Too Big to Fail [224]
“For seven years, I’ve said that the commercial banks would eventually own the investment banks because of funding issues,” Lewis said. “I still think that. The Golden Era of investment banking is over.”
Gorman, at least for the moment, was thinking that he might well be right. “Do you think we should call Citigroup back?” he asked.
Mack nodded and asked his assistant to phone Vikram Pandit’s office. The two men knew each other well—Pandit, then at Morgan Stanley, had been given a big promotion by Mack in 2000—but had never been particularly close.
“Steve tells me you want to do a deal,” Mack said when Pandit got on the line. “It’s tough out there,” Mack continued. “We’re looking at our options.”
“Well, we’d like to be helpful,” Pandit said, “and this could be the time to do something.”
But before he got too far he said, “I’ll come back to you. I need to talk to my board.”
The black and orange screen flickered as Hank Paulson skimmed the updates about the Reserve Primary Fund on his Bloomberg terminal. With $62.6 billion in assets, the fund was a major player, and as a result of its troubles, doubt, he could see right in front of him, was starting to spread throughout the rest of the field.
“We’ve got an emergency,” Ken Wilson said, coming into Paulson’s office and ticking off a list of panicked CEOs who had begun phoning him that morning at 6:30: Larry Fink of BlackRock, Bob Kelly of Bank of New York Mellon, Rick Waddell of Northern Trust, and Jim Cracchiolo at Ameriprise.
“They’re telling me people are clamoring for redemptions. Hundreds of billions of dollars where people want out!” Wilson said. “People are concerned about anyone who has any exposure to Lehman paper.”
Paulson fidgeted nervously. The Lehman-induced panic was spreading like a plague, the black death of Wall Street. The money market industry needed to be shored up. Wilson also told him that he was hearing that Morgan Stanley was coming under pressure from hedge funds seeking redemptions as well. And if Morgan Stanley were to go, Goldman, the firm where both had spent their entire careers, would likely be next in line.
“Another day, another crisis,” Paulson said with a nervous laugh that betrayed an uneasy sense that he was truly beginning to panic himself.
Paulson’s instinctive response had been serial deal making—the private sector’s solution to systemic problems. Firms consolidated, covered one another’s weaknesses.
But this situation didn’t feel normal, in that respect; behind every problem lurked another problem. He may have been praised for not bailing out Lehman, but he could see now that the unintended consequences had been devastating. The confidence that had supported the financial system had been upended. No one knew the rules of engagement anymore. “They pretended they were drawing a line in the sand with Lehman Brothers, but now two days later they’re doing another bailout,” Nouriel Roubini, a professor at New York University’s Stern School of Business, complained that morning.
And now he could understand it: commercial paper and money markets—that was his bread and butter, Goldman’s specialty. The crisis was hitting close to home.
Across town, Kevin Warsh, a thirty-eight-year-old governor at the Federal Reserve, whose office was a few doors down from Bernanke’s, was having his own worries.
He was just finishing up a conference call with Bernanke and central bankers in Europe and Asia in which they explained what they had just done with AIG. Jean-Claude Trichet, the president of the European Central Bank, had been furious with them for their decision to “let Lehman fail” and was lobbying Bernanke to go to Congress to implement a large government bailout for the entire industry, to restore confidence.
But Warsh was nervous about a different issue: Morgan Stanley, where he had worked as an M&A banker before leaving seven years earlier to become special