Too Big to Fail [279]
Taubman had a thought: “They could write us a check,” he said. Taubman had never heard of anyone writing a $9 billion check, but, he imagined, given the state of the world, anything was possible.
At 10:00 on Sunday morning, October 12, Hank Paulson, dressed casually, took his place at the table in the large conference room across from his office. The room was overflowing with the government’s top financial officials and regulators. Ben Bernanke had arrived, as had Sheila Bair. Tim Geithner had flown down the day before to join the group. John Dugan, the comptroller of the currency, was present, as was Joel Kaplan, deputy chief of staff for policy at the White House. Paulson’s inner circle—including Nason, Jester, Kashkari, Davis, Wilkinson, Ryan, Fromer, Norton, Wilson, and Hoyt—had also taken their seats, though some of them had to be “back-benched” in chairs against the walls, because there was no room for them around the table.
Paulson had called this meeting to coordinate the final details of a series of steps he had been working on to finally stabilize the system, and he wanted to go public with them. Sunday’s meeting was the second such gathering of this group; many of them had met the day before at 3:00 p.m. to sketch out the outlines of the plan.
The multipart plan—which included the Treasury, Federal Reserve, and FDIC—was, as Paulson described it even that day, “unthinkable.” Based on the work of Jester, Norton, and Nason, he wanted to forge ahead and invest $250 billion of the TARP funds into the banking system. The group had settled on the general terms: Banks that accepted the money would pay a 5 percent interest payment. Paulson had decided that if the amount was any higher, like the 10 percent cost that Buffett had charged Goldman, banks would be unlikely to participate. Still, the rate would eventually become more expensive, rising to 9 percent after the first five years,
Much of the debate about the program that morning was less about the numbers than the approach. “In the history of financial crisis in the U.S., you need to do three things: You need to harden the liabilities; you need to import equity; and you need to take out bad assets. This is one part of that plan,” Geithner said, to sell the group on the need for capital injections.
He had suggested that the only way to make the program palatable to the weakest banks would be if the strongest banks accepted the money as well, “to destigmatize” participation in the program, and perhaps even mask the problems of the most endangered firms. Not everyone was in agreement on this point. “Let’s not destroy the strong to convince the world that the weak aren’t so weak,” Bernanke commented. There was the issue of using the TARP money efficiently; if it was directed to otherwise healthy companies, that would mean less money would be available to those institutions that needed it most. Before the meeting Geithner had had a conversation with Kevin Warsh on this same topic, who told him the stigma argument was a red herring. “There’s no fooling these markets. You aren’t going to fool them into thinking that everybody is equally good, bad, or indifferent.”
Still, Geithner, along with Paulson, quickly prevailed on the group that the only way the program could become effective would be if they could persuade the biggest banks—banks like Goldman Sachs and Citigroup—to accept the money. As they started sketching out a list of firms they wanted to persuade to sign up on Day One, with plans to invite them to Washington on Monday to propose that they accept the investment, a question was raised about whether they should make the program available to insurance companies. David Nason suggested they invite MetLife to be a charter TARP participant.
“How are we going to do that?” Geithner asked.
“Well, you regulate them, Tim,” Nason said, to knowing smiles in the room.
The debate about capital injections was playing out against the backdrop of Paulson’s own ongoing worries about the fate of Morgan Stanley. He