Too Big to Fail [270]
Kovacevich now announced that he wasn’t prepared to move forward without government assistance. “We don’t make these kinds of loans, so we don’t understand them,” he explained. Steel, dumbfounded, thanked him, ended the call, and slumped down in his chair, wondering how he could have been rejected again. Citigroup was still on the sidelines, but he doubted they would raise their bid, especially if there was no competition. When he told his inner circle about the call with Kovacevich, he described it as “not an attractive fact.”
At around 8:00 p.m., Rodgin Cohen heard a rumor that Citigroup had been talking to the FDIC, which only led him to suspect that Citi was trying to orchestrate an FDIC takeover of Wachovia, one similar to the deal that JP Morgan had made for Washington Mutual. Furious, he rang Ned Kelly, upon whom Pandit relied for strategy. Only days before, Kelly had been appointed head of global banking for the bank’s institutional client business in a reshuffle that saw the departure of Sallie Krawcheck, who had once been one of the most powerful women on Wall Street.
“Okay, we need to talk,” Cohen began testily.
“Rodge, look, I wasn’t in touch with them, they just called me,” a defensive Kelly insisted. “I still have the same deal on the table.”
When Steel learned of their conversation he knew that he was, for all practical purposes, out of options, for Warsh had made it clear the bank couldn’t open Monday without a deal. In a last-ditch plea to remain independent, he called Sheila Bair at 12:30 a.m. with a proposal: Would the FDIC consider guaranteeing some of Wachovia’s most toxic assets in exchange for warrants in the bank?
At 4:00 a.m. Steel got the answer he had been dreading. Bair phoned to notify him that his bank had been sold to Citigroup by the government for $1 a share. The FDIC wouldn’t be completely wiping out shareholders, she said; she had succumbed to pressure from Geithner and agreed to guarantee Wachovia’s toxic assets after Citigroup accepted the first $42 billion of losses, declaring that the firm was “systemically important.”
Paulson stood alone in his office, watching the congressional coverage of his bailout bill on C-SPAN. After some additional compromise on Sunday, legislation had been drafted that was acceptable to all the parties and was now being put to a vote.
Pelosi, standing on the floor of the House, had just given an impassioned speech about the need to pass the bill, but had also used the moment as an opportunity to assail the Bush administration, Paulson, and Wall Street. “They claim to be free market advocates, when it’s really an anything-goes mentality,” she said of the Bush administration. “No regulation, no supervision, no discipline. And if you fail, you will have a golden parachute, and the taxpayer will bail you out…. The party is over in that respect. Democrats believe in a free market. We know that it can create jobs, it can create wealth, it can create many good things in our economy. But in this case, in its unbridled form, as encouraged, supported, by the Republicans—some in the Republican Party, not all—it has created not jobs, not capital; it has created chaos.”
Although a few members of Paulson’s staff were loitering nervously outside his office, afraid to go in, Michele Davis had no such qualms and joined him, the two of them intently following the tally of yeas and nays at the bottom of the screen. Paulson expected the bill to pass without a problem, as the markets had already priced in its approval. Five minutes into the allotted fifteen-minute voting window, however, the number of nay votes began to rise consistently. He knew that the measure was still very unpopular with House Republicans, as well as with a number of liberal Democrats, and lawmakers facing tight reelection races did not want to give their opponents any ammunition with just five weeks before election day. There was still time, however, for Pelosi and the