Too Big to Fail [146]
“Unless I’ve missed something, the Fed and Treasury have been silent about who might have access to Fed resources, except to say that Fannie and Freddie would have access,” Poole said during his speech.
“The Fed said no to New York City in 1975 and no to Chrysler in 1979,” he reminded his audience, but “with the Bear Stearns precedent, it will not be so easy to say no next time.
“What I anticipate is that we will not know the limits to Fed lending until the Fed says no to a large, influential firm seeking help.”
Ken Lewis was leaning hard on the Fed. No sooner had he gotten off the phone with Bernanke than he placed a call to Tim Geithner. Lewis explained that he had had an encouraging call with Mr. Bernanke, but he still couldn’t send his team up to New York until the credit situation was officially settled.
“We’re working to help you on this,” Geithner said, politely but firmly.
Lewis, however, was beyond accepting such assurances. “We’ve been dicked around on this for too long,” he complained. “If you want us to get involved in Lehman, we’re going to need something in writing.”
Geithner, taken aback at being presented with such an ultimatum, replied, “You’ve heard what the chairman said he would do. If you don’t believe the word of the chairman of the Federal Reserve, we have a larger problem.”
Realizing that Geithner would not budge on the issue, Lewis finally backed down and agreed to send a team of executives up to begin due diligence that Thursday morning.
As Wednesday wore on, Fuld tirelessly continued to work the phones—his call log was a list of virtually every major Wall Street and Washington player—while keeping a watchful eye on the markets for any further signs of panic.
The news, it was becoming ever clearer, was grim: After holding up for most of the day, Lehman’s shares sank in the last hour of trading, ending at $7.25 a share, a 6.9 percent decline. Lehman’s CDS had also blown out, rising by 135 basis points, to 610, which meant that the cost of buying insurance against it going bankrupt had just risen to $610,000 a year to protect $10 million of bonds. Investors were effectively betting that the situation was only going to worsen. Any hope that the SpinCo plan was going to turn Lehman’s fortunes around was quickly vanishing.
Nor were the results of Fuld’s phone blitz encouraging. Earlier in the day he had had a tough conversation with Lloyd Blankfein, who had called to express his frustration that Lehman had ended discussions with Goldman. Alex Kirk and Mark Walsh had held a two-hour-long meeting with Harvey Schwartz of Goldman and his team at a Midtown law firm that morning, but both Kirk and Walsh were skittish about opening up all their books to Goldman and quickly had shut down the talks.
Fuld had also spoken to Paulson, who had tried to convince him of the merits of a deal with Barclays. But Fuld was uneasy with that prospect, he explained: With Bank of America already in the hunt, he didn’t want to do anything to jeopardize a deal with them.
“Dick,” Paulson patiently reminded him, “Ken Lewis has turned you down multiple times; the other guys have expressed an interest. We need to pursue both of these options.”
Fuld, however, seemed more interested in returning to the topic that had so long obsessed him: denouncing the short-sellers who, he told Paulson, “are going to ruin this firm.” He spent ten minutes again imploring Paulson to call Christopher Cox at the SEC to press him to instate a short-selling ban, to announce an investigation—anything that would give him an opportunity to recover. By late afternoon, Fuld was channeling Steven Berkenfeld, a Lehman managing director, whose office was just down the hallway,