Too Big to Fail [191]
Darling thought it was impossible that Barclays could have done a deep enough examination of Lehman’s books to be satisfied that the bank wouldn’t be exposed to extreme markdowns of Lehman’s assets in the future. Even worse, Darling had other problems on his mind: HBOS, the United Kingdom’s biggest mortgage bank, was struggling; he also knew that Lloyds was interested in buying them. Between Barclays, Lloyds, and HBOS, the entire British banking system, he thought, was at risk.
As all these concerns ran through his mind, he answered the phone call from Hank Paulson.
“Alistair,” Paulson said gravely. “We’ve just had a distressing conversation with the FSA.”
Darling explained that he understood that they had been in touch and that there seemed to be numerous unanswered questions. “I have no objection in principle to the deal,” Darling said. “But you’re asking the government to take on a huge risk. We need to be sure what it is that we are taking on and what the U.S. government is willing to do. The questions we are asking are not unreasonable.”
“We’re at the end of the line here,” Paulson said, surprised at Darling’s position, and pressing him again about whether he was prepared to lift the requirement for a shareholder vote.
“If this were to go ahead, you know, what would the U.S. government be doing? What are you offering?” Darling asked in return.
Paulson reiterated that he was hoping the private consortium was coming together, but now Darling shifted the conversation and began peppering Paulson with questions about the United States’ contingency plans for Lehman’s bankruptcy. “Well, if Lehman is going into administration, we need to know because it will have implications over here,” Darling said before ending the call.
“He’s not going to do it,” Paulson told Geithner in amazement. “He said he didn’t want to ‘import our cancer.’”
For the next two minutes in Geithner’s office, a half dozen excited voices were speaking at once, until he finally quieted the group and asked, raising his voice for the first time the entire weekend, “Why didn’t we know this earlier? This is fucking crazy.”
Paulson began to wonder aloud if President Bush should call Gordon Brown personally, but almost before finishing the question, he answered it himself. “There’s no chance,” he said, explaining that he thought that Darling had implied he had already spoken to Gordon Brown about the situation. “He was so far away from, ah, wanting Barclays to do anything,” he remarked of Darling.
“Okay. Let’s go to Plan B,” Geithner said after a moment’s reflection. They agreed to assemble downstairs to relate the news to the bankers so that they could begin preparing for Lehman’s bankruptcy. Plan B was simple: Regulators would press the banks to unwind trading positions they had with Lehman and with one another in a way that minimized the impact on the markets.
And then there was the next critical issue to address, Geithner said: “We have to deal with Merrill.”
As they got up to leave, Paulson, clearly depressed, remarked drily: “If you’re going to ride the pony, sometimes you have to step in the shit.”
A NY Federal Reserve security guard who had been searching for Bart McDade and Rodgin Cohen eventually found them on the first floor. “Secretary Paulson would like to see you,” he announced before escorting them to Geithner’s waiting room.
Cohen was already uneasy, for while McDade had been sending out enthusiastic e-mails about the near-consummation of the deal, Cohen had overheard a number of government officials who seemed to be more circumspect about its prospects. McDade now also sensed that something was amiss and sent a message to Gelband while he was waiting, telling him, “There might be a holdup.”
The door to Geithner’s office opened