The Devil's Casino_ Friendship, Betrayal - Vicky Ward [108]
oversight, "sensational" media coverage, and the rumor-mongering of short sellers.
Henry Waxman, the committee's pugnacious chairman, gave the broken banker an
uncharacteristically measured rebuke. "I accept the fact that you' re still haunted at night,"
he told Fuld. "But you don't seem to acknowledge you did anything wrong."
On October 14, Paulson revised TARP so he could use some of the $700 billion to take
direct equity stakes in the major financial institutions--regardless of whether the
institutions wanted or needed the government to have such stakes. Buying up toxic assets
was too complicated--and as the rapid demise of Fannie, Freddie, Lehman, and Bear had
proven, there was too much room for fudging the numbers when it came to valuing them.
In the weeks following the Lehman bankruptcy, even large blue-chip corporations were
getting charged near-usurious interest rates simply to fund day -to-day operations, and
innumerable small businesses had their lines of credit pulled altogether. TARP was meant
to provide banks with a liquidity cushion that would give them the confidence they
needed to start lending again. But the financing also gave Congress the right to levy
restrictions on Wall Street 's notoriously generous bonus pools and summon their
executives to Washington for adversarial cross-examinations.
Why, Congress wanted to know, had the AIG bailout alone transferred $13 billion from
the Fed into the coffers of Goldman Sachs--to say nothing of the incalculable profits it
had reaped borrowing cheaply in its new status as a bank holding company? And where
did the Fed get off signing contracts guaranteeing hundreds of millions of dollars in
retention bonuses to the employees of the unit at AIG whose prolific sales of credit
default swaps had left taxpayers holding the bag for $183 billion? Then there was John
Thain at Merrill Lynch, who got his new boss, Ken Lewis, to approve more than $3
billion in Christmas bonuses for his team in November, only to turn around and disclose
that Merrill would be reporting $15 billion in additional losses for the quarter--a burden
that would naturally be shouldered by taxpayers, who had injected $45 billion into the
new merged entity.
And that was just the start. Wall Street CEOs would spend much of the winter and spring
getting grilled on Capitol Hill. In the harsh glare of the interrogation room, they would
often concede that their pay had been excessive, that the incentives were out of whack,
that the system needed to bolster the regulatory systems they had been lobbying for so
many years to dismantle. They promised to clean up their acts.
But did they? Within a year Lloyd Blankfein was claiming that Goldman Sachs, the first
bank to return its TARP funds, had not needed government aid in the first place and was
never in danger of failing, even going so far as to joke to the London Sunday Times that
he is doing "God's work." Tim Geithner, now the U.S. Treasury secretary, quickly told
the media this was flat-out wrong.
After Blankfein came Dimon, then Morgan Stanley and Bank of America, and finally-almost unbelievably--the beleaguered Citigroup. As quickly as they could, they repaid
their TARP funds and got back to business--and bonuses. In other words, the devil was
back in the casino--and was eager to spin the wheel again.
The Lehman executive committee watched all this and fumed. It wasn't fair; Blankfein
had conceded as much back in September when he called Fuld to console him. "There
was a flood coming; Bear was on the first floor of the building and you were on the
second," he told his vanquished rival. "We were on the fifth. The flood got stopped
before it reached the fifth floor."
Although he'd gotten out before the "summer of hell," Joe Gregory was just as outraged
as his colleagues. After all, he still had $232 million in stock tied up in the company, as
well as millions in deferred compensation.
From the Huntington home office where he 'd been forced to set up shop--and sell his
helicopter--he