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

To aid in my reporting, I tried to rely as often as possible on the written record, and I was lucky to have found sources who often took incredible notes or provided access to internal documents, e-mails, presentations, scripts, etc. I also relied upon government documents that I obtained through Freedom of Information Act requests. Both Henry Paulson’s and Tim Geithner’s calendars helped provide key dates and times. However, it is worth noting that both of those calendars—like diaries I was provided by others—often contained errors about dates or specific meetings.

It was clear from the very beginning of this project that no matter how eager I was to interview these participants on the record, I was not going to get very far if I truly wanted to capture the personal, behind-the-scenes machinations of this dramatic period. As I indicated in the author’s note at the beginning of this volume, the majority of subjects interviewed took part only on the condition that they not be revealed as a source, though I was free to capture their contemporaneous words and feelings in the text as they remembered them.

Even in conversations that appear to be between only two people, it is remarkable how many others may have been privy to them. For example, many of the calls conducted by CEOs and government officials took place on speakerphone, sometimes with a dozen people listening in. Other times, a detailed description of a conversation might have been sent by e-mail immediately afterward by one of the participants to a colleague, and forwarded to others.

It is worth noting that much of the dialogue that appears in this book came from the best recollections of participants. As a result, it should be said that the dialogue cannot be considered to be the same as an exact transcript. I have sought out as many sources as possible for confirmation, especially for particularly memorable remarks, but the dialogue is only as good as the memories of those who recalled it.

I have also relied on a treasure trove of reporting by my peers in the business press, who, it must be said, did a remarkable job covering these events in real time, and I have sought to credit them in the notes that follow. Even in instances where I have confirmed the information independently, I have still tried to identify the news article that reported the information first, though I am sure I have inadvertently overlooked some publication or article that may have broken a piece of news or detail that is included in this volume.

Some of the best reporting that took place during this period, I am proud to say, came from my colleagues at the New York Times . But I must also acknowledge the excellent reporting by the Associated Press, Bloomberg, BusinessWeek , CBS’s 60 Minutes , CNBC, Forbes, Fortune, Institutional Investor , Reuters, the Washington Post, and the Wall Street Journal . Among others, I’d like to single out two remarkable reporters at the Wall Street Journal who I found myself citing frequently: Susanne Craig, who led that paper’s coverage of Lehman’s collapse, and Deborah Solomon, whose Washington coverage was first rate.

Finally, any fact or piece of dialogue not cited in the notes below came from one or more of my confidential sources or documentary evidence that was provided to me.

PROLOGUE

1 “Lehman Races Clock ”: Susanne Craig, Deborah Solomon, Carrie Mollenkamp, and Matthew Karnitschnig, “Lehman Races Clock; Crisis Spreads,” Wall Street Journal, September 13, 2008.

4 Goldman Sachs, ranked at the top of the five leading brokerages: Harper, “Wall Street Bonuses Hit Record,” Bloomberg.

4 Blankfein, alone took home $68 million: In addition to his salary, Blank fein earned a $67.9 million bonus in 2007—“the biggest ever for a top Wall Street executive.” Christine Harper, “Wall Street Bonuses Hit Record $39 Billion for 2007,” Bloomberg, January 17, 2008; Susanne Craig, Kate Kelly, and Deborah Solomon, “Goldman Sets Plan to Escape U.S. Grip,” Wall Street Journal, April 14, 2009.

4 “The whole world is moving”: Louis Uchitelle, “The Richest of the Rich, Proud of a New Gilded Age,” New York Times, July 15, 2007.

5 “ate their own cooking”: As Emanuel Derman, of hedge fund Prisma Capital Partners, noted: “These guys ate their own cooking; they didn’t just pass it on to clients.” Paul Barrett, “What Brought Down Wall Street?” BusinessWeek, September 19, 2008.

5 “The sudden failure or abrupt withdrawal”: Charles A. Bowsher, comptroller general of the United States, said this on May 18, 1994, before the Senate Committee on Banking, Housing, and Urban Affairs. http://www.gao.gov/products/GGD-94-133.

5 “The impact on the broader economy”: “Chairman Bernanke Testifies Before Joint Economic Committee,” U.S. Fed News, March 28, 2007.

5 Bear Stearns’ hedge funds failing: In July 2007, the High-Grade Structured Credit Strategies Fund and the High-Grade Structured Credit Strategies Enhanced Leverage Fund caved in. Kate Kelly, “Barclays Sues Bear Over Failed Funds,” Wall Street Journal, December 20, 2007.

6 BNP Paribas:“BNP Paribas Freezes Funds Amid Subprime Concern,” Bloomberg, August 10, 2007.

CHAPTER ONE

9 the twelve-acre estate: His Greenwich property, worth an estimated $11 million, has a home with twenty rooms, eight bedrooms, a tennis court, a squash court, and a pool house. It’s one of five Richard Fuld owns. Steve Fishman, “Burning Down His House,” New York , December 8, 2008.

9 supposed to be in India: Susanne Craig, “Lehman Finds Itself in Center of a Storm,” Wall Street Journal, March 18, 2008.

11 rumors were rampant that ING: Ibid. When asked about these rumors, an ING spokeswoman said the company would continue to offer funds but will be looking “more carefully at risk and collateral.”

11 Gregory, who lived in Lloyd Harbor: Lloyd Harbor was Gregory’s primary address, but he owned several other properties, including a 2.5-acre oceanfront estate in Bridgehampton and an apartment at 610 Park Avenue on Manhattan’s Upper East Side. See Michael Shnayerson, “Profiles in Panic,” Vanity Fair, January 2009.

11 helicopter for his daily commute: Ibid.

11 missed his son’s lacrosse game: Craig, “Lehman Finds Itself,” Wall Street Journal.

12 “Do we have some stuff”: Fuld, as quoted by the Financial Times: “Do we have some stuff on the books that would be tough to get rid of? Yes,” he said, referring to commercial and residential mortgage assets. “Am I worried about it? No. If you have some repricing of these things will we lose some money? Yes. Is it going to kill us? Of course not.” Ben White, “A Fighter on the Ropes,” Financial Times , June 14, 2008.

12 He had led Lehman through the tragedy and subsequent disruptions of 9/11: A few days after 9/11, with Fuld leading the way, the firm relocated to the Sheraton Manhattan hotel in Midtown, where desks replaced beds and the cocktail lounge became the global finance group’s base of operations. Eight months later, in April 2002, Lehman moved into its new headquarters. See Andy Serwer, “The Improbable Power Broker: How Dick Fuld Transformed Lehman from Wall Street Also-Ran to Super-Hot Machine,” Fortune , April 17, 2006.

12 buying this new tower from Morgan Stanley: In October 2001, Morgan Stanley sold its office building, located on Broadway and West Forty-ninth Street, to Lehman Brothers for $700 million. Charles V. Bagli, “Morgan Stanley Selling Nearly Completed Office Tower to Lehman for $700 Million,” New York Times , October 9, 2001.

13 “We’ve been characterizing Lehman Brothers”: Joe Kernen, Squawk Box, CNBC, March 17, 2008.