Too Big to Fail [209]
On the surface, Goldman looked like one of AIG’s biggest counterparties, but earlier that morning, Goldman’s Gary Cohn had boasted internally that the firm had hedged so much of its exposure to AIG that it might actually make $50 million if the company collapsed. The firm’s decision to buy insurance in the form of credit default swaps against AIG beginning in late 2007 was starting to seem like a smart investment. The firm had conducted what it internally called a “WOW analysis”—a worst-of-the-worst case scenario—and it was quickly coming true. Even though Goldman had hedged its direct exposure to AIG, Blankfein appreciated the larger problem: The collateral damage to its other counterparties and the rest of the market could expose the firm to untold billions in crippling losses.
The group was ushered into a conference room with Tim Geithner. Dan Jester was at his side and Jeremiah Norton from Treasury, who had flown up from Washington that morning, joined them.
As everyone took a seat, Blankfein noticed Jamie Dimon’s absence. He himself had come because he assumed that Geithner had invited both of them. “Where the hell is Jamie?” Blankfein whispered to Winkelried, who just shrugged his shoulders.
“Look, we’d like to see if it’s possible to find a private-sector solution,” Geithner said, addressing the group. “What do we need to make this happen?”
For the next ten minutes the meeting turned into a cacophony of competing voices as the bankers tossed out their suggestions: Can we get the rating agencies to hold off on a downgrade? Can we get other state regulators of AIG’s insurance subsidiaries to allow the firm to use those assets as collateral?
Geithner soon got up to leave, saying, “I’ll leave you with Dan,” and pointed to Jester, who was Hank Paulson’s eyes and ears on the ground. “I want a status report as soon as you come up with a plan.”
Before departing, he added one more thing: “I want to be very clear: Do not assume you can use the Fed balance sheet.”
The meeting then devolved again into a half dozen side conversations until some order was restored when Braunstein walked the room through AIG’s financial position, explaining how quickly it had deteriorated over the weekend. It was coming under pressure not only because of the impending ratings downgrade but also because its counterparties were making constant requests for more collateral. The comment was a not particularly subtle jab at Goldman Sachs, which itself had been battling all weekend, as it had all year, for AIG to put up more collateral. To some in the room, Blankfein picked up on the slight immediately.
“So, when is the money going to be paid out?” Blankfein asked, ostensibly referring to all the counterparties but to some he seemed to mean himself. One attendee scribbled a note to himself: “GS—$600 million,” which was an approximation of what he thought Goldman was seeking. Even though Goldman may have been hedged against AIG, it still wanted what it thought was the appropriate amount of collateral to keep trading with the firm. Scully of Morgan Stanley interrupted with: “Is there anything you can do to put Moody’s off so that we get a little breathing room for the next couple of days?”
At that point, Jimmy Lee tried to break the logjam and take control of the meeting, having quickly become convinced that they were never going to get anywhere unless they started focusing on the big picture. AIG had forty-eight hours left to live unless the bankers sitting in this room did something productive to save it.
Lee had already started listing on a notepad some of the issues that had been raised and things he needed to know:
liquidity forecast
valuation—business, securities
term sheet
participants
legal in all
In the margins he scribbled some questions about the size of the hole—“50? 60? 70?” billion—and then drafted a mini–term sheet for a loan of this magnitude. “Maturity: 1–2 years; Collateral: