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

“Well,” said Mack, not entirely sure what Fuld was proposing, “there are ways we can, you know, there are ways we can work together.” He wanted to segue the conversation to Lehman’s internal numbers, because even if nothing were going to come of the meeting, it would be helpful to Morgan Stanley to get at least a peek at what was going on inside the firm. The Morgan team began to throw out a barrage of questions: How are things marked? Were you able to sell them inside your marks? How much business has left the firm? McDade ended up doing more of the talking than his boss as he tried to answer them.

McGee, whose driver had gotten lost, finally arrived in the middle of the meeting, and Fuld gave him an anxious glare.

When Fuld’s cell phone started ringing, he excused himself and retreated to the kitchen, leaving the Morgan Stanley side perplexed: Was Lehman working on another deal at the same time?

What they didn’t know was that the caller was Paulson, at his Treasury office, checking on Fuld and updating him on his plans to propose a bill about Fannie and Freddie. Fuld was happy to hear that Paulson was seeking to stabilize the GSEs—he knew such a measure could help him as well.

When Fuld returned to the living room, he unexpectedly broke into the conversation, saying, “You know, with all these rumors going around about Lehman, I would hope that you won’t try to poach any of my people.”

The Morgan Stanley executives were taken aback.

Chammah, a Lebanese-born banker who spent most of his time running Morgan’s operations from London, retorted: “If you recall, you weren’t shy about building your European operation off of our talent.”

The meeting ended with no agreement and what seemed like no incentive to keep talking.

“What the fuck was that all about?” Mack asked after the Lehman executives departed. “Was he offering to merge with us?”

“This is delusional,” Gorman said. Taubman had other worries. Maybe they were being used to help Lehman goose its stock price? “We’re playing with fire here,” he warned them. “If I were their guys, I’d want to put my own spin on this.”

Fuld, discouraged but undeterred, drove from Mack ’s house to Lehman’s headquarters in Manhattan, racing down the Henry Hudson Parkway. He had scheduled a call with Tim Geithner for that Saturday afternoon. His outside lawyer, Rodgin Cohen, chairman of Sullivan & Cromwell, had recently suggested a new idea to help stabilize the firm: to voluntarily turn itself into a bank holding company. The move, Cohen had explained to Fuld, “would give Lehman access to the discount window indefinitely, just like Citigroup or JP Morgan have.” That, in turn, could take some of the pressure off investors worried about the firm’s future. It would also mean that Lehman would become regulated by the Federal Reserve of New York, which would have to sign off on the plan.

Cohen, a sixty-four-year-old mild-mannered mandarin from West Virginia, was one of the most influential and yet least well-known people on Wall Street. While soft-spoken and small in physical stature, he had the ear of virtually all the banking CEOs and regulators in the country, having been involved in nearly every major banking transaction of the last three decades. Geithner often relied on him to understand the Federal Reserve’s own powers.

For the past several months, Cohen had been speaking with Fuld almost daily, trying to help him formulate a plan. He was very familiar with bank failures and wanted to make sure Lehman would not become one of them. Cohen had spent many days in the summer of 1984 in a hot, windowless room in Chicago, trying to work out a rescue of Continental Illinois National Bank and Trust. “We have a new kind of bank,” Stewart McKinney, U.S. representative from Connecticut, announced that year. “It is called ‘too big to fail.’ TBTF, and it is a wonderful bank.” The $4.5 billion government rescue plan that emerged was shaped in large part by Cohen. Cohen, who had also advised the board of Bear Stearns in its takeover by JP Morgan, had organized the call with Geithner’s office.

Pacing back and forth in his hotel room in Philadelphia before the wedding of his niece that night, Cohen joined the call between Lehman and the Federal Reserve of New York.

“We’re giving serious consideration to becoming a bank holding company,” Fuld started out by saying. “We think it would put us in a much better place.” He suggested that Lehman could use a small industrial bank it owned in Utah to take deposits to comply with the necessary regulations.

Geithner, who was joined on the call by his general counsel, Tom Baxter, was apprehensive that Fuld might be moving too hastily. “Have you considered all the implications?” he asked.

Baxter, who had cut short a trip to Martha’s Vineyard to participate, walked through some of the requirements, which would transform Lehman’s aggressive culture, minimizing risk and making it a more staid institution, in league with traditional banks.

Regardless of the technical issues that would have to be faced, Geithner said, “I’m a little worried you could be seen as acting in desperation,” and the signal that Lehman would send to the markets with such a move.

Fuld ended his call deflated. He had worked his way through a checklist of every alternative he could think of, and nothing was sticking. He and McDade had even begun working up a plan to consider shrinking Lehman Brothers into a hedge fund with a boutique bank attached and trying to take the firm private, outside the glare of public investors. But he’d need to raise cash from someone even to do that.

Later that evening, Fuld called Cohen, finding his lawyer in the waiting room of a hospital, attending to a cousin who had become ill at the wedding. It was time to consider a different kind of deal, he told Cohen. “Can you reach out to Bank of America?”

Selling Lehman had always been anathema to Fuld—“As long as I am alive this firm will never be sold,” he had said proudly in 2007. “And if it is sold after I die, I will reach back from the grave and prevent it.” He had, however, longed to make a big acquisition. For a brief moment he came close to buying Lazard—so close that he had even settled on calling the firm Lehman Lazard—a purchase that might have been his crowning achievement, turning his scrappy bond-trading operation into a white-shoe firm with a global reputation. Fuld had held a meeting in his then-office at the World Financial Center on September 10, 2001, with William R. Loomis and Steve Golub of Lazard. They left the meeting with plans to continue their discussions. Then, of course, came 9/11.

Bruce Wasserstein, who later took over Lazard, tried to resurrect the discussions, but Fuld became so outraged by the price Wasserstein said he wanted—$6 billion to $7 billion—that their conversation quickly devolved.

“Clearly we don’t see value the same way,” Fuld derisively told him. To Fuld, Wasserstein, who had been branded “Bid-em up Bruce,” had just lived up to his name. “There’s just no way I could pay that.”

Still standing in the emergency waiting room of the hospital, Rodgin Cohen found Greg Curl, Bank of America’s top deal banker, on his cell phone in Charlotte, where the bank was based. Curl, a sixty-year-old former naval intelligence officer who drives a pickup truck, had always been a bit of an enigma to Wall Street. He had helped orchestrate nearly every deal Bank of America had made over the past decade, but even within the bank he kept to himself and was generally considered a tough read.