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

Kelleher, who had been keeping a careful watch over the firm’s dwindling cash pile, had just taken a look at Wachovia’s numbers for himself and observed, “That’s a shit sandwich even I can’t get my big mouth around.”

It became increasingly clear to everybody that the only way this deal was going to take place was if the government provided cover.

Mack, not having heard anything that soothed his nerves, had his secretary get Steel on the line. “You called us and said you wanted to go a hundred miles an hour,” he reminded him, his Southern manners starting to fray, “and I’m sensing from your team that there’s not the same urgency.”

Steel was apologetic. “You’re right,” he told Mack. “We’re not doing this for the next couple of days.”

They agreed they’d get back in touch, but before he hung up, Steel asked Mack for a favor. “It wouldn’t be helpful if it leaked out that we’re not talking,” he said.

“Fortress Goldman.” Tim Geithner had written those two words on a pad on his desk after a Friday-afternoon conversation with Lloyd Blankfein, who must have uttered the phrase a dozen times. It was his way of saying he wanted Goldman to remain a stand-alone institution.

Geithner had been concerned that Blankfein didn’t appreciate how perilous his situation actually was and had quizzed him about the firm’s financial health. Blankfein had said he was hopeful that Goldman would weather the crisis but had acknowledged: “It depends on what happens to the rest of the world.”

Geithner had also sounded Blankfein out about the bank holding company idea. While Blankfein was originally somewhat resistant, by now he had officially warmed up to it. He had become increasingly convinced that if the market knew that the Federal Reserve was behind him, it would instill confidence in investors. And after doing the math, by his estimate 95 percent of Goldman’s assets could already be pledged to the Fed’s discount window, so another 5 percent didn’t represent that big a hurdle. Rodgin Cohen, Goldman’s lawyer, had already discussed this with Geithner earlier in the day; of course, he’d have to sell Bernanke on the idea.

Blankfein, whose voice revealed to Geithner an almost panicked state, had also said that he was planning to raise capital and was certain that the firm would be able to do so from private investors. Maybe even Warren Buffett would be interested.

The waiter at Blue Fin had just brought several massive plates of sushi—spicy lobster rolls, pieces of yellowtail tuna, and tobiko —when Colm Kelleher’s cell phone rang. He had gone to get a late lunch with his Morgan Stanley colleagues, including James Gorman, Walid Chammah, and Tom Nides, and the group had been chatting about their plan to meet later that night with Gao Xiqing of China Investment Corporation, who was bringing an entire team to New York. With Wachovia effectively out of the picture, the Chinese were now their sole prospect.

When Kelleher looked down at the caller ID, he saw it was a number in Japan and walked to the corner of the restaurant.

Jonathan Kindred, president of Morgan Stanley’s securities business in Tokyo, greeted him and said excitedly, “This is interesting. I just got a call from Mitsubishi. They want to do the deal.” Mitsubishi UFJ, Japan’s biggest bank, was interested in buying a stake in Morgan Stanley.

The call had come completely unexpectedly, and totally unsolicited. Morgan Stanley’s management had actually ruled out calling Mitsubishi earlier in the week after its chairman, Ryosuke Tamakoshi, said publicly at a conference that following Lehman’s bankruptcy his firm would not be making any investments in the United States.

Kindred said he thought Mitsubishi was prepared to move quickly. But Kelleher, rolling his eyes, was skeptical. He had worked with other Japanese banks before and, in his experience, they had always lived up to their reputation as being slow, risk-averse, and deeply bureaucratic.

James Gorman’s eyes widened when Kelleher returned to the table with Kindred’s news. This could be exactly what they needed, he thought.

Kelleher only scoffed, “This is a waste of time, they’re never going to do anything.”

“Colm, I really feel they’re going to do something,” Gorman insisted. When Gorman worked at Merrill Lynch he had orchestrated a joint venture with Mitsubishi to combine their private banking and wealth-management businesses in Japan. He thought that the fact that Mitsubishi had initiated the call to express interest was an encouraging sign. “This stuff doesn’t happen by accident,” he said.

Kevin Warsh, the Fed governor, had taken the US Airways shuttle to New York late on Friday to help Geithner think through how to handle the upcoming weekend. Just as important, he would be Bernanke’s eyes and ears on the ground. As he and his driver made their way through traffic from LaGuardia Airport to the New York Fed, he received a call from Rodgin Cohen, who by now was advising both Wachovia on its talks with Morgan Stanley and Goldman Sachs on its bank holding company status. He told Warsh he had an idea—a potentially big one. It wasn’t a plan officially sanctioned by his clients, just a friendly suggestion from an old-timer in the business.

He suggested to Warsh that the government attempt a shotgun wedding between Goldman and Wachovia. He knew it was a long shot—the “optics,” he acknowledged, would be problematic, given Paulson had worked at Goldman for thirty years and been its CEO from 1999 to 2006 and that Wachovia’s CEO, Bob Steel, was a former Goldman man and Paulson’s former deputy at Treasury too—but it would solve everyone’s problems: Goldman would get the deposit base it had been seeking, and Wachovia would have its death sentence stayed.

Warsh listened to the proposal and, almost to his own surprise, liked it.

Gao Xiqing, dressed in a sporty turtleneck and blazer, arrived at Morgan Stanley with his team just after 9:00 p.m., having flown into New York with Morgan Stanley’s Wei Sun Christianson on a private jet from Aspen. He had been on a panel that afternoon with Carlos Slim, the Mexican billionaire, at Ted Forstmann’s gathering and had asked the moderator, Charlie Rose, to make certain the session didn’t run long so that he could reach the airport in time. Given the rumors in the newspapers, everyone at the panel knew exactly where he was headed.

Gao’s back was causing him so much pain that when James Gorman first went to introduce himself, he found Gao lying on the floor of a conference room on the fortieth floor, in the middle of a telephone call. Mack, ever the accommodating host, had a couch brought from the executive dining room for his guest to lie on.

Over dinner, ordered in from Mack’s favorite restaurant, San Pietro— again—they discussed a possible transaction. Alternating between standing up and lying down, Gao reiterated his interest in buying 49 percent of Morgan Stanley.