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

“I know it could leave us with open-ended exposure,” Warsh admitted, “but let’s actually figure what the hell is going on here.”

Although Bernanke bluntly acknowledged, “I don’t know the insurance business,” Geithner continued to urge them to commit. The systemic risk was just too great, he insisted.

After hearing his arguments, Bernanke told him to develop a plan. Once he came back to them with more details, they’d formally vote on how to proceed.

“Let me just make sure I’m characterizing the support of you and the board on this accurately… .” Geithner then repeated what had just been said.

Michael Wiseman and Jamie Gamble passed through security at the Fed and went in search of Braunstein. They needed to understand what was happening with AIG, and if nothing was happening, they needed his team to help them plan for the bankruptcy.

Wiseman finally tracked him down in the confidential meeting that was still going on about how the Fed could backstop AIG. “Listen, we don’t have a lot of time and we could use your help with some of the numbers,” he told him angrily after pulling him out of the room. “But we need to know which hat you’re wearing. Are you working for us, the Fed, or JP Morgan?”

“I don’t think I can answer that question without talking to my lawyer,” Braunstein said after a pause. Signaling that he needed a second, he dashed back into the conference room.

When he emerged a few moments later, he said stiffly to Wiseman: “I can’t talk. You should contact Treasury directly.”

“Okay. Thanks,” Wiseman said, putting out his hand to shake it, but Braunstein only turned around and returned to his meeting.

Within seconds, an aide from the Federal Reserve appeared and informed Wiseman and Gamble that they had to leave the building.

“Did you just see that?” Wiseman asked Gamble as they were escorted to the door. “Doug wouldn’t even shake my hand. What the fuck is going on in there?”

However resistant Hank Paulson had been to the idea of a bailout, after getting off the phone at 10:30 a.m. with Geithner, who had walked him through the latest plan, he could see where the markets were headed, and it scared him. During his time at Goldman, he had educated himself about the insurance industry, and with that background he understood how an AIG bankruptcy could very well trigger a global panic. As a regular visitor to Asia, he also knew how much business AIG did there and how many foreign governments owned its debt. Foreign governments had already been calling Treasury to express their anxiety about AIG’s failing.

Jim Wilkinson asked incredulously, “Are we really going to rescue this insurance company?”

Paulson just stared at him as if to say that only a madman would just stand by and do nothing.

Ken Wilson, his special adviser, raised an issue they had yet to consider: “Hank, how the hell can we put $85 billion into this entity without new management?”—a euphemism for asking how the government could fund this amount of money without firing the current CEO and installing its own. Without a new CEO, it would seem as if the government was backing the same inept management that had created this mess.

“You’re right. You’ve got to find me a CEO. Drop every other thing you’re doing,” Paulson told him. “Get me a CEO.”

Wilson got back to his office and started scrolling though his computer’s address book. After years as a financial institutions banker at Goldman Sachs, he knew the top people in the industry. Before even getting to the B’s, a name popped into his brain: Ed Liddy, the former CEO of Allstate and a Goldman board member. He was a perfect candidate, currently “on the beach” without a job and someone who would welcome the challenge. Liddy also knew AIG: He was the Goldman board member to whom everyone turned for advice whenever they discussed whether the firm should acquire it.

But Wilson didn’t have his phone number. So he called Chris Cole at Goldman Sachs, who had been at AIG all weekend and had attended the meeting at the Fed on Monday, who gladly retrieved the number for him.

There was no time for small talk when Wilson reached Liddy, and he immediately explained why he was calling.

“Do you have time to take a call from Hank?” Wilson asked, and Liddy assented enthusiastically.

“You have to hang up,” Wilson told Paulson, who was on the phone when he appeared in his boss’s office door. “I’ve got your CEO.”

AIG’s stock had fallen below $2 a share when Willumstad’s assistant stepped into his office and handed him a fax from Hank Greenberg. Willumstad had heard earlier that Greenberg was out telling the press that he planned to mount a proxy contest or a takeover of the company.

“Do I have to read it?” he asked warily, and was not surprised at what he saw:

Dear Bob,

We have been discussing for several weeks my offer to assist the company, in any way that you and the Board desired. Throughout those discussions, you have told me and David Boies that you believed my assistance was important to the company. The only concern that you have expressed to me is the fear that if I were to become an advisor to the company that I would overshadow you. I respectfully suggest to you, and to the Board, that the continuing refusal to work together to save this great company is far more important than any concern over personal positions or perceptions.

I do not know whether or not it is now too late to save AIG. However, we owe it to AIG’s shareholders, creditors and our country to try.

Since you became Chairman of AIG, you and the Board have presided over the virtual destruction of shareholder value built up over 35 years. It is not my intention to try to point fingers or be critical. My only point is that under the circumstance, I am truly bewildered at the unwillingness of you and the Board to accept my help.

Geithner began to prepare in his office for a conference call with Bernanke. We’re going to do this, he thought. We’re really going to do this.

Jester and Norton were poring over all the terms. They had just learned that Ed Liddy had tentatively accepted the job of AIG’s CEO and was planning to fly to New York from Chicago that night.

To draft a rescue deal on such short notice, the government needed help, preferably from someone who already understood AIG and its extraordinary circumstances. Jester knew just the man: Marshall Huebner, the co-head of insolvency and restructuring at Davis Polk & Wardwell, who was already working on AIG for JP Morgan and who happened to be just downstairs.

Meanwhile, Bob Scully of Morgan Stanley, whom Geithner had hired to advise the Fed, wanted to make sure he was aware of all the risks ahead of the call. As Scully continued to study the rapid deterioration in the markets, he became increasingly anxious about whether AIG would be able to maintain its payments on a government loan. What had looked like a steal before might still be a tough sell.