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

The nine CEOs had already taken their seats, arranged alphabetically behind placards with their names, when Paulson, Geithner, Bernanke, and Bair entered. It was the first time—perhaps the only time—that the nine most powerful CEOs in American finance and their regulators would be in the same room at the same time.

“I would like to thank all of you for coming down to Washington on such short notice,” Paulson began, in perhaps the most serious tone he had yet taken with them individually during the dramatic events of the previous weeks. “Ben, Sheila, Tim, and I have asked you here this afternoon because we are of the view that the United States needs to take strong, decisive action to arrest the stress in our financial system.”

Blankfein, who was sitting directly across from Paulson, quickly turned solemn, while Lewis leaned forward to hear better.

“Over the recent days we have worked hard to come up with a three-part plan to address the turmoil,” Paulson explained.

Just as they had rehearsed, Geithner and Bernanke now took the group through the new commercial paper facility, followed by Bair’s explanation of the FDIC’s plan to guarantee bank debt. Paulson saved the key announcement for himself.

“Through our new TARP authority, Treasury will purchase up to $250 billion of preferred stock of banks and thrifts prior to year-end,” he said, with the gravity due the unprecedented measure. “The system needs more money, and all of you will be better off if there’s more capital in the system. That’s why we’re planning to announce that all nine of you will participate in the program.”

Paulson explained that the money would be invested on identical terms for each bank, with the strongest banks in the country taking the money to provide cover to the weaker banks that would follow suit. “This is about getting confidence back into the system. You’re the key to that confidence.”

“We regret having to take these actions,” he reiterated, and in case there was any confusion, he underscored the fact that he expected them to accept the money whether they wished to or not. “But let me be clear: If you don’t take it and you aren’t able to raise the capital that they say you need in the market, then I’m going to give you a second helping and you’re not going to like the terms on that.”

The bankers sat stunned. If Paulson’s aim had been to shock and awe them, the tactic had worked spectacularly well.

“This is the right thing to do for the country,” he said in closing.

Geithner now read off the amount that each bank would receive, in alphabetical order. Bank of America: $25 billion; Citigroup: $25 billion; Goldman Sachs: $10 billion; JP Morgan: $25 billion; Morgan Stanley: $10 billion; State Street: $10 billion; Wells Fargo: $25 billion.

“So where do I sign?” Dimon said to some laughter, trying to relieve the tension, which had not dissipated now that the bankers had learned why they had been summoned.

At 3:19 p.m. Wilkinson, who was sitting in the back of the room after inviting himself to the meeting, got an e-mail on his BlackBerry from Joel Kaplan, who was desperate to give President Bush some intelligence. “Gimme quick update—how is the reaction?”

He didn’t know how to reply, as the outcome was not at all certain.

Dick Kovacevich, for one, was obviously not pleased to have been given this ultimatum. He had had to get on a flight—a commercial flight, no less—to Washington, a place he had always found contemptible, only to be told he would have to take money he thought he didn’t need from the government, in some godforsaken effort to save all these other cowboys?

“I’m not one of you New York guys with your fancy products. Why am I in this room, talking about bailing you out?” he asked derisively.

For a moment no one said a word, and then the room suddenly broke out in pandemonium, with everyone talking over one another until Paulson finally broke in.

Staring sternly at Kovacevich, Paulson told him, “Your regulator is sitting right there.” John Dugan, comptroller of the currency, and FDIC chairwoman Sheila Bair were directly across the table from him. “And you’re going to get a call tomorrow telling you you’re undercapitalized and that you won’t be able to raise money in the private markets.”

Thain jumped in with his own question: “What kind of protections can you give us on changes in compensation policy?”

Although his new boss, Lewis, couldn’t believe Thain’s nerve in posing the question, it was nonetheless the one that everyone present wanted to ask. Would the government retroactively change compensation plans? Could they? What would happen if there was a populist outcry? After all, the government would now own stakes in their companies.

Bob Hoyt, Treasury’s general counsel, took the question. “We are going to be producing some rules so that the administration will not unilaterally change its view,” he said. “But you have no insulation if Congress wants to change the law.”

Lewis, increasingly frustrated, could see the conversation needed to move along and stated, “I have three things to say. There’s obviously a lot to like and dislike about the program. I think given what’s happening, if we don’t have a healthy fear of the unknown, then we’re crazy.”

Second, “if we spend another second talking about compensation issues, we’ve lost our minds!”

And finally, he said adamantly, “I don’t think we need to be talking about this a whole lot more,” adding, “We all know that we are going to sign.”

Still, Kovacevich kept stirring in his seat. This is practically socialism!

As Bernanke cleared his throat, the room fell silent again.

“I don’t really understand why there needs to be so much tension about this,” he said in his professorial way. He explained that the country was facing the worst economy since the Great Depression and pleaded with them to think about “the collective good. Look, we’re not trying to be intimidating or pushy… .”

Paulson gave him a look as if to suggest, Yes, in fact, I am being pushy!

John Mack, who had been sitting silently for most of the meeting, turned to Geithner and said, “Give me the paper.” Taking a pen from his breast pocket he signed the document and, with a flick of his finger, sent it sliding back across the table. “Done,” he exclaimed, thus unceremoniously certifying what Paulson hated calling a bailout.

“But you didn’t write your name in,” Geithner pointed out. “You write it in,” Mack instructed, and Geithner penned the words “MORGAN STAN-LEY” in block letters at the top. “And you didn’t put the amount in,” Geithner protested.

“It’s $10 billion,” Mack replied nonchalantly.

Thain, looking at Mack in dismay, said, “You can’t sign that without your board.”

“No?” Mack replied. “My board’s on twenty-four-hour notice. They’ll go along with it. And if they don’t, they’ll fire me!”

Blankfein indicated that he, too, needed to speak with his board. “I don’t feel authorized to do that on my own,” he said, with everyone else agreeing that they, too, would need to go through proper channels.

Dimon stood up, walked to the corner of the room near the window, and decided that he was going to convene a board meeting by phone right then and there. He called his assistant, Kathy, and told her to get the directors on the line. The other CEOs dispersed to separate conference rooms to call their offices.

At 4:01 Wilkinson finally replied to Kaplan’s e-mail. “We are there except for one,” he wrote, referring to Wells Fargo. “This deal will get done.”

Outside in the hallway, a huge grin was on Pandit’s face. “We just got out. They’re going to give us $25 billion, and it comes with a guarantee,” he said into the cell phone, sounding as if he had just won the Powerball lottery.