Too Big to Fail [271]
“They wouldn’t have brought this bill to the floor if they didn’t think it could pass, if they didn’t have the votes lined up somewhere,” Davis reassured him. Paulson said nothing and only continued to stare at the screen as the margin of no votes grew wider and wider.
Kevin Fromer, Treasury’s legislative liaison, called anxiously from outside the House chamber. “This is going to fail.”
“I know,” Paulson mumbled dully. “I’m watching.”
Finally, at 2:10 p.m., after an unusually long period of forty minutes to count the votes, the gavel came down: The bailout was rejected 228 to 205. More than two thirds of the Republican representatives had voted against it, as had a large number of Democrats. Traders and investors had been watching the coverage also and started a frantic wave of selling. Stock prices plunged, with the Dow Jones Industrial Average tumbling 7 percent, or 777.68 points, its biggest one-day point drop ever.
For a moment Paulson was speechless. His plan, which he believed might be the most important piece of legislation he could ever propose—his effort at avoiding a second Great Depression—had failed. As his staffers, seeking to comfort him and one another, silently gathered in his office, he said simply, “We’ve got to get back to work.”
Within an hour he and his team were at the White House, meeting with the president in the Roosevelt Room and discussing plans for how to revive the bill.
Downstairs in the Treasury building, however, Dan Jester and Jeremiah Norton had their own ideas about the problem Paulson was facing. They had convinced themselves that the concept of buying up toxic assets was never going to work; the only way the government could truly make a difference would be to invest directly in the banks themselves. “This is crazy,” Norton said of the TARP proposal as he walked into David Nason’s office. “Do we really think this is the right approach?” Jester and Norton had made the case to Paulson before, but the politics of using government money to buy stakes in private enterprises, he knew, had gotten in the way. And once Paulson had gone public with his current plan it seemed as if it would be difficult for him to reverse course.
“If you feel that strongly, you need to tell Hank,” Nason said to him. “You can tell him I’m onboard with you.”
The next day Jester and Norton went to visit with Paulson. They laid out their case: Buying the toxic assets was too difficult; even if they ever figured out how to implement the program, it was unclear whether it would work. But by making direct investments in the banking system, Jester told him, they’d immediately shore up the capital base of the most fragile institutions. They would not have to play guessing games about how much a particular asset was worth. More important, Jester argued, most of these banks eventually would regain their value, so the taxpayer would likely be made whole. And, Jester continued, the current TARP proposal actually allowed Treasury to use it to make capital injections, even if it hadn’t been advertised as such.
Paulson, who had become somewhat disillusioned with the time it was taking to design and implement TARP, was starting to come around to Jester’s way of thinking. He had no idea how he’d sell it to the American public, and he knew that it would be anathema to the Bush administration, but he also knew it might be the most practical solution in a sea of bad options.
“Okay,” he sighed. “Why don’t you work something up? Let’s see what this would look like.”
As the sky grew dark, Bob Steel climbed the steps of Wachovia’s corporate jet at Teterboro Airport in New Jersey to head back to Charlotte. He had spent virtually the entire week in back-to-back meetings with Citigroup to coordinate the details of the merger, which they planned to herald in a full-page newspaper ad on Friday, declaring: “Citibank is honored to enter into a partnership with Wachovia…the perfect partner for Citibank.” While he was frustrated with the paltry final price of the deal, he was proud to