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

Relying on his gut, as always, Buffett quickly agreed to the outlines of the deal. Trott called Winkelried, reaching him just as he emerged from the Grand Central terminal on his way to the United Nations, where President Bush was scheduled to address the Sixty-third General Assembly, to tell him the good news.

“I think Warren will do this!” Trott said excitedly.

“Okay, stay where you are,” Winkelried told him. Trying to find a quiet spot on the congested, noisy sidewalks outside Grand Central, Winkelried called the office to set up a conference call with Goldman’s brain trust—David Viniar, Gary Cohn, David Solomon, and Blankfein, who had flown down to Washington for the day for meetings with lawmakers.

Minutes later the group was assembled, and they began to discuss the Buffett deal. Just as important as the infusion of cash, they agreed, was the confidence that a Buffett investment would inspire in the market. Indeed, Winkelried said, the firm would be able to raise additional money from other investors on the back of Buffett’s investment.

“Well, why wouldn’t we do it?” Viniar wondered.

“We’re done,” Solomon said.

Trott immediately set up a call for Blankfein to speak directly with Buffett, and after the two briefly reviewed the transaction, Buffett suggested that Goldman get the papers in order and send them to him, so they could announce the deal that afternoon after the market closed.

Blankfein, who always liked to review every last detail, asked, “Would you like me to just do a download for you on things that I’m concerned about?”

“No, it’s okay,” Buffett replied calmly. “If I were worried, I wouldn’t be doing this at all.” With that he rounded up his grandchildren and headed for Dairy Queen.

Back at Broad Street, however, there was still one provision that troubled the group, a provision that Buffett had indicated would be a deal breaker: Goldman’s top four officers could not sell more than 10 percent of their Goldman shares until 2011, or until Buffett sold his own, even if they left the firm. He had explained his rationale for this condition to Blankfein by saying, “If I’m buying the horse, I’m buying the jockey, too.”

That stipulation would not be an issue for him, Cohn, or Viniar, Blankfein knew, but it would be a problem for Winkelried. Only forty-nine years old, he had recently been making noises about leaving Goldman and, while it was a secret within the firm, he was having his own personal liquidity crisis. Although Winkelried was debt-free, he was quickly running out of cash. Despite making $53.1 million in 2006 and about $71.5 million in 2007, most of it was in stock; in the meantime, he had been spending extraordinary sums. While he owned a 5.9-acre waterfront estate on Nantucket that he was preparing to put up for sale for $55 million, his real cash drain was Marvine Ranch, a horse farm he owned in Meeker, Colorado. Winkelried was a competitive “cutter” rider, and while the farm had won more than $1 million in prize money over the previous three years, it cost tens of millions of dollars to operate.

Blankfein called him personally and, after assuring him that the firm would help him find a way out of his financial troubles, Winkelried agreed to Buffett’s condition. He was unhappy with the restriction, but he knew that the Buffett deal was best for Goldman.

By the next morning Goldman had managed to sell an additional $5 billion of shares to investors on the news of the Buffett deal, and its stock rose more than 6 percent.

Blankfein could finally relax. The wolves were no longer at the door.

“Josh, I cannot believe this is happening!” Paulson shouted into his cell phone at Josh Bolten, the White House chief of staff and the man who had helped hire him. “No one checked with me on this. Ah, and, if we are going to keep doing bullshit like this, you, ah, you are going to need a new Treasury secretary!”

Paulson, who had just concluded an entire afternoon of hearings on the Hill trying to persuade skeptical lawmakers to pass his TARP legislation, had just learned that John McCain, the Republican candidate for president, had announced that he was suspending his campaign to return to Washington to help work on the financial rescue plan. The crisis, which seemed only to be deepening, was now becoming part of the tactics of the presidential elections.

To Paulson, as depressed as he was exhausted, it was just the latest reminder of the uphill battle he faced in getting his legislation approved. McCain’s return, he feared, would only galvanize the House Republicans opposed to the rescue proposal. If the Bush administration had no control over its presidential candidate—let alone the party itself—Paulson knew he was in trouble.

As Paulson paced in an anteroom at the Rayburn House Office Building, Bernanke, who had accompanied him to the hearings, became so uncomfortable with the tone of his conversation with Bolten that he left the room. He was hardly accustomed to officials screaming at each other, and worse, he couldn’t abide the bare-knuckled behind-the-scenes fighting that is a staple of politics, especially in an election year.

In truth, support for TARP—which Joshua Rosner, a managing director at Graham, Fisher & Company, told the New York Times should stand for “Total Abdication of Responsibility to the Public”—was quickly waning in both parties. Democrats charged that it was a way for Paulson to line the pockets of his friends on Wall Street, while Republicans denounced it as just another example of government intervention run amok. Congressmembers on both sides of the aisle complained about the cost of the plan, with some questioning if it could be made in installments and others seeking to include limits on executive compensation in any legislation.

“What they have sent us is not acceptable,” Christopher Dodd declared. “This is not going to work.” Jack Kingston, a Republican congressman from Georgia, went so far as to publicly criticize Paulson as “a terrible communicator,” complaining, “We’re being asked to vote on the major piece of legislation of our lifetimes, and we haven’t seen the bill.”

Beyond the rhetoric, however, lawmakers as well as investors were starting to raise practical questions about how the process of buying troubled assets would actually work. How would the government pay for them? How would the prices be determined? What if certain parties wound up profiting at the expense of the taxpayers?

When Stephen Schwarzman, who had encouraged Paulson to announce a plan—any plan—finally saw the details of this one, he called Jim Wilkinson to get a message to Paulson.

“You announced the wrong plan!” Schwarzman told him.

“What do you mean?” Wilkinson asked.

“You won’t practically be able to figure out a way to buy these assets in a short period of time to provide liquidity to the system without either screwing the taxpayers or screwing the banks,” Schwarzman warned him. “And you won’t be able to force people to sell!” He explained that most bank CEOs would prefer to leave their bad assets on their books at depressed prices rather than have to realize a huge loss. “And,” he added, “each package of these assets is so highly complex that it’s not like bidding for a bond; you have to do a lot of in-depth analysis, and that takes weeks to months, and meanwhile, if you do nothing for weeks to months, you’re going to go back into crisis.”