Too Big to Fail [240]
“Ben, you can do this?” President Bush asked, sensing an opportunity.
Bernanke, however, did not appreciate being put on the spot and tried to sidestep the question. “That is really fiscal policy, not monetary policy,” he said in his professorial tone.
Bush understood. “We need to do what it takes to solve this problem,” he agreed, but given his low approval ratings, he knew he could be of little help on the Hill. “You guys should go up,” he told Paulson and Bernanke. The implication was clear: You’re on your own. But he insisted that the two men sell Congress on the idea quickly.
As they left the White House, Kashkari turned to Paulson and remarked, “I couldn’t believe the kind of pressure you were putting on Ben.”
Paulson just smiled. “Maybe Ben will get there.”
Lloyd Blankfein had not been mollified by the market’s late turnaround, with Goldman’s stock ending the day up at $108, which was still better from its low of $86.31. In his office were Gary Cohn; David Viniar, the firm’s CFO; Jon Winkelried, the co-president; John Rogers; and David Solomon. He knew that until Morgan Stanley fell, Goldman was probably safe, though that was hardly a comfort.
Gary Cohn had been on the phone earlier in the day with Kevin Warsh of the Federal Reserve, brainstorming a way to get in front of the financial tsunami. Warsh threw out the idea that perhaps Goldman should be looking to merge with Citigroup, a fit that could solve major problems for both parties. Goldman could get a huge deposit base, while Citigroup would acquire a management team that investors could support.
Cohn had expressed his doubts about the suggestions. “It probably doesn’t work because I could never buy their balance sheet,” he explained. “And the social issues would be enormous.” The expression “social issues” was yet another Wall Street code for who would run the firm. Goldman’s management didn’t exactly have high regard for Pandit and his team.
“Don’t worry about the social issues,” Warsh told him. “We’ll take care of them.”
That was a not so subtle hint that if a deal was struck, Pandit might be out of a job.
But Blankfein wasn’t particularly interested in either alternative. Rodgin Cohen had been encouraging Goldman to think about transforming the firm into a regulated bank holding company, which JP Morgan and Citigroup were, giving them unlimited access to the Fed’s discount window. It was the same idea that Cohen had unsuccessfully pressed Geithner to consider for Lehman Brothers over the summer, and while Geithner had turned that proposal down, Cohen had become convinced that he might now rule differently given the grave state of the markets.
The notion of becoming a bank holding company had arisen at Goldman from time to time over the years, most recently at their board summer meeting in Russia, where they had discussed the necessity of holding more deposits. Blankfein appreciated that Goldman’s dependence on even a modicum of short-term financing made investors, in this highly charged environment, anxious, and that a deposit base provided a more stable source of capital. Blankfein had always resisted the idea, however, because it came with a hefty price tag in the form of increased regulatory oversight. But these were extraordinary circumstances, to say the least, and the CEO sensed that the world might be moving inexorably in that direction. Given that the bank already had temporary access to the Fed discount window, and that the Fed had literally placed several staffers inside Goldman to monitor the firm, Blankfein started to believe that the prospect of a little extra government regulation didn’t seem particularly onerous.
“This is only going to work if you scare the shit out of them.”
That had been Jim Wilkinson’s advice to Paulson before he and Bernanke left to meet with the congressional leadership at Nancy Pelosi’s office that evening. By Wilkinson’s reckoning, unless they could convince Congress that the world was literally going to come to an end, they would never receive approval