Too Big to Fail [108]
“Well,” said Mack, not entirely sure what Fuld was proposing, “there are ways we can, you know, there are ways we can work together.” He wanted to segue the conversation to Lehman’s internal numbers, because even if nothing were going to come of the meeting, it would be helpful to Morgan Stanley to get at least a peek at what was going on inside the firm. The Morgan team began to throw out a barrage of questions: How are things marked? Were you able to sell them inside your marks? How much business has left the firm? McDade ended up doing more of the talking than his boss as he tried to answer them.
McGee, whose driver had gotten lost, finally arrived in the middle of the meeting, and Fuld gave him an anxious glare.
When Fuld’s cell phone started ringing, he excused himself and retreated to the kitchen, leaving the Morgan Stanley side perplexed: Was Lehman working on another deal at the same time?
What they didn’t know was that the caller was Paulson, at his Treasury office, checking on Fuld and updating him on his plans to propose a bill about Fannie and Freddie. Fuld was happy to hear that Paulson was seeking to stabilize the GSEs—he knew such a measure could help him as well.
When Fuld returned to the living room, he unexpectedly broke into the conversation, saying, “You know, with all these rumors going around about Lehman, I would hope that you won’t try to poach any of my people.”
The Morgan Stanley executives were taken aback.
Chammah, a Lebanese-born banker who spent most of his time running Morgan’s operations form London, retorted: “If you recall, you weren’t shy about building your European operation off of our talent.”
The meeting ended with no agreement and what seemed like no incentive to keep talking.
“What the fuck was that all about?” Mack asked after the Lehman executives departed. “Was he offering to merge with us?”
“This is delusional,” Gorman said. Taubman had other worries. Maybe they were being used to help Lehman goose its stock price? “We’re playing with fire here,” he warned them. “If I were their guys, I’d want to put my own spin on this.”
Fuld, discouraged but undeterred, drove from Mack’s house to Lehman’s headquarters in Manhattan, racing down the Henry Hudson Parkway. He had scheduled a call with Tim Geithner for that Saturday afternoon. His outside lawyer, Rodgin Cohen, chairman of Sullivan & Cromwell, had recently suggested a new idea to help stabilize the firm: to voluntarily turn itself into a bank holding company. The move, Cohen had explained to Fuld, “would give Lehman access to the discount window indefinitely, just like Citigroup or JP Morgan have.” That, in turn, could take some of the pressure off investors worried about the firm’s future. It would also mean that Lehman would become regulated by the Federal Reserve of New York, which would have to sign off on the plan.
Cohen, a sixty-four-year-old mild-mannered mandarin from West Virginia, was one of the most influential and yet least well-known people on Wall Street. While soft-spoken and small in physical stature, he had the ear of virtually all the banking CEOs and regulators in the country, having been involved in nearly every major banking transaction of the last three decades. Geithner often relied on him to understand the Federal Reserve’s own powers.
For the past several months, Cohen had been speaking with Fuld almost daily, trying to help him formulate a plan. He was very familiar with bank failures and wanted to make sure Lehman would not become one of them. Cohen had spent many days in the summer of 1984 in a hot, windowless room in Chicago, trying to work out a rescue of Continental Illinois National Bank and Trust. “We have a new kind of bank,” Stewart McKinney, U.S. representative