Too Big to Fail [213]
Given the conversation he’d had with Dan Jester at 6:00 that morning, however, it was looking increasingly likely that AIG and the global financial system were now in such peril that the government would have no choice but to intervene.
Paulson had seen the panic gripping the markets in the past twenty-four hours, which was duly reflected in the headlines on every newsstand. That morning’s Washington Post was typical of the tone of the coverage: “Stocks Plunge as Crisis Intensifies; AIG at Risk; $700 Billion in Shareholder Value Vanishes.”
The Dow Jones Industrial Average had slumped 504.48 points on Monday, the biggest point decline for the index since September 17, 2001, when trading started up again after the September 11 terrorist attacks. AIG’s stock had fallen 65 percent to close at $4.76.
By 7:45 a.m., Ben Bernanke was in his office preparing for the Federal Open Market Committee meeting that was due to begin forty-five minutes later in the boardroom just down the hall from his office. It was purely a matter of chance that the FOMC, the Fed’s board of directors that determines monetary policy and decides whether to raise or lower interest rates, had one of its eight meetings a year scheduled for this morning.
Before his meeting began, Bernanke called Kevin Warsh and Don Kohn into his office to join him in a conference call with Tim Geithner, who instead of attending the FOMC gathering had decided he had to stay in New York to deal with AIG, sending Christine Cummings, his vice president, in his place. There was only one small problem with that decision: FOMC meetings were relatively public affairs, and Bernanke was concerned that Geithner’s absence could leak to the press and cause further panic in the markets.
“There’s nothing we can do about it at this point,” Geithner said, eager to focus the group’s attention on the larger problem at hand. He told them that he was expecting to receive a full progress update from JP Morgan and Goldman Sachs at 9:00 a.m., but cautioned that all the signals he had gotten from Dan Jester and Morgan Stanley had not been promising.
He advised them, consequently, to start thinking about a Plan B.
Jimmy Lee was worried he’d be late for the meeting at the NY Fed, having gotten stuck in traffic on the FDR after a quick trip back to his home to Darien to take a shower and put on some fresh clothes. While waiting he called Dimon from his cell phone. “So this is what I’m going to tell them,” he said about his planned presentation to the Fed. “I’m going to have to say the numbers are just too big. We can’t do it. No one can do it. The company is going down.”
“If that’s the answer, that’s the answer,” Dimon replied.
“This is my best judgment,” Lee assured him.
The good news—if it could be called that—was that Lee expected he’d have to tell only Dan Jester, since Geithner would be in Washington at the FOMC meeting.
When Lee finally arrived, he found everyone had already gathered in the conference room that had become the de facto lounge for these meetings. He took a seat near his colleague, Doug Braunstein, and they all began waiting patiently for Dan Jester.
The door opened and Jester and Norton entered, followed by Geithner, who gave no explanation for his unexpected presence.
“So where are we?” he asked in his clipped, all-business manner.
Jimmy Lee consulted his yellow pad, on which he had written two notes to himself in the margins: “Deal stands little chance” and “AIG out of cash.”
“We’ve gone through it all,” Lee said. “They have $50 billion in collateral and they need $80 to $90 billion. We’re short $30 to $40 billion. I don’t know how we can bridge that gap.”
Winkelried of Goldman then jumped in. “Let me just say there is a huge systemic risk to letting this institution fail. I don’t need to tell you the number of counterparties that would be exposed.”
A document generated listing AIG’s biggest counterparties in order of size was passed around. The most exposed firm listed on the orange and blue sheet was