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

Perhaps the most pressing problem weighing on Willumstad was the result of a conversation he had had with Jamie Dimon earlier in the week. “We seem to be not getting enough done,” Willumstad had told him, urging him to help raise capital or lend the firm the money himself.

“Well, you know, you got a bigger problem than we had anticipated,” Dimon replied. “Our models show you’re running out of money next week.”

It was then that Willumstad accepted the fact that JP Morgan might well not be willing to provide any further funds. AIG’s treasurer, Robert Gender, had already warned him that that might be the case, but Willumstad hadn’t fully believed him. “JP Morgan’s always tough,” he reminded Gender. “Citi will do anything you ask them to do; they just say yes.” But the prudent Gender only acidly replied, “Quite frankly, we can use some of the discipline that JP Morgan is pushing on us.”

Dimon had been encouraging Willumstad to just come up with a plan, even if it wasn’t perfect. “It doesn’t have to be in place,” Dimon told him. “You just have to tell the markets what you’re going to do and then go and do it. If you need to raise capital, tell them you need to raise capital.”

A lot of good that did Lehman yesterday, Willumstad thought.

Finally, the time came for the dreaded meeting with Moody’s. Steve Black from JP Morgan had come downtown to lend some credibility to the affair and to help answer questions about AIG’s plans to raise capital. It was one thing for Willumstad to state that he had every intention of raising capital and quite another entirely to have the president of JP Morgan affirm that he intended to support the company in that effort. The stakes were high: If the agency cut AIG’s credit rating by even one notch, it could trigger a collateral call of $10.5 billion. If Standard & Poor’s followed suit, which was likely—“the blind leading the blind,” Willumstad said of them—the figure would rise to $13.3 billion. Should that happen, and AIG be unable to come up with the extra capital, it would be a virtual death sentence.

No more than fifteen minutes into the meeting, the Moody’s analyst made it clear that the agency would downgrade AIG by at least one notch and possibly two. By Willumstad’s calculations, if they did so on Monday, the company would have at least three days before it would have to post the collateral. That meant he had until Wednesday, or at the latest, Thursday, to come up with an astronomical amount of money.

JP Morgan’s Black feared they had even less time; by his count, Tuesday morning would be their deadline. After the meeting, he pulled Willumstad aside and warned him, “You guys are going to get downgraded, so you better start figuring out now what to do.”

Willumstad nodded. “We need to prepare for that. I totally agree with that.”

Black left the building even more down on the company than when he had arrived. Nobody, he thought, is moving nearly as fast as he needs to .

In the General Motors Building, which occupies an entire block on Fifth Avenue and Fifty-ninth Street, Harvey Miller, the legendary bankruptcy lawyer at Weil, Gotshal & Manges, got up from his desk and began pacing. As he made a circuit of his office, he gazed at the miniature Texaco trucks and Eastern Airlines jets that dotted his bookshelves, mementos of two of his most famous cases.

At seventy-five, Miller was considered the dean of bankruptcy law, and he billed clients nearly $1,000 an hour for his services. Besides Texaco and Eastern, he had been involved in the bankruptcies of Sunbeam, Drexel Burnham Lambert, and Enron, and was also among the lawyers who’d represented the city of New York during its financial crisis in the 1970s.

Always reassuringly calm, he was also known for his deftly tailored suits, his love of opera, and his ability to speak in long, eloquent paragraphs. He had grown up in the Gravesend neighborhood of Brooklyn, the son of a wood-flooring salesman, and was the first in his family to receive an education beyond high school, attending Brooklyn College. After a stint in the army, he went to Columbia Law.

At that time, bankruptcy was one of the few areas of corporate finance that smaller, predominantly Jewish law firms dominated in the still-WASP-infested industry. In 1963 Miller joined the small bankruptcy shop Seligson & Morris; six years later, Ira Millstein, the governance guru, recruited Miller to start a bankruptcy and restructuring practice at Weil Gotshal.

Earlier that afternoon, the firm’s chairman, Stephen J. Dannhauser, had phoned him and posed a startling question: Would the firm be available to do some preliminary work on Lehman—just in case? Miller said he understood; he had been reading the financial press. Lehman was a very important client—the firm’s biggest, in fact, and the source of more than $40 million in fees annually. He knew the company very well.

Dannhauser had received a call from Steven Berkenfeld, a Lehman managing director, who told him they should get their ducks in order if things didn’t go well in the next seventy-two hours. Before Berkenfeld ended the call, he insisted that Dannhauser keep their conversation confidential—Berkenfeld hadn’t even told Fuld that he was contacting Weil Gotshal.

As a bankruptcy lawyer, Miller was well accustomed to engaging in these delicate pas de deux with clients. “Bankruptcy,” he once said, “is like dancing with an eight-hundred-pound gorilla. You dance as long as the gorilla wants to dance.”

Just a few hours later, however, Miller received another call from the embattled bank.

“I’m Tom Russo, the chief legal officer of Lehman Brothers,” the voice on the other end of the line bellowed. “Are you working on Lehman?”

Miller, who did not know Russo, was taken aback. “Well, yes, as it happens.”

Russo had no interest in discussing any details but wanted to deliver a message: “You know you can’t talk about this to anybody . It’s a very tense situation. We can’t have any rumors coming out.”

Miller was about to assure him that he appreciated the urgency of the matter when Russo asked anxiously, “How many people do you have working on it?”

“Ah, maybe four,” Miller told him. “It’s ah, preliminary at this point.”

“Yes, preliminary,” Russo insisted. “Don’t add any more people. We’ve got to keep it contained.”

Russo ended the call, leaving a baffled Miller to wonder precisely what was going on.

With his team over at Sullivan & Cromwell working with Bank of America, Dick Fuld decided to call Ken Lewis in Charlotte. After all, if they were going to do a deal, he figured that they should start talking CEO to CEO.

When Fuld reached Lewis, he launched into a heartfelt soliloquy about working together and how excited he was about the merger, marrying Lehman Brothers’ top-flight investment banking franchise with Bank of America’s massive commercial bank. The resources of the combined entity, he suggested, could match those of JP Morgan and Citigroup, finally making Bank of America a true financial supermarket.

Lewis listened patiently, not exactly certain how to respond. In his mind he wasn’t negotiating with Fuld; he was negotiating with the government. Whatever Fuld had to say was, frankly, irrelevant.

Before ending the call, Fuld, feeling confident, said: “You and I both know we’re doing this deal. Glad we’re partners.”