Too Big to Fail [212]
The core group of bankers who had been over at AIG now returned to the Fed, Jester having unsuccessfully tried to persuade Geithner to come to them at AIG—given that they were a group of some thirty and he was just one. Being the president of the Federal Reserve of New York had its privileges, however: They would come to him.
The hole that they needed to fill, Winkelried now reported in their summary to Geithner, was some $60 billion and “possibly more.” No one knew how any solution could work without financial help from the Fed.
“There’s no government money for this,” Geithner told them, repeating what Paulson had said earlier that day in Washington and echoing the same sentiment he had been conveying all weekend with regard to Lehman. If they needed proof that he was serious, Lehman’s bankruptcy was Exhibit A.
Geithner authorized Lee to begin making phone calls to Asia that night to see if he could begin raising some money there. JP Morgan and Goldman made it clear they still had a good deal more work ahead of them.
Late that evening, Jamie Gamble, AIG’s lawyer; John Studzinski; and Brian Schreiber gathered in a conference room for a morose meal of takeout Chinese. The situation seemed hopeless. Dinallo and Governor Paterson may have bought them a day by announcing their plan to release $20 billion of collateral, but it was too little, too late. Hours earlier they had called in the bankruptcy experts, and when the markets opened on Tuesday, they planned to draw down their credit lines, a clear sign to the markets that they were in trouble. When they suggested the move, Willumstad had told them it was akin to “lowering the life boats into the water because you’re about to abandon ship. That’s the last thing you do. Shutting the lights off on the Titanic before it goes down.”
Schreiber still couldn’t believe they were in this position and remained convinced that the Fed would ultimately come to the rescue. “At this point, it’s a game of chicken,” he said, with a slight air of cockiness.
“Do you think the Fed gets what’s at stake?” Gamble asked.
“Are you crazy?” Studzinski replied. “Of course not. They just let Lehman fail. It’s like a bad Woody Allen movie.”
By 1:00 a.m., Sully and Porat of Morgan Stanley, who were still representing the Fed, decided they needed to talk privately. They hid in one of AIG’s small kitchens and closed the door, so they’d be outside of earshot of the Goldman and JP Morgan bankers.
“This isn’t going to work,” Porat said. “They aren’t going to get there.”
“Agreed,” Scully replied. “We need a fallback plan.”
They gave their assignment a codename and decided they’d head back to the Fed to alert Dan Jester.
When they opened the kitchen door, they noticed that everyone else had already left, which only seemed to confirm their worst fears: Any chance of a deal had officially ended.
When they reached the Fed, it, too, was deserted, apart from Jeremiah Norton passed out on a couch. He had originally tried to commandeer Geithner’s couch but was told he had to find a napping place elsewhere.
Scully and Porat woke him, and the three of them went to deliver the bad news to Jester.
A conference call was set up for 3:00 a.m. with the Fed team and Treasury, leaving Hilda Williams, Geithner’s assistant, the unenviable task of calling everyone at that ungodly hour to coordinate it.
“We’ve got a problem…” Geithner began the call.
For the first time in weeks, the editorial pages of the major newspapers were heralding Hank Paulson. They applauded his decision to not use taxpayer money to bail out Lehman Brothers. “It is oddly reassuring that the Treasury Department and Federal Reserve let Lehman Brothers fail, did not subsidize the distress sale of Merrill Lynch to Bank of America, and tried to line up loans for the American International Group, the troubled insurer, rather than making a loan themselves,” the New York Times’ lead editorial read. “Government intervention would have been seen either as a sign of extreme peril in the global financial system