Too Big to Fail [140]
As they were making yet another pass through the earnings call script, Kirk’s cell phone rang. It was Harvey Schwartz from Goldman Sachs, phoning about the confidentiality agreement that Kirk was preparing. Before Schwartz began to discuss that matter, however, he said that he had something important to tell Kirk: “For the avoidance of doubt, Goldman Sachs does not have a client. We are doing this as principle.”
For a moment Kirk paused, gradually processing what Schwartz had just said.
“Really?” he asked, trying to keep the shock out of his voice. Goldman is the buyer?
“Yes,” Schwartz replied calmly.
“Okay. I have to call you back,” Kirk said, nervously ending the conversation, and then almost shouted to Fuld and McDade, “Guys, they don’t have a client!”
“What do you mean?” Fuld asked, looking up bleary-eyed from his notes.
“They’re doing this for themselves. For Goldman. That’s what he told me.”
For the next few minutes the three men frantically brainstormed about their course of action. McDade, reasonably, was concerned about sharing information with a direct competitor: How much did they really want to divulge? At the same time, he felt they couldn’t take a stand against a plan that he believed had originated with Paulson.
Kirk was even more apprehensive. “Why are we letting Goldman Sachs in here? Haven’t you read When Genius Failed? The reference was to Roger Lowenstein’s bestselling book about the Long-Term Capital Management crisis. In it Goldman Sachs is depicted in one scene as trying to take advantage of the disaster by using its offer of assistance as a way to get inside Long-Term Capital’s books and download all its positions into a laptop—a charge Goldman fervently denied.
“They will rape us,” Kirk cautioned.
McDade, turning back to his preparations for the fast-approaching call, made his position clear: “We were told by Hank Paulson to let them in the door. We’re going to let them in the door.”
Twenty-seven floors below, Lehman traders gathered for a preview of SpinCo, the “bad-bank” spin-off that would be discussed an hour later during the earnings call. McDade had appointed Tom Humphrey and Eric Felder to explain what investors were about to hear.
After learning the details of the plan, the traders were unusually quiet, and the silence was broken only when Mohammed Grimeh, global head of emerging markets, stood up with a horrified look on his face.
“That’s it? That’s fucking it?” he asked. “Well, what the hell have those fucking idiots up on thirty-one been working on for the past two months? This? You have to be kidding me. If this is all we have, we’re toast!”
In the time it had taken Humphrey and Felder to describe SpinCo, Grimeh had already seen through it—had seen exactly what JP Morgan and Citigroup saw the night before, and what he feared the market would see as well.
“All we’ve done is to take a dollar out of our right pocket and put it in our left. The heavy debt load would make it insolvent before it started,” he said, backed by a growing chorus of angry muttering from the disconcerted bankers.
Gregory J. Fleming, Merrill Lynch’s president and chief operating officer, had one eye on CNBC as he jogged on a treadmill at the health club at the Ritz-Carlton hotel in downtown Dallas. He had spent the day before with clients in Houston and had scheduled a town hall session here with Merrill employees before hopping on a flight back to New York.
As he leaned into his jog, CNBC reported that Lehman Brothers had just announced its earnings ahead of its conference call. The firm, the reporter elaborated, had also described its extraordinary spin-off plans in its press release. When Fleming returned to his room, he got a colleague to send him the announcement, which included an important headline buried at the bottom: “The firm