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

Willumstad made his case again, this time with a litany of figures to back up his argument: AIG was as important to the financial system as any other primary dealer—with $89 billion in assets, it was actually larger than some of those dealers—and should therefore be granted the same kind of license. And he mentioned that AIG FP owned $188 billion worth of government bonds. But most of all, he told Geithner, AIG had sold what was known as CDS protection—essentially unregulated insurance for investors—to all of the major Wall Street firms.

“Since I’ve been here, we’ve never issued any new primary dealer licenses, and I’m not even sure what the process is,” Geithner said. “Let me talk to my guys and find out.” Before Willumstad turned to leave, however, Geithner posed the question that really concerned him, the one that had been occupying his thoughts all morning: “Is this a critical or emergency situation?”

Willumstad, fortunately, had been prepared to address this very topic. In meetings with AIG’s lawyers and advisers, including Rodgin Cohen at Sullivan & Cromwell and Anthony M. Santomero, the former president of the Federal Reserve Bank of Philadelphia, he had been guided on how to field the question with the advice, “Tread carefully.” If he acknowledged that AIG had a true liquidity crisis, Geithner would almost certainly reject its petition to become a primary dealer, denying the company access to the low-priced funds it so badly needed.

“Well, you know, let me just say that it would be very beneficial to AIG,” Willumstad carefully replied.

He left Geithner with two documents. One was a fact sheet that listed all the attributes of AIG FP and argued why it should be given the status of a primary dealer. The other—a bombshell that Willumstad was confident would draw Geithner’s attention—was a report on AIG’s counterparty exposure around the world, which included “$2.7 trillion of notional derivative exposures, with 12,000 individual contracts.” About halfway down the page, in bold, was the detail that Willumstad hoped would strike Geithner as startling: “$1 trillion of exposures concentrated with 12 major financial institutions.” You didn’t have to be a Harvard MBA to instantly comprehend the significance of that figure: If AIG went under, it could take the entire financial system along with it.

Geithner, his mind still consumed with Lehman, glanced at the document cursorily and then put it away.

At Treasury, Dan Jester, Paulson’s special assistant, had just returned to his office when his assistant announced something surprising: David Viniar, Goldman Sachs’ chief financial officer, was on the telephone.

Any call from Goldman would mean an awkward conversation for Jester, given that he used to work there. Unlike Paulson, Jester hadn’t been required to sell all his Goldman Sachs stock when he took the job in Washington. And, unlike Paulson, who had had to run the congressional gauntlet before joining Treasury, Jester, as a special assistant to the secretary, didn’t require that official confirmation. Although Viniar had been a longtime friend and colleague from their days together at Goldman, he surely wanted to talk business. With the markets going wild, it was no time for social calls. After a short pause, Jester picked up the phone, and Viniar, after quickly greeting him, got right to the point.

“Could we be helpful on Lehman?”

While the question itself was carefully phrased, Viniar’s timing was curious: Jester had just learned from Geithner that Lehman was likely to preannounce a $3.9 billion loss on Wednesday. Fuld had given the government a private heads-up—and less than an hour later, here was Goldman, sniffing around.

Anxious about running afoul of the rules, Jester stepped gingerly around the issue. But he did learn just enough to determine that Viniar was serious about its offer of assistance. Viniar told him that Goldman would be interested in buying some of Lehman’s most toxic assets; of course, it was clear that Goldman would only do so if it could buy the assets on the cheap. Viniar asked if Treasury could be helpful in arranging an entrée.

As soon as they hung up the phone, Jester reported the call to Robert Hoyt, Treasury’s general counsel. With all the conspiracy theories circulating about Goldman and the government, any leaks about the call could be explosive; he needed to cover his ass.

Now it was time to tell Paulson.

At the Lehman tower, Alex Kirk sprinted down the hall to McDade’s office. “Something strange is going on,” he said, catching his breath. “I just got off the phone with Pete Briger.”

Briger, the president of Fortress Partners, a giant hedge fund and private-equity firm, was well wired into the rumor mill, a carryover from his days as a Goldman Sachs partner. He was calling, Kirk recounted, with what sounded like an ominous proposal.

“I know you’re really loyal to Bart and to Lehman Brothers, and I would never make this call in any other circumstance,” Briger had told Kirk. “But if you happen to be taken over this weekend by another financial institution, and you’re not sure whether you want to go work at that financial institution as opposed to Lehman Brothers, I really want you to come talk to me.”

Kirk, taken aback, managed to reply, “I’m flattered,” his mind racing all the while. “I hope that actually doesn’t happen,” he continued. “I didn’t even think you liked me.”

“I was talking to Wes about you the other day,” Briger said, referring to Wesley R. Edens, Fortress’s CEO, “and I said—you know, not that I don’t like you, but I was saying to Wes—‘I would much rather have partners that are really, really smart motherfuckers than guys that I like.’ ”

Kirk laughed as he related the conversation to McDade, repeating the punchline twice.

But it wasn’t Briger’s back handed compliment that was the odd part; it was his timing, which could hardly have been coincidental; Kirk was convinced that it was the result of a leak. “Why the hell is he calling me now?” Kirk asked McDade, throwing his hands in the air. Lehman wasn’t in merger talks with anyone, at least not yet.

Then, after McDade stared at him without answering, Kirk answered his own question: “I guarantee they know something that we don’t.”

Jamie Dimon and Barry Zubrow sat in the Anteroom of the Federal Reserve waiting for Chairman Bernanke and his colleagues to appear. Their meeting was scheduled to run from 11:15 a.m. to 11:45 a.m.—which meant that the two JP Morgan officers would have to speak quickly in order to tell the Keeper of the Secrets of the Temple everything they had planned to in the half hour they had been allotted.

Overlooking Constitution Avenue, the Anteroom, despite its name, is a capacious space with thirty-foot-high ceilings standing just off the boardroom, where the nation’s main fiscal policies are hammered out, and steps from Bernanke’s office.

Looking around as he sat waiting, Dimon studied the portraits of all the former Fed chairmen, including Marriner S. Eccles, who was appointed the first chairman of the Board of Governors of the Federal Reserve System in 1934, when he noticed the conspicuous omission of Alan Greenspan among them. “Maybe that’s appropriate,” he joked, given what had been transpiring in the economy. (Greenspan’s portrait had, in fact, not yet been completed.)