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

“Ken, I really need help around here. I need some adults,” Paulson said when he reached him. “Bob Steel is gone. I’d like you to think about coming down here and joining my team.” Wilson, Paulson proposed, would be a “classic dollar-a-year man,” meaning that he would come on board as a “special adviser” for the nominal salary of $1 for the final six months of the administration. He suggested that Wilson take a leave from Goldman.

Wilson, who at sixty-one had already been considering retiring from the firm, said that he would think about it.

“I could use your help,” Paulson repeated earnestly. “I have lots of issues, um, lots of problems.”

Given all the gyrations in Lehman’s stock price and the nonstop rumors about its long-term viability, Fuld had scheduled a board meeting in July to update the firm’s directors on the progress he had been making on both fronts.

Lehman’s board was a strange mix of both the financially sophisticated and the truly naive; most had been old friends of Fuld’s or had been clients of the firm. They included Roger S. Berlind, a seventy-five-year-old theater producer, and Marsha Johnson Evans, sixty-one, a former navy rear admiral and head of the Red Cross; until two years earlier, the eighty-three-year-old actress and socialite Dina Merrill had also been a member. Among the more experienced were Henry Kaufman, then eighty-one, who was a former chief economist at Salomon Brothers; John Akers, a former chief executive of IBM; and Sir Christopher Gent, sixty, former head of Vodafone PLC. Of the ten outside directors, four were over seventy-four years old.

For this meeting, Fuld had invited a guest to give a presentation. Gary Parr, a banker at Lazard, had been speaking with Fuld recently and suggested he could try to help the board if the directors needed independent advice.

The tall, bearded Parr was one of the most prominent of the bankers specializing in the financial services industry, having worked on many of the capital-raising efforts that companies like Morgan Stanley and Citigroup pursued in late 2007. Fuld may not have trusted Parr’s boss, Bruce Wasserstein, but he respected Parr.

Parr was asked by one of the directors to offer some perspective on how bad the market really was. An assured speaker, Parr launched into his regular skeptical boardroom speech.

“It’s tough out there,” he said forebodingly. “Having been through Bear Stearns and MBIA”—two former clients—“there are some lessons we’ve learned.” Trying to make certain that Lehman’s directors understood the gravity of the situation they were facing, he told them, “Liquidity can change faster than you can imagine,” suggesting they should not think Bear Stearns was a once-in-a-lifetime event. “Rating agencies are dangerous,” he went on. “Wherever you think you stand with the rating agencies, it’s worse… . And let me tell you, it’s difficult to raise money in this environment because asset prices are hard for outside investors to under—”

“Okay, Gary,” Fuld said, impatiently cutting him off in midsentence. “That’s enough.”

An awkward silence fell over the room for a moment. Some directors thought Fuld had become upset with the negative direction Parr had taken; others believed that he had rightly quieted him for shamelessly plugging his services. Within ten minutes, Parr had left the meeting.

An hour later, back in his office at Lazard in Rockefeller Center, Parr was informed by his secretary that Dick Fuld was on the phone.

“Goddamit, Gary!” Fuld screamed when Parr picked up the receiver, half expecting an apology. “What the hell are you doing trying to scare my board and advertising yourself to them like that? I should fire you!”

For a moment Parr didn’t respond. Frustrated that Lehman hadn’t yet signed an engagement letter, Parr snidely fired back, “Dick, that might be difficult because you haven’t hired us yet.” Then, collecting himself, he said, “I’m sorry. I didn’t mean to go down a path you didn’t want me to go.”

“You’ll never do that again,” Fuld said, and the phone went dead.

The next day, Fuld—perhaps fearing that he was beginning to become unwound—realized that berating Parr had been a mistake; the stress was beginning to get to him. In his mind he had cut off Parr for running an advertisement for Lazard, not for suggesting the firm was imperiled. But the damage had been done. He called Parr back, hoping to mend the relationship and to invite him for another meeting.

“Have you recovered from the phone call?” Fuld asked contritely.

Ken Wilson was standing in line at Westchester County Airport at 6:45 on the morning of Thursday, July 17, on his way to Montana to start a vacation and do some fly-fishing, when his cell phone rang.

“Kenny, we really need you,” President Bush told him. “It’s time for you to do something for your country.” Wilson and the president knew each other from Harvard Business School, but Wilson knew this call had not been the president’s idea. This was classic Paulson; he must be really hurting. If Paulson wanted something, he would keep going until he got it, even if it meant enlisting the highest authorities.

That weekend, Wilson, after talking it over with his colleagues at Goldman, called Paulson. “I’ll do it.”

On the evening of July 21, Paulson arrived for a dinner in his honor at the New York Fed, organized by Tim Geithner as an opportunity for the secretary to get together with Wall Street leaders—Jamie Dimon, Lloyd Blankfein, and John Mack among them.

The dinner would be the second gathering of Wall Street heavyweights he’d attended that day. He had earlier been to a private luncheon in his honor at the offices of Eric Mindich, a former protégé at Goldman Sachs who now ran a hedge fund called Eton Park Capital, where he pressed his case for the pending GSE legislation. Paulson was feeling slightly better about the overall situation, as both Wilson and Jester had agreed to join Treasury, and the prospects for the legislation’s passing were improving. And as he mingled among his former colleagues, he congratulated John Thain of Merrill, who days earlier had sold the firm’s stake in Bloomberg for $4.5 billion.

What still had Paulson worried, however, was Lehman, and particularly a secret meeting that had been scheduled for after the dinner: He and Geithner had helped orchestrate a private meeting between Dick Fuld and the boss, Ken Lewis, in a conference room at the NY Fed. Fuld had been ringing Paulson for the past two weeks about Bank of America, trying to get Paulson to make a call on behalf of Lehman.

“I think it’s a hard sell, but I think the only way you’re going to do it is go to him directly,” Paulson had told Fuld. “I’m not going to call Ken Lewis and tell him to buy Lehman Brothers.”

As the dinner was ending, Paulson walked over to Lewis and said affably, “Those were some good earnings,” reaching out to clasp Lewis’s hand and giving him a knowing look about the upcoming meeting. Although earlier that day Bank of America had reported a 41 percent slide in second-quarter earnings, the results were far better than what Wall Street analysts had expected. That positive surprise followed a series of stronger-than-expected earnings from Citigroup, JP Morgan Chase, and Wells Fargo, all of which were at least temporarily buoying the market.