Too Big to Fail [121]
Cho, who had helped persuade Min to fly to New York for the meeting, was devastated.
When Min returned to the main conference room he looked apologetically at Fuld, and then at the rest of the bankers assembled around the table. “I’d like to thank you all, but I don’t think we have a structure that works,” he said, and got up to leave. “Gary Barancik can continue the dialogue.”
A dolorous look came over Fuld’s face. “So, you mean, that’s it?” he asked, raising his voice. “You’re just going back to Korea?”
Steve Shafran was at a gas station in Sun Valley, Idaho, one brisk morning in August when Hank Paulson called. Shafran, one of Paulson’s special advisers at Treasury, was on vacation. “Give me an update on Lehman,” Paulson instructed.
Shafran, who turned off the engine of his fifteen-year-old Land Rover, recognizing that this might take some time, had been assigned by Paulson earlier in the summer to a special project: to act as a coordinator between the SEC and the Federal Reserve to begin contingency planning for a Lehman Brothers bankruptcy. The original assignment had actually been to ascertain systemic risk in the banking system and to make sure the various government agencies were talking to one another, but it had soon morphed into focusing almost exclusively on Lehman.
It was by its very nature a secret undertaking, given that he wasn’t allowed to let anyone—least of all Lehman Brothers—know that the government was even thinking about the possibility, no matter how improbable it might be. If the stock market caught even a whiff of it, Lehman’s shares would plunge. But Paulson, who had been speaking to Fuld almost every day, had become convinced that Lehman was going to face a struggle in its attempts to raise capital, and they needed to prepare for the very worst.
Indeed, Paulson had become so frustrated with Fuld’s various plans that he had assigned Ken Wilson to be Fuld’s personal liaison. “I’m going to tell Dick that he’s talking to you,” Paulson told Wilson. “It’s just a waste of time. I’ll talk with him when he’s got something really important to say to me.”
For Shafran, dealing with other government agencies was something of a novelty. He had moved himself and his children to Washington only a year earlier, after his wife of twenty-four years, Janet, was killed in a plane accident. They had been living in Sun Valley, where he had gone after retiring from Goldman Sachs. Shafran had worked at the firm for fifteen years, serving as Paulson’s point person in Hong Kong, helping him in his efforts to gain entrée to China. He had come to Washington to start over.
For Shafran the Lehman project was even more awkward than it would be for other Treasury staffers because he was a casual friend of Fuld’s. They knew each other from Sun Valley, where Shafran had become a city councilman in Ketchum and Fuld owned ninety-seven acres in the area (worth some $27 million), with a main home on a private road across the Big Wood River and a cabin on the shore of Pettit Lake, right near Shafran’s. They played golf together at the Valley Club and socialized occasionally. Shafran liked Fuld and admired his intensity.
But now, as Shafran was sitting in the gas station parking lot on the phone, he gave Paulson a progress report. He said he had held some conference calls with the Fed and SEC, and while they thought it was impossible to truly estimate the systemic risk, he felt that they were finally at least paying attention to the challenge. “They are on it,” he said. “I’m comfortable.” He explained that they had identified four risks within Lehman: its repo book, or portfolio of repurchase agreements; its derivative book; its broker dealer; and its illiquid assets, such as real estate and private equity investment.
Paulson knew he couldn’t do much for Lehman himself. Treasury itself did not have any powers to regulate Lehman, so it would be left to the other agencies to help manage a failure. But that made him anxious.
Earlier in the summer,