Too Big to Fail [276]
Buffett said he was so excited about this structure that he had already spoken to Bill Gross and Mohamed El-Erian at PIMCO, who had offered to run the fund pro bono. He had also been in touch with Lloyd Blankfein, who had likewise offered to raise the investor money on a pro bono basis. Finally, Buffett added, “I would be willing to personally buy $100 million of stock in this public offering,” which, he explained, “constitutes about 20 percent of my net worth outside of my Berkshire holdings.”
After reading the letter, Paulson was intrigued. He was still starting to lean in favor of injecting capital directly into the banks, but he thought maybe a program modeled after portions of Buffett’s proposal could be feasible as well. Paulson called Kashkari into his office; he had just named him interim assistant secretary for financial stability that morning, putting him in charge of the TARP plan. The appointment was already generating a firestorm, with accusations that Paulson was once again favoring his former Goldman Sachs employees. (At Goldman, meanwhile, none of the senior management seemed to know who Kashkari was, and some of them asked their assistants that morning to look though the computer system to find out.)
Paulson handed Kashkari Buffett’s letter. “Call him.”
“It is clearly a panic, and it’s a panic around the world,” John Mack, having flown to London, was telling his employees at their headquarters on Canary Wharf the morning of Wednesday, October 8. “So you think back how the regulators have done and what they have done—could they get ahead of this—you know it’s pretty hard because you really didn’t know how bad it was until it got worse….”
The stock market was cratering yet again amid renewed panic that the banking system—and the economy as a whole—were about to suffer further setbacks. Mack, who had gone to London in part to have dinner with his newest investors from Mitsubishi, was under perhaps the most pressure. He was exhausted, having spent much of the past week living on airplanes. In the wake of China Investment Corp.’s hasty departure from Morgan Stanley’s building after Gao found out the firm was about to do a deal with the Japanese, Mack flew to Beijing to try to repair relations. It was a diplomatic mission, intended to calm frayed nerves and to avoid what seemed as if it might turn into a minor international incident, given that Paulson had quietly gotten involved in the talks with the Chinese government originally. Just as important, CIC was still a large investor in Morgan Stanley, and Mack wanted to placate his foreign partners.
But for now, Mack wasn’t interested in anyone’s hurt feelings. He was glued to his stock price, which had fallen 17 percent the day before, as investors grew nervous that Mitsubishi might renege on its deal. After a week and a half of diligence and regulatory approvals, the investment still had not been finalized, and as Morgan Stanley’s stock price continued to drop, questions were raised about whether Mitsubishi would be better off simply walking away from the agreement. All they had on paper was a term sheet—no better than what Citigroup had signed with Wachovia. And Federal Reserve requirements wouldn’t allow the firms to complete the deal until Monday, leaving Morgan Stanley exposed to the gyrations in the stock market—and the possibility that Mitsubishi could pull out—until then.
Earlier that day Mitsubishi had released a statement in Tokyo saying: “We have been made aware of rumors to the effect that MUFG is seeking not to close on our proposed investment in, and strategic alliance with, Morgan Stanley. Our normal policy is not to comment on rumors. Nevertheless, we wish to state that there is no basis for any such rumors.”
That was all Mack needed to know; he trusted the Japanese and wanted to be confident