Too Big to Fail [275]
As he spoke he struggled to gain any measure of empathy from his listeners, suggesting, “As incredibly painful as this is for all those connected to or affected by Lehman Brothers, this financial tsunami is much bigger than any one firm or industry.” He also expressed his great frustrations—with hedge funds for spreading baseless rumors, with the Federal Reserve for not allowing him to become a bank holding company over the summer, and ultimately with himself.
For a moment, as his testimony was winding up, he looked as if he was about to break down, but he steadied himself, as he had done at home virtually every day prior to the hearing. The room fell silent as the congressmembers leaned forward in their chairs, waiting for him to speak.
“Not that anybody on this committee cares about this,” Fuld said, putting his notes aside and surprising even his own lawyer by speaking so extemporaneously, “but I wake up every single night wondering, What could I have done differently?” On the verge of tears, he added, “In certain conversations, what could I have said? What should I have done? And I have searched myself every single night.”
“This,” he said gravely, “is a pain that will stay with me for the rest of my life.” And, he continued, as he watched the government go to extraordinary steps to save the rest of the system he remained baffled why the same hadn’t been done for Lehman.
“Until the day they put me in the ground,” he said, as everyone in the chamber hung on his words, “I will wonder.”
That Monday afternoon Hank Paulson received a private four-page, typed letter from his friend Warren Buffett. They had spoken over the weekend about Paulson’s current predicament—namely, that even though his TARP plan had been approved by Congress, it was not passing muster on Wall Street, where investors were beginning to worry that it would be ineffectual. Paulson had confided in him that he was considering using TARP to make direct investment in banks. Buffett told him that before he went down that path, he had some ideas about how to make a program to buy up toxic assets work that he would put in a letter, which he said would spell out both the problems with the current plan and a solution.
In the letter, Buffett, perhaps one of the clearest and most articulate speakers on finance, first explained the shortcomings of Paulson’s current plan:
“Some critics have worried that Treasury won’t buy mortgages at prices close to the market but will instead buy at higher ‘theoretical’ prices that would please selling institutions. Critics have also questioned how Treasury would manage the mortgages purchased: Would Treasury act as a true investor or would it be overly influenced by pressures from Congress or the media? For example, would Treasury be slow to foreclose on properties or too bureaucratic in judging requests for loan forbearance.”
To address those problems, Buffett proposed something he called the “Public-Private Partnership Fund,” or PPPF. It would act as a quasi-private investment fund backed by the U.S. government, with the sole objective of buying up whole loans and residential mortgage–backed securities, but it would avoid the most toxic CDOs. Instead of the government doing this on its own, however, he suggested that it put up $40 billion for every $10 billion provided by the private sector. That way the government would be able to leverage its own capital. All proceeds “would first go to pay off Treasury, until it had recovered its entire investment along with interest. That having been accomplished, the private shareholders would be entitled to recoup both the $10 billion and a rate of interest