Too Big to Fail [105]
Blankfein, offended that Fuld would even attempt to bully him, said he knew nothing about the rumors and ended the call.
These conversations became almost daily occurrences. Days later, Fuld heard rumors that Credit Suisse was spreading rumors about Lehman. He jumped on the phone to Paul Calello, CEO of Credit Suisse’s investment bank. “I feel like I’m playing whack-a-mole,” Fuld told Calello.
The constant stream of bad news was not only affecting Lehman’s stock but was hampering Fuld’s efforts to raise more capital. Skip McGee’s investment banking team had been reaching out to at least a dozen prospects—Royal Bank of Canada, HSBC, and General Electric among them—but was coming up empty. The only suitor with any real interest continued to be the Korea Development Bank’s Min Euoo Sung, and though many executives on the thirty-first floor still had doubts about him, Fuld had directed the bankers to keep working on the Koreans. Indeed, he was even thinking about taking a trip to Asia himself to see Min in person to try to seal a deal.
Then it struck him: What about his old friend John Mack at Morgan Stanley, the second-largest investment bank in the country after Goldman Sachs? The firm had had an ugly second quarter, reporting a 57 percent decline in earnings from a year earlier, but it still had enough cash and buoyancy in its stock price to be able to make a deal.
Fuld and Mack had come up on Wall Street together, with Mack joining Smith Barney’s training program in 1968 before moving to Morgan Stanley in 1972, when it had just 350 employees. Like Fuld, Mack had begun his career in bond sales and trading. And again like Fuld, he had quickly made a name for himself. He was an effective salesman and someone who could be both charming and physically intimidating. Mack would stride through the trading floor and, seeing a chance to make big profits, would yell, “There’s blood in the water, let’s go kill someone!” Coming across a trader reading the Wall Street Journal at 8:00 a.m., he was known for saying: “I see that again, and you’re fired.” But, again like Fuld, he was also fiercely loyal to his people, once physically barring entry to the trading floor by upper management when he was still a trader.
Fuld called Morgan Stanley in New York and was transferred to Paris, where Mack was visiting with clients in the firm’s ornate headquarters, a former hotel on the rue de Monceau.
After some mutual disparagement of the markets, the rumors, and the pressure on Fannie and Freddie, Fuld asked candidly: “Can’t we try to do something together?”
Mack had suspected the reason for Fuld’s call, and while he didn’t believe there was much chance that he’d be interested in such a prospect, he was willing to hear Fuld out. There might at least be some assets that he would be interested in; he doubted he would want to buy the entire firm. Mack told him he would be flying back to New York on Friday and suggested they see each other on Saturday.
Fuld, clearly anxious to set up the meeting, said, “We’ll come over to your offices.”
“No, no, that makes no sense. What if someone sees you coming into the building?” Mack asked. “We’re not going to do that. Come to my house, we’ll all meet at my house.”
A harried Hank Paulson walked into room 2128 of the Rayburn House Office Building and took his seat. Today’s House Financial Services Committee hearing was scheduled to discuss “financial market regulatory restructuring,” but it was really just about Fannie and Freddie. Paulson also wanted to start laying the groundwork for obtaining authority from Congress to wind down these government-sponsored enterprises—if it became necessary, which he didn’t anticipate. Paulson had visited Barney Frank, the chairman of the hearing, earlier in the week and had been encouraged “to ask for what you need.” Frank had pledged to support him.
Now, as Paulson appeared before the committee with Ben Bernanke beside him, he made his case: “We’re going to need