Too Big to Fail [192]
“We got the banks to agree to fund, but the U.K. government has said no,” Paulson announced.
“Why? Who?” Cohen asked, incredulous.
“It came from Downing Street. They don’t want U.S. problems infecting the U.K. system,” Paulson said.
While McDade just stood mutely in shock, Cohen, who was famous for his equanimity, virtually shouted, “I cannot believe this! You have to do something!”
“Look,” Paulson said sternly, “I’m not going to cajole them and I’m not going to threaten them.”
Cohen was not finished.
“I know a lever we can pull with the U.K. government,” Cohen offered. “I have a friend I can call.”
Paulson just stared at him, shaking his head. “You’re wasting your time. The decision was made at the highest levels.”
Cohen walked to a corner and dialed Callum McCarthy directly. They had known each other for years; Cohen had been Barclays’ lawyer in the 1990s when McCarthy worked there. But the look on Cohen’s face as he explained the situation told the story unequivocally: McCarthy was clearly not able to help his friend.
“You’ve really got this wrong if you don’t think this is going to infect you,” Cohen told McCarthy, nearly begging him to reverse his decision. “By not doing the deal, it’s going to infect you.”
Downstairs, Paulson, Geithner, and Cox entered the main conference room where the CEOs were still trying to coordinate funding Lehman’s real estate assets. The mood in the room had been noticeably upbeat as they continued to make progress.
“Those of you who do not want to assist a Barclays deal can breathe a sigh of relief,” Paulson announced, somewhat awkwardly, and a number of bankers in the room did not understand what he was trying to convey until he formally announced that the deal was dead. “The British are not allowing for this type of guarantee; they can’t get it done by tonight; they need a shareholder vote.”
“But we have the money!” Jamie Dimon said.
“Isn’t this our closest ally in the world?” one of the bankers asked.
“Guys, trust me,” Paulson said. “I know how to be a tough guy. I’ve done everything I can. There is no deal.”
The general opinion in the room was that they had been blindsided; Paulson merely shook his head and declared that the British had “grin-fucked us.”
Geithner steered the conversation to the necessity of setting up contingency plans. He said that Lehman’s holding company would file for bankruptcy that day. He also indicated that the government would open up an emergency trading session in the afternoon for all of the biggest banks to unwind positions with the firm.
Finally, Geithner broached the idea of creating a revolving credit facility, which would effectively serve to help the next bank in trouble. The proposal was for a $100 billion emergency fund, with each bank in the room putting up $10 billion: $7 billion funded and $3 billion unfunded. Any one bank could withdraw up to $35 billion from it in the case of an emergency.
At the end of the meeting, Paulson and Geithner pulled Thain aside and quietly told him, “We’ve got to talk to you.”
“John, you see where we are with Lehman Brothers,” Paulson told Thain once they had seated themselves in a conference room. “You’ve got to do something here. We don’t have the authority it’s going to take if you’re looking for the government to save you.”
“I’m working on it,” Thain said solemnly. “I’m trying to save myself.”
Thain explained that he was working on two parallel paths: one to sell a small stake in the firm to Goldman Sachs, and the other to sell the entire firm to Bank of America. He said that he had had coffee with Ken Lewis that morning and that Bank of America was much farther along, but that he expected Goldman could move quickly, too.
Geithner had heard enough; he had to brief Bernanke, so he got up and left.
Paulson could tell that Thain might be leaning toward the Goldman investment option—he knew Thain wanted to remain CEO of Merrill—but instructed him to push forward on the deal with Bank of America.
“John, you have to get