’t know what that means,” Berkenfeld said, his voice rising. “I don’t know if that’s Jamie Dimon or someone outside of the firm. But one day, we’ll take your deposition and find out what happened.”

Cutler agreed he would try to make the payment.

When Bob Diamond got back to his room at the Carlyle Hotel, tired and deflated, he had a surprise waiting for him. His wife, Jennifer, and daughter, Nellie, a sophomore at Princeton, were there. Nellie, who had been scanning the news wires on her laptop, gasped when she read that the deal her father had been trying to broker had fallen apart and headed for New York.

They decided to go for dinner at the Smith & Wollensky steak house. Just as they were approaching the restaurant Diamond’s cell phone rang. He looked down at the caller ID and saw that it was McDade.

“I can’t answer it,” he told his daughter, who was puzzled by his uncharacteristic timidity. “I can’t do it anymore.”

“Dad, answer your phone!” she insisted.

Reluctantly, he took the call.

“I’ve got a question,” McDade said immediately when he picked up. “If we go into bankruptcy, would you consider taking the U.S. broker-dealer out of bankruptcy?”

Diamond whispered to Jennifer and Nellie, “I have to take this for a second.”

As the women entered the restaurant, he asked, “Is that what’s going to happen? Is this going to be Chapter 11?”

“We don’t know for sure,” McDade replied, “but if it goes into Chapter 11, if that’s the result, would you consider taking the U.S. broker-dealer?”

“Bart,” Diamond told him, “that’s exactly the part we want. So absolutely. We would consider it. But I have to tell you, I know nothing about bankruptcy law and I don’t know where to start. I have to talk to my board, I have to talk to John, but I’m pretty sure our answer would be yes.”

“Why don’t we do this,” Diamond continued. “I’ll get up early and get my team together, and we’ll meet you at five a.m. But leave me an e-mail if you haven’t declared bankruptcy. You get your team, and we’ll get our team.”

Bob Willumstad, with his advisers from JP Morgan, returned to the Fed on Sunday night to offer the latest update.

After Paulson, Geithner, and Jester took their seats around a conference table, Willumstad told the group somberly, “We’re in the same place, actually maybe a worse place than before.” He explained that the hole had since grown to $60 billion and detailed what they considered to be the “shenanigans” of Chris Flowers’s bid, to everyone’s amusement.

Jester, taking notes, started to grill Willumstad and Doug Braunstein about the numbers. Jester didn’t understand why they kept talking in ranges; he wanted to know how much money AIG needed to the last decimal point.

Braunstein sighed. “I can’t give you an exact figure. It’s difficult to get clear numbers,” he said, describing the antiquated systems at AIG.

It was clear to everyone in the room that AIG was now, as Willumstad expressed it, “in a bind”——though no one had as yet spoken of bankruptcy.

Willumstad suggested, again, that the Federal Reserve loan AIG just enough money to avoid being downgraded by the ratings agencies.

Geithner, again, said that that was out of the question. Given that Lehman was being left to die, Willumstad knew that Geithner’s refusal was serious. Still, he persisted.

“I’m proposing a transaction, not a bailout,” Willumstad said. “If we just get the Fed’s backing in exchange for collateral, I give you my word I’ll sell every asset needed to pay you back.”

Paulson repeated with exasperation that it wasn’t going to happen.

Once the AIG team had left, Geithner told Paulson that they needed to start thinking about what they could do to rescue the company—perhaps via another private consortium?

“I don’t know, I don’t know,” Paulson said wearily. He was still preoccupied with the fates of Lehman Brothers and Merrill Lynch, and now he was supposed to find a solution for AIG?

Jim Wilkinson, Paulson’s chief of staff, trying to keep his boss’s spirits up, marveled, “This would be extremely interesting from an analytical perspective if it wasn’t happening to us.”

Neither Treasury nor the Federal Reserve had oversight over AIG, but if it was going to fall to someone, it would be Geithner, who seemed closest to the situation. But before Paulson washed his hands of the situation, Geithner asked him if he could “borrow” the services of Dan Jester, who had proved to be quite helpful over the weekend working through many of the practical issues around Lehman and Merrill. As a former deputy CFO of Goldman, Jester understood financial services companies better than virtually all of them, Paulson said. And he was one of the few people among them who appreciated the complexities of the problem that lay ahead of them: When he was at Goldman, one of his clients back in the 1990s was none other than AIG.