Too Big to Fail [257]
“The world has really been turned on its head,” Winkelried said wistfully.
Warren Buffett was at his home in Omaha on Sunday when he received a phone call from Byron Trott, a vice chairman at Goldman Sachs. Buffett, who disliked most Wall Street bankers, adored Trott, a mild-mannered Midwesterner based in Chicago. Paulson had introduced the men years earlier, and Trott was now the only investment banker Buffett truly trusted. “He understands Berkshire far better than any investment banker with whom we have talked and—it hurts me to say this—earns his fee,” Buffett wrote in Berkshire Hathaway’s 2003 annual report. For Buffett, there is no more lavish praise.
Trott was calling Buffett with a proposition. For the past several weeks he had been trying in vain to persuade Buffett to make an investment in Goldman, but he had now come up with a new idea. He disclosed to Buffett that Goldman was in talks to buy Wachovia, with government assistance, and wanted to know whether Buffett might be interested in investing in a combined Goldman-Wachovia.
At first, Buffett wasn’t sure he was hearing Trott correctly. Government assistance? In a Goldman deal?
“Byron, it’s a waste of time,” he said in his folksy way, after considering the new configuration. “By tonight the government will realize they can’t provide capital to a deal that’s being done by the firm of the former Treasury secretary with the company of a retired vice chairman of Goldman Sachs and former deputy Treasury secretary. There is no way. They’ll all wake up and realize even if it was the best deal in the world, they can’t do it.”
John Mack had received some promising news Sunday afternoon: Mitsubishi looked like it would actually pull through and make a sizable investment in Morgan Stanley. A conference call had been arranged for Mack to speak with Mitsubishi’s chief executive, Nobuo Kuroyanagi, that evening.
Just as they were going over the details, however, Paulson called.
“John, you have to do something,” Paulson said sternly.
“What do you mean I have to do something?” Mack asked, his voice rising with impatience, explaining that he had just learned that the Japanese were inclined to do the deal. “You’ve been so supportive, you said we can get through this.”
“I know,” Paulson said, “but you’ve got to find a partner.”
“I have the Japanese! Mitsubishi is going to come in,” he repeated, as if Paulson hadn’t heard him the first time around.
“Come on. You and I know the Japanese. They’re not going to do that. They’ll never move that quickly,” Paulson said, suggesting that he focus more on the deal with the Chinese or JP Morgan.
“No, I do know them. And I know I don’t agree with you,” Mack answered angrily. He explained that Mitsubishi had had a long-term relationship with the firm; it had used Morgan Stanley as an adviser during its hostile bid for a part of Union Bank in California earlier in the year. “Japanese rarely do a hostile,” Mack reminded him. “They hired us, they followed through and got it done, so they’ll come through for us.”
Paulson was still skeptical. “They won’t do it,” he said with a sigh.
“You and I disagree,” Mack sputtered, agreeing to keep him updated on his progress as he hung up the phone.
Calling the Fed’s Kevin Warsh out of a meeting to come to the phone, Gary Cohn outlined the preliminary Goldman-Wachovia terms for him. They had agreed to a deal at market—Friday’s closing price of $18.75—and considering that Wachovia’s stock had jumped 29 percent that day on the back of the TARP news, Cohn thought it was a generous concession.
But then he wound up for his big pitch: To complete the deal, he said, Goldman would need the government to guarantee, or ring-fence, Wachovia’s entire portfolio of ARM option mortgages—all $120 billion worth.
Warsh stopped Cohn in midsentence. “We’re just not prepared to do that,” he said. “We can’t look as if we’re just writing a blank check.” Warsh, who was still championing the idea of a