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

“Listen, if you’re a senior executive, you’re not going to say, ‘You know what, I’m not going to wake my boss and I’ll just keep it to myself and then if it turns out that I missed the opportunity of a lifetime, how am I going to explain it to him if he wasn’t awakened?’”

Twenty minutes later, Yuki was back on the phone with Taubman. “I got him.” Mitsubishi was going to wake up its entire deal team and get working. In a conference room just two floors down, Morgan Stanley’s board had arrived, and things had grown tense quickly. Some had flown across the country to get there; others, like Sir Howard J. Davies, had flown in from London. The only person missing was Charles E. Phillips, president of the software giant Oracle (and a former Morgan Stanley technology analyst).

Kelleher had just finished giving a presentation on the firm’s finances, and it was not good. Charles Noski, a director and former chief financial officer of AT&T, asked him point-blank: “When do we run out of money?”

Kelleher paused and then said somberly, “Well, depending on what happens Monday and Tuesday, it could be as early as middle of the week.”

It was a shot across the bow. If this weekend didn’t go well, they’d all end up the targets of shareholder lawsuits. The independent board members, led by the lead director, C. Robert Kidder, decided they needed to hire an independent adviser and, after a short conversation, chose Roger Altman, the former deputy Treasury secretary and founder of the boutique bank Evercore Partners (and Dick Fuld’s former carpool-mate). He would advise the board on whatever transactions they would be presented with and provide a modicum of cover; in the event that whatever happened over the weekend led to legal battles, at least they would look like they were trying to be responsible.

After Mack came downstairs again Gene Ludwig, Mack’s outside consultant, explained the bank holding concept that they were pursuing. Ludwig said that he believed that Paulson would be motivated to protect them.

“If we go, Goldman goes,” he said, stating the obvious, at least internally, by that point. But then he added a new insight that the board hadn’t considered.

“And then GE will go.”

At Goldman Sachs, two of its top bankers, David Solomon and John Weinberg, had just returned from a morning meeting in Fairfield, Connecticut. They had met with Jeffrey Immelt, General Electric’s CEO, and Keith Sherin, its CFO.

Seated on Cohn’s couch, Solomon recounted the meeting to him. It was a complicated, and almost comical, situation: Solomon and Weinberg had traveled to Fairfield to advise its client on coping with the financial crisis, beginning with a plan to raise capital. One of Immelt’s primary concerns, however, was what would happen if its adviser, Goldman Sachs, went out of business.

General Electric was more about manufacturing than financial engineering, but roughly half of its profits in recent years had come from a finance company unit called GE Capital. Like most Wall Street firms, GE Capital relied on the short-term paper market and the confidence of investors worldwide, and Immelt was worried about how the fate of Goldman and Morgan Stanley might affect it. The meeting ended without much clarity, apart from some preliminary plans to raise capital—and an assurance to Immelt that Goldman was staying in business.

But Cohn was already thinking about Goldman’s talks with Wachovia. Cohn, speaking to Kevin Warsh of the Fed, had agreed to entertain the idea, but only on the condition the Fed would provide assistance; Warsh had said they’d strongly consider it. Cohn believed him: Paulson had spoken with Blankfein and told him to take the talks seriously. “If you go into this looking for all the problems and how much help you’re going to get, it’s never going to happen,” he said, adding, “You’re in trouble and I can’t help you.” In the meantime, Warsh instructed Cohn to make sure they could work out the personal dynamics.

“Let’s not waste our time on economics if you guys are never going to solve the social issues,” he said. “If you aren’t willing to accommodate them, if Bob’s not willing to do whatever, this isn’t going to happen.”

Steel was scheduled to land at Westchester County Airport in White Plains, a suburb of the city, in only a few hours, and Cohn walked into Blankfein’s office and made a suggestion.

“Lloyd, you should go pick Steel up at the airport,” Cohn said, believing it would be a gracious gesture to kick off the merger talks.

Blankfein looked seriously annoyed, having never felt that he got along with Steel particularly well ever since Paulson had made them co-heads of the equities division years earlier. “Do I have to?”

“Yes,” Cohn said firmly. “I would go with you but it would be awkward. You should go pick him up.”

Blankfein was still resistant. “Can you go by yourself?”

“No,” said Cohn, who considered Steel a friend. “I already have a very good relationship with him.”

Blankfein relented. He’d head to the airport.

For a moment Paulson felt he could breathe a sigh of relief. His team had finished the first draft of the TARP legislation and gotten a quick sign-off from the Office of Management and Budget to begin distributing it on the Hill.

Given that he had promised the congressional leadership on Thursday night that he could get them something to work on “ in hours,” he figured he’d make it succinct. Paulson; Kevin Fromer, his head of legislative affairs; and Bob Hoyt, his general counsel, had rushed to draft it, and it came in at just under three pages.

After much debate, Paulson’s team settled on the $700 billion figure that Kashkari had proposed the day before. If passed, it would be the largest one-time expenditure in the history of the federal government. Concerned about the potential for political interference, Hoyt had slipped several lines into the bill aimed at preventing it, as well as granting Paulson whatever powers he might need:

Decisions by the Secretary pursuant to the authority of this Act are nonreviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency. The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act … without regard to any other provision of law regarding public contracts… . Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.

It might have been too early to expect any feedback, but Treasury staffers were already excitedly forwarding copies to one another.

And the reaction was instant: Even inside the department there were worries that Paulson might look like he was overreaching. The three-page bill had no oversight plan and virtually no qualifiers. Its terse length alone was making people uneasy.

“So, have you seen the bill?” Dan Jester asked Jeremiah Norton, neither of whom had worked on the proposal.

“I’ve seen the talking points,” Norton replied.

“No,” said Jester, “That is the bill!”