Too Big to Fail [167]
For many in the room, the idea of coming to the assistance of a rival was more than unpleasant: It was anathema. What made the situation even worse was that the competitors they were being asked to aid were Bank of America and Barclays, the ultimate outsiders. Ken Lewis, Bank of America’s CEO, had disparaged them every chance he got, and they all viewed Barclays as a wannabe, a second-tier player trying to break into the big leagues. How was helping these firms going to do anything other than hurt everyone assembled in the room?
Lehman wasn’t attracting much sympathy either. “Dick is in no condition to make any decisions,” Paulson announced, with a tinge of derision, explaining why Fuld wasn’t present. “He is in denial,” Paulson continued, before calling him “distant” and “dysfunctional.”
It was now Geithner’s turn to speak. As one of his assistants passed around copies of a document charting Lehman Brothers’ balances, he said sternly, “If you don’t find a solution, it’s only going to make the situation worse for everybody here.” The problem was evident: Lehman had virtually no cash left. If there was no solution by Monday, the risk was that investors would demand what little money was left and put the firm out of business within minutes of the opening bell. That in turn would put the financial system as a whole at risk, as counterparties—investors on the other side of a trade with Lehman—wouldn’t be able to settle their trades, creating a cascading problem that could soon turn into a catastrophe. As sophisticated as the world’s markets have become, the glue that holds the entire arrangement together remains old-fashioned trust. Once that vanishes, things can unravel very quickly.
Both Blankfein and Dimon countered that they believed that the risk inherent in a Lehman bankruptcy was being overstated, at least from their respective firms’ points of view. They had already told Paulson privately that they had reduced most of their risk to Lehman Brothers, and Blankfein didn’t mind now bringing that fact up in front of the group. “We’ve all seen this coming from miles,” he told the room.
Geithner, taking their opinions in without responding, instructed the bankers to break up into three working groups. The first would value Lehman’s toxic assets, the portion of the business that it had announced it would spin off into the company called SpinCo. The bankers in the room quickly renamed it ShitCo, offering a bit of much-needed comic relief.
The second group, Geithner continued, would look at developing a structure for the banks to invest in Lehman. And finally, there was what he had described in private meetings earlier that day as the “lights-out scenario”: If Lehman was forced to file for bankruptcy, he wanted all the banks that traded with it to see if they could contain the damage in advance by trading around Lehman to “net down their positions.”
In case there was any confusion, Geithner reiterated Paulson’s decree: “There is no political will for a federal bailout.” As he spoke those words, a subway train passed underneath the room, rumbling ominously as if to underscore his point.
Christopher Cox, as impeccably dressed and coifed as ever, made a brief statement, telling everyone in the room that they were “great Americans” and impressing upon them “the patriotic duty they were undertaking.”
Most of the bankers in the room rolled their eyes at the sentiment, as they regarded Cox as a lightweight and would later describe him as “cryogenically frozen.”
The conversation quickly turned to both the philosophical and the practical as the bankers talked over one another.
“I assume we are going to talk about AIG?” Vikram Pandit of Citigroup asked, as the room grew quiet.
Geithner shot him a harsh look. “Let’s focus on Lehman,” he said firmly, trying to avoid losing control of the meeting.
“You can’t deal with Lehman in isolation,” Pandit persisted. “We can’t find