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

That answer clearly was unsatisfactory. If they were going to have to reduce costs by as much as Lewis was saying, O’Neal said, he’d want to be the president of the firm so that at least somebody would be looking out for the Merrill employees. Lewis now became angry. “So, what you’re sayin’ is, you want me to sell out my management team to get this deal done for your benefit?”

For a moment O’Neal only stared down at his feet, until finally saying, “I appreciate you spending the time. I appreciate the presentation and the thought that went into it. I’ve always thought that, on paper, that if Merrill were to do a strategic merger you are the most compelling partner.” As he turned to the door, O’Neal said, “I’ll think about everything you said.”

Lewis never heard from him again.

What he didn’t know was that the next day O’Neal confided in Alberto Cribiore, a Merrill board member, that he had gone to see Lewis, and told him about the meeting. Cribiore, always a good proxy for the rest of the board, was clearly not receptive to the merger idea, quickly brushing it aside.

In his heavy Italian accent, Cribiore said, “But Stan, Ken Lewis is an asshole!”

The sixteenth floor of AIG was already a beehive of activity, with hundreds of bankers and lawyers roaming the floors, darting into the various rooms that had been set up to perform due diligence on different AIG assets up for sale.

Before the high-end tire kickers arrived, Douglas Braunstein of JP Morgan, fresh off a conference call with Dimon, pulled Bob Willumstad aside to confide, “You need to think about more than the $20 or $30 billion we were talking about before, because Lehman could go bankrupt this weekend.

“The market’s going to be bad,” Braunstein warned. “We should probably be thinking about $40 billion.”

Willumstad was flabbergasted; the challenge he faced had almost immediately doubled in size.

A minute later, Sir Deryck Maughan, the former head of Salomon Brothers, emerged from an elevator. Maughan—who was working for KKR, one of the bidders in the AIG fire sale—and Willumstad had known each other well but hadn’t been in touch for years. The last time they had seen each other was in 2004, when Maughan was being fired by Charles Prince, literally in Willumstad’s presence. It was Maughan, too, who had snubbed Steve Black’s wife on the dance floor more than a decade ago, resulting in a confrontation with Dimon, and his eventual ousting by Sandy Weill.

And now, on a weekend when the entire financial system hung in the balance, Willumstad, Dimon, and Black were all looking to Maughan for help. Ah, Willumstad thought as he greeted Maughan with a wide smile, life is rich with irony .

A few minutes earlier David Bonderman of Texas Pacific Group, one of the wealthiest private-equity moguls in the nation, had arrived with his own team. Bonderman, who was known for turnarounds, thanks to successful projects like fixing Continental Airlines, had also become increasingly leery of financial companies. He had acquired a $1.35 billion stake in Washington Mutual in April 2008 and watched his investment lose virtually all of its value in less than half a year.

Willumstad was becoming increasingly anxious that all these bidders were there to suck AIG dry.

Perhaps sensing Willumstad’s anxiety, Dr. Paul Achleitner, a board member of the insurance giant Allianz who had cut short his vacation in Majorca, Spain, to fly in for the diligence session, approached him.

“Can I see you privately?” he asked.

“Sure,” Willumstad replied.

Achleitner had been invited to the diligence session by Chris Flowers, who had chartered a plane to fetch Achleitner and bring him across the Atlantic.

Willumstad and Achleitner found a quiet corner.

“I want you to know that I’m not here with all these vultures,” Achleitner said, pointing at the scrum of private-equity investors swirling about. “I’m here as Allianz. If we’re going to invest, we might invest alongside them, but we’re going to make our own decision.”

“Thank you, I appreciate that,” Willumstad said, before returning to the vultures.

Willumstad and the AIG team were quickly having a difficult time keeping track of everyone in the growing crowd and, as the weekend wore on, whom they actually represented.

When Christopher A. Cole from Goldman Sachs appeared with a small army of bankers, John Studzinski, AIG’s banker from Blackstone, became alarmed. Goldman? Who invited them?

“Who are you working for?” Studzinski asked Cole. At first Cole seemed oddly reticent to say. “Well,” he said, “we have several clients here.” Studzinski just stared at him, hoping to hear more. As they spoke, Richard Friedman, who ran Goldman Sachs’ private investment business, walked by, which did not go unnoticed by everyone else in the room. Was Goldman actually there for itself? “We’re here,” Cole started speaking again, “working with Allianz, Axa, and Goldman Sachs Capital Partners.” It was all so confusing and conflicted.

Skeptical about the answers he was getting, and perhaps a bit paranoid, Studzinski raced up to the senior security guard on the eighteenth floor, Nathan T. Harrison. “Listen,” he told him, “I want you to watch all these people like a hawk. If you see anything untoward, anything at all—people walking around the wrong floors, whatever—come find me immediately.”

Without a minute to spare the Bank of America team, which included Greg Curl, Joe Price, and Ed Herlihy, marched into the Fed building for their 10:30 a.m. meeting with Paulson and Geithner. Christopher Flowers had raced over on foot from AIG, two blocks away.

As they waited in a conference room outside Geithner’s office, Curl recounted to the group how Fuld had been phoning Lewis’s home all night.

“Dick … what an asshole!” Flowers said dismissively.

As Paulson, Geithner, and Dan Jester entered the room, the mood quickly turned chilly. Paulson hated Flowers, and the antipathy was mutual. They had been feuding for years, ever since Paulson passed over Flowers for the top job of running Goldman’s investment banking division back when the firm was planning to go public. Flowers—who was given to telling his peers that Paulson was an “idiot”—quickly left the firm. Paulson told him that his decision to quit, coming as it did at the critical time of the IPO, was a “disgrace.” Flowers was bought out of the partnership ahead of the offering, but when the IPO was canceled, he made overtures about trying to return to the firm. That conversation had ended in a near-shouting match.

Trying to break the tension, Geithner now asked, “So what’s the latest?”

Curl indicated in no uncertain terms that BofA was no longer interested in buying Lehman Brothers unless the government was prepared to help even more than they had asked for the day before. He said that they had identified at least $70 billion in problem assets that Bank of America would need guaranteed—the figure had grown from the $40 billion of a day earlier—and that it might be even larger. Given that, they were going to put their pencils down unless Paulson was willing to “step up.”

Curl also said that he was concerned that Fuld was still seeking a premium for the stock. “We think that’s bullshit,” Flowers remarked.

“You know, no one cares what they think. Don’t worry about what they think,” Paulson told them. “At this point, it doesn’t matter what Dick Fuld thinks.”