Too Big to Fail [172]
Lloyd Blankfein raised a question: “Tim, I understand what you want to do, but how do I get in the other room?” In other words, he wanted to know how he could become a buyer subsidized by his competitors. Blankfein wasn’t serious—he had no interest in buying Lehman, but he was clearly trying to make a point. Why are we helping our competition?
Geithner deflected the question and left the room, followed by the bankers, who were simultaneously daunted and deflated.
Thain, Peter Kraus, and Peter Kelly of Merrill found a corner to talk in.
“So, what do you think?” Kelly asked.
“Lehman’s not going make it,” Thain said.
“Then we’re not going to make it either,” Kelly replied calmly.
“We have to start thinking about options,” Kraus said.
Thain nodded in agreement. Maybe Fleming was right after all.
Thain dialed Fleming and, after telling him about the conversation, said: “Set up the meeting with Lewis.”
Upstairs, on the seventh floor of the Fed, Lehman’s Bart McDade and Alex Kirk felt a little bit like mail-order brides as they waited to meet the bankers from the firms that they hoped would save them. This, they knew, would be the ultimate “road show.”
They had brought binders of materials, including what were perhaps the two most important documents, known as decks. One described the spin-off that Lehman referred to as REI Global; the other was labeled “Commercial Real Estate Business Overview”—in other words, the worst of the worst holdings, the toxic assets that no one knew precisely how to value and that everyone was nonetheless certain that Lehman was overvaluing.
Even now Lehman seemed to be in denial: The decks revealed that it had marked down the value of its commercial real estate assets by an average of only 15 percent. Most Wall Street bankers had already assumed the reduction would be far greater.
“Okay, let’s just make sure you and I agree exactly on all of these issues and how they’re financed,” McDade said to Kirk. They reviewed each line in order: how the balance sheet was broken down by liabilities, their derivatives, receivables, payables, repo lines, and long-term debt.
If they were confused about any given detail, McDade phoned Ian Lowitt, who was a veritable financial encyclopedia. “He should be the one down here,” McDade blurted during one of his explanations of an especially obtuse passage.
As they completed their preparations, Steve Shafran, Hank Paulson’s top lieutenant, phoned and instructed the two men to go and meet their possible saviors. A security guard escorted them downstairs to the main dining room, where several dozen bankers waited. Wall Street’s most elite firms were effectively about to go shopping in the equivalent of a government-sponsored Turkish bazaar.
The Lehman executives were seated at a table in the farthest corner of the huge room, where everyone stopped to look—to gawk, in fact. “Do you know what this is like?” Kirk asked McDade when they were finally settled. “We’re the kid with the dunce cap in the corner!”
McDade let out a big laugh just as a group of bankers they did not know from Credit Suisse wandered over, flashing wide grins, and started eyeing them. “What’s going on?” one of them asked. Kirk rolled his eyes in a way that clearly indicated, Please, do not mess with us. “What the fuck do you think is going on?” he replied. Before things could get too ugly, the cream of Wall Street suddenly appeared: Vikram Pandit, John Mack, John Thain, and Peter Kraus came over to the table and got down to business. Mack, who had met McDade at his home over the summer when they had considered merging, struck a sympathetic note: “Oh, god, I feel awful for you guys. This is just terrible.” Thain sat quietly, sipping a coffee, with every reason to think, This could be me. McDade pulled out his documents and began walking them through the numbers. As Kraus began to question some