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

“Damn it,” Schumer thundered, annoyed that he couldn’t get a straight answer. “If you think you need $700 billion right away, you’d better tell us.”

“I’m doing this for you as much as for me,” Paulson replied, blanching at Schumer’s aggressive tone. “If we don’t do this, it’s coming down on all our heads.”

The conversation soon turned to executive compensation. While everyone in the room was aware of the potential political fallout over huge bonuses being paid out by firms requiring taxpayer rescue, it was Max Baucus, chairman of the Senate Finance Committee, who spoke to the issue. He made it abundantly clear that he was furious with Paulson for not having insisted on strict limits on compensation for the managements of banks that would take advantage of the program. In Baucus’s view the executives should be entitled to next to nothing—and at the very minimum they should be forced to give up golden parachutes and other perks.

As Baucus railed on, raising his voice until he was virtually shouting at the Treasury staff, Paulson finally interrupted him with, “Let’s not get emotional,” and tried to explain his rationale. The reason he was loath to put in executive compensation limits, he said, was not because he wanted to protect his friends but because he believed the measure was impractical. Banks, he said, would have to renegotiate all of their compensation agreements, a process that could take months, preventing them from accessing the program.

Paulson’s efforts to calm the group’s nerves with practical reasoning, however, didn’t appear to be working; other congressional leaders rushed in to express their own outrage, focusing now on the lack of oversight and accountability. While the three-page piece of legislation he had originally submitted the week before had since grown in size, it still contained little in the way of any watchdog provisions to guarantee that the program would be maintained properly. Paulson had been resisting the Democrats’ demands to appoint a panel that would not only oversee the program, but also have the authority to determine how it operated and made decisions, as he feared that it would inevitably become politicized. “All we’re talking about is having Groucho, Harpo, and Chico watching over Zeppo,” said Frank to laughter.

The conversation dragged on into the night, as the staffers from Treasury and Congress tried to find a middle ground, with only the same sticking points raised again and again.

“It’s impossible for us to go to hundreds of banks across the country and have them renegotiate all their employment contracts,” Kashkari said, reiterating why they couldn’t include more compensation curbs. “It’s just going to take too long; it’s impossible. So if they have golden parachutes, physically we can’t do it.”

One of Schumer’s staffers proposed a different approach. “Well, why don’t you just block new golden parachutes?”

“We hadn’t thought of that,” Kashkari admitted sheepishly.

It was the eureka! moment that finally seemed to break the impasse the group had reached. For the first time in days it appeared that with a few other compromises they could be near agreement on the terms of a deal. While the Democrats had backed down on the oversight component, they could console themselves with a victory of sorts on the executive compensation issue.

As his staffers continued to perform shuttle diplomacy among the various factions, trying to find some language on which they could finally settle, Paulson, looking deathly pale, retreated to Pelosi’s office.

“You want us to go get the Hill doctor?” Harry Reid asked.

“No, no, no,” Paulson said groggily. “I’ll be fine.”

Hurriedly pulling a trash can before him, he began having dry heaves.

Bob Steel and his lieutenant, David Carroll, entered the elegant Art Deco lobby of the Carlyle Hotel at 8:00 on Sunday morning, making their way to the elevators and to the suite of Dick Kovacevich, the chairman of Wells Fargo.

With the TARP legislation still publicly unresolved, Steel and Carroll had come to see Kovacevich in hopes of convincing him to buy Wachovia. For Steel it was an especially bitter pill to swallow; having left Treasury only two months earlier to become the CEO of the firm, he was now resigned to selling it. Much like AIG’s Bob Willumstad, he simply had no good options available to him. Any attempt to turn around Wachovia in this environment, with its portfolio of subprime loans falling even more every day, was going to be increasingly difficult. Steel felt a deep sense of responsibility to find a buyer quickly, to obtain some value out of the business before the winds turned against him completely.

He was also under particular time pressure from the fact that both Standard & Poor’s and Moody’s had threatened to downgrade the firm’s debt the following day. A downgrade could put even more pressure on the bank, whose stock had fallen 27 percent on Friday, further eroding confidence among customers, who had withdrawn some $5 billion that same day.

In his effort to encourage an auction, Steel had met with Pandit on Friday and Saturday, but the night before had received the bad news: Like Goldman Sachs the prior weekend, Citigroup would only buy the firm with government assistance, and even then Pandit said he was prepared to pay only $1 a share for it.

As Steel and Carroll sat down for breakfast in Kovacevich’s suite, he could only hope he was going to get a more encouraging reception.

Kovacevich, a handsome sixty-four-year-old with silver just beginning to shade his temples, had built Wells Fargo into one of the best-managed banks in the country, establishing it as the dominant franchise on the West Coast and attracting Warren Buffett’s Berkshire Hathaway as his largest single shareholder.

After a waiter poured coffee for the group, Kovacevich, who had flown from his home in San Francisco to New York expressly for this meeting, said he was very interested in making a bid for Wachovia without any government assistance and hoped to do so by the end of the day. But, he warned, in the straight-talking manner for which he was known, “This is not going to have a ‘two-handle’ in front of it.”

Steel smiled. “Listen, Dick, let’s not worry about price now,” he replied, satisfied that even while Kovacevich was rejecting a $20 offer, his interest was sufficient that Steel would likely end up with a final number in the teens. “Let’s see how this deal works, and once we know how it looks there will be a price that makes sense,” he added.

Kovacevich said that his team would continue its due diligence, and he hoped to be able to get back to him later that day.

Steel, still smiling as he left the hotel, called his adviser, Peter Weinberg, and reported, “It was a good meeting. I think.”

Sitting in his office Sunday morning Tim Geithner, habitually running his fingers through his thick hair, pondered his alternatives.

He had spoken to Citigroup the day before, when they had laid out a plan to buy Wachovia in concert with the U.S. government. The bank would assume $53 billion of Wachovia’s subordinated debt and would cover as much as $42 billion of losses on its $312 billion portfolio; anything beyond that the government would absorb. In return for that protection, Citi would pay the government $12 billion in preferred stock and warrants. Geithner had always liked the idea of merging Citigroup and Wachovia, which he viewed as an ideal solution to each party’s problems: Citigroup needed a larger deposit base and Wachovia clearly needed a larger, stronger institution. Even so, Geithner was still hopeful that Wells Fargo would pull through and be able to reach a deal without government involvement.