Too Big to Fail [235]
Mack drew a deep breath. “Well, um, I’ve thought long and hard about that, and my gut reaction is that I’m angry and I want to tell them what I think. And I don’t want to do business with you and all that other stuff. Then on my second breath, I say, you know, they have their job to do, that’s what they’re doing. I am not going to get pulled into that kind of discussion.
“And this is what I wanted to say, I put a note here about being angry. We can be angry, we are angry, we are upset, and we just have to deal with it. We are not here to beat up on clients and tell them how they deserted us and all of that stuff. We’re here to run this firm, work with our clients as best we can. Some don’t want to do business, we’ll deal with that later, let them go. Let’s stay focused on things that are productive. And venting and telling people what you think and calling them all the names you want to call them is not going to help us,” he said, punctuating the point by adding, “I love beating the shit out of people when they screwed us. But I’m not going there. And I don’t want you to go there.”
The panic at Goldman Sachs could no longer be denied. Perhaps the greatest sign of anxiety was the fact that Gary Cohn, Goldman’s co-president, who usually remained perched in his thirtieth-floor office, had relocated himself to the office of Harvey M. Schwartz, head of global securities division sales, who had a glass wall looking out to the trading floor. The door was left open; he wanted to see and hear exactly what was going on.
The Federal Reserve, along with the other central banks, had just announced plans to pump $180 billion to stimulate the financial system, but the scheme did not seem to be having any appreciable effect. Goldman’s shares opened down 7.4 percent. CNBC, which was airing on flat-screen TVs hanging from the walls of Goldman’s trading floor, had introduced a new “bug” on the bottom left-hand side of the screen that provocatively asked, “Is Your Money Safe?”
It was a question that Goldman clients were beginning to ask themselves. The firm’s own CDS spreads had blown out in a way the firm had never seen before, indicating that investors were quickly beginning to believe the unthinkable: that Goldman, too, could falter. In two days, Goldman’s stock had dropped from $133 to $108.
Every five minutes a salesman would tear into Schwartz’s office with news of another hedge fund announcing its plan to move its money out of Goldman and would hand Cohn a piece of paper with the hedge fund’s phone number so he could talk some sense into them. With Morgan Stanley slowing down its payouts, some investors were now testing Goldman, asking for $100 million just to see if they could afford to pay. In every case, Cohn would wire the money immediately, concerned that if he didn’t, the client would abandon the firm entirely.
The good news for Goldman was that withdrawals were only slightly outpacing inflows. To some extent it had been able to capitalize on the distress of others, as hedge funds needed to execute their trades somewhere. When Steve Cohen of SAC Capital transferred several billion over to Goldman, traders began to whoop it up on the floor.
On the other hand, Stanley Druckenmiller, a George Soros acolyte worth more than $3.5 billion, had taken most of his money out earlier that week, concerned about the firm’s solvency. If word got around that a hedge fund manager of Druckenmiller’s reputation had lost confidence in Goldman, it alone could cause a run. Cohn called him and tried to convince him to return the money to the firm. “I have a long memory,” Cohn, who was taking this personally, told Druckenmiller, for whom he had even hosted a charity cocktail party in Druckenmiller’s honor in his own apartment. “Look, the one thing I’m doing is I’m learning who my friends are and who my enemies are, and I’m making lists.”
Druckenmiller, however, was unmoved.