Too Big to Fail [100]
On the flight over he had reviewed the speech, making last-minute changes, knowing that he’d have little time to do so once he arrived in Moscow. “To address the perception that some institutions are too big to fail, we must improve the tools at our disposal for facilitating the orderly failure of a large, complex financial institution,” he planned to say. “As former Federal Reserve chairman Greenspan often noted, the real issue is not that an institution is too big or too interconnected to fail, but that it is too big or interconnected to liquidate quickly. Today our tools are limited.”
It was a risky gambit to announce to the world that the government lacked the authority to prevent a major failure—such a sentiment could undermine confidence in the markets even further—but he also knew that it needed to be said, and even more so, that the situation needed to be fixed.
On Sunday night, Paulson had dinner with Finance Minister Alexei Kudrin in the Oval Dining Room at Spaso House, the residence of the American ambassador in Moscow. On Monday he had scheduled a busy day, including half a dozen meetings, a radio interview, and private sessions with Medvedev and Putin. Paulson had earlier told reporters that he wanted to discuss with the Russians “best practices” for huge state-owned investment funds known as sovereign wealth funds, which were primarily associated with wealthy Middle East nations.
But before he ended his evening on Saturday, he had one last meeting after dinner. Just days earlier, when Paulson learned that Goldman’s board would be in Moscow at the same time as him, he had Jim Wilkinson organize a meeting with them. Nothing formal, purely social—for old times’ sake.
For fuck’s sake! Wilkinson thought. He and Treasury had had enough trouble trying to fend off all the Goldman Sachs conspiracy theories constantly being bandied about in Washington and on Wall Street. A private meeting with its board? In Moscow?
For the nearly two years that Paulson had been Treasury secretary he had not met privately with the board of any company, except for briefly dropping by a cocktail party that Larry Fink’s BlackRock was holding for its directors at the Emirates Palace Hotel in Abu Dhabi in June.
Anxious about the prospect of such a meeting, Wilkinson called to get approval from Treasury’s general counsel. Bob Hoyt, who wasn’t enamored of the “optics” of such a meeting, said that as long as it remained a “social event,” it wouldn’t run afoul of the ethics guidelines.
Still, Wilkinson had told Rogers, “Let’s keep this quiet,” as the two coordinated the details. They agreed that Goldman’s directors would join him in his hotel suite following their dinner with Gorbachev. Paulson would not record the “social event” on his official calendar.
That evening, the Goldman party boarded a bus to take them the dozen or so blocks to the Moscow Marriott Grand Hotel on Tverskaya Street. Some felt as if they were taking part in a spy thriller, what with the security detail and the grandeur of downtown Moscow. The directors walked through the bright lobby with its large fountain and were escorted upstairs to the Treasury secretary’s rooms.
“Come on in,” a buoyant Paulson said as he greeted everyone, shaking hands and giving bear hugs to some.
For the next hour, Paulson regaled his old friends with stories about his time in Treasury and his prognostications about the economy. They questioned him about the possibility of another bank blowing up, like Lehman, and he talked about the need for the government to have the power to wind down troubled firms, offering a preview of his upcoming