Too Big to Fail [157]
Schreiber tracked down Flowers over at Sullivan & Cromwell, still doing diligence on Lehman’s books.
“We have a huge problem,” Schreiber told him. “We’re going to run out of cash shortly, um, and, you know, we only have, you know, one or two shots to get this right.”
“Well, I’m in the middle of Lehman here,” Flowers replied. “I’m working with BofA.”
“Is there any way you could come down here tomorrow?” Schreiber persisted.
“We’ll come take a look,” he said somewhat noncommittally, uncertain whether he’d be finished with Lehman by then, and then added, “I see this is really important,.”
After ending his conference call with Geithner and Bernanke, Paulson summoned Michele Davis, his head of communications, to his office.
“So, I talked to Lewis and Diamond. They’re, of course, all saying that they want government money,” he told her. “And we’ve got Pelosi and everybody else all over us,” he added, referring to rumblings that the Speaker of the House had made expressing her disapproval of any more bailouts.
Davis had brought with her a handful of articles that had already been published by the major papers on the Internet, and it was clear that a possible bailout would be the primary focus of the following day’s news cycle.
A Dow Jones article published at 7:03 p.m., just minutes earlier, opened: “With a beleaguered Lehman Brothers Holdings Inc. likely to be sold, one key issue is what a backstop from the Federal Reserve, if it materialized, would look like.”
“You cannot have this in tomorrow’s headlines, tomorrow’s newspapers saying this,” Davis said, shaking her head. “Everyone is going to think, Oh, Hank is coming with his checkbook. That is not the way you want to start this negotiation.” As a former staffer herself, she was also aware of the Bush administration’s stand on the matter, and knew how politically problematic it would be if the possibility of a bailout of a major Wall Street firm were even being entertained.
Although the subject was left unspoken, both she and Paulson knew another reason a Lehman bailout could quickly become a public relations nightmare: Bush’s brother, Jeb, the former of governor of Florida, worked as an adviser to Lehman’s private-equity business. Bush’s cousin, George H. Walker IV, was on the firm’s executive committee. And then there was Paulson’s brother, Richard. The press, needless to say, would have a field day.
“We should make some calls,” she urged him, subtly suggesting they begin leaking to the press word that the government wouldn’t be pursuing any bailout of Lehman.
Paulson mulled over his dilemma. He had always opted to be cautious with the press and hated the very idea of leaking as a tactic. But he trusted Davis’s instincts, and in any case, he preferred not to get his own hands dirty in the matter.
“Do what we need to do,” he told her. “Just, you know, don’t have it be me on the record.”
As soon as Paulson awoke on Friday, he began poring through the morning papers, looking for evidence of Davis’s handiwork. The message was supposed to have been made clear: Read Our Lips: No More Bailouts.
The mood in Washington was not hard to discern: There was no desire whatsoever for any further Wall Street rescues. All punditry could talk about was moral hazard, as if it were some sort of emerging disease that had just reached pandemic proportions. Bail out Lehman, the thinking went, and you will make bailouts the default solution at a time when no firm seems safe.
And what could be more satisfying than having your decision—the buck stopped there, thank you very much—manifested on the front pages of the country’s leading publications? Paulson first turned expectantly to the newspaper of financial record, the Wall Street Journal, and was sorely disappointed. The A1 article about the financial crisis merely tiptoed around the issue without ever being forceful enough about it, he thought as he read the piece. As close as the reporter got to explaining his position was this