Too Big to Fail [210]
Given the size of loan AIG would require, the fees would be mind-boggling. He might be able to charge as much as 500 basis points, or 5 percent, of the entire amount for taking on this level of risk. For a $50 billion loan, that would add up to a $2.5 billion payday in fees.
Lee had even begun assembling a list of the banks to contact to raise the credit line, virtually all of whom had exposure to AIG and were therefore also vulnerable: JPM, GS, Citi, BofA, Barclays, Deutsche, BNP, UBS, ING, HSBC, Santander. He could have come up with many more names but stopped at eleven.
“Okay, okay,” Lee now said to the group and ran through the items on his list.
“I like that. That sounds right to me,” Winkelried chimed in.
The group decided to start their work with a round of basic due diligence, breaking the businesses into a half dozen categories and passing out assignments among themselves.
Before they got into the specifics, Blankfein took advantage of a pause in the discussion to make a beeline for the door. Without Dimon there, this was below his pay grade.
As they all decamped from the Fed and marched back to AIG to start crunching the numbers, Lee’s brain was already doing the math.
“Who is going to buy this shit?” he asked aloud to no one in particular.
That afternoon at 1:30 p.m., Paulson stepped out to the lectern in the White House briefing room. “Good afternoon, everyone. And I hope you all had an enjoyable weekend,” he began, to some awkward laughter. “As you know, we’re working through a difficult period in our financial markets right now, as we work off some of the past excesses.”
He had just gotten back to Washington, rushing first to the Treasury and then across the way to the White House, to take questions from reporters. Jim Wilkinson had coached him on the flight down about how he should approach the issues. “We’ve got to say we’ve drawn a line in the sand,” Wilkinson instructed him and warned him to expect to be asked about why Lehman had been allowed to fail while Bear Stearns was saved. Wilkinson presented it as an opportunity to discuss moral hazard and to make it clear that the U.S. government “is not in the business of bailouts.”
Paulson himself was doubtful that this was quite the time to be dogmatic and challenged Wilkinson on the point, but the fact was, he was dead tired and could not keep his mind from drifting to AIG.
As he finished his remarks, the first question came from the press corps, and it was a softball: “Can you talk about what the federal role should be going forward? Are we likely to see any more federal involvement in rescues like you did with Fannie and Freddie and Bear Stearns?”
Paulson paused for a moment. “Well, the federal role is obviously very important because, as you’ve heard me say before, nothing is more important right now than the stability of our capital markets, and so I think it’s important that regulators remain very vigilant.”
“Should we read that as ‘no more’?” the reporter screamed out.
“Don’t read it as ‘no more,’” Paulson replied, clearing his throat. “Read it as…that I think it’s important for us to maintain the stability and orderliness of our financial system. Moral hazard is something that I don’t take lightly.”
And then came the anticipated question: “Why did you agree to support the bailout of Bear Stearns but not Lehman?”
Paulson paused to gather his thoughts carefully. “The situation in March and the situation and the facts around Bear Stearns were very, very different to the situation that we’re looking at here in September, and I never once considered that it was appropriate to put taxpayer money on the line with…in resolving Lehman Brothers.”
It was an answer that would come back to haunt him. He had parsed his words carefully. Technically, his answer was true, but he knew that if Bank of America or Barclays had decided to buy Lehman he might have used taxpayer money to support a deal, but he wasn’t about to bring that up now.
As the questions poured in, Paulson grew more