Too Big to Fail [280]
Perhaps the biggest fireworks that weekend concerned the one unresolved portion of the plan that Paulson was still hoping to announce: the FDIC guarantee of all deposits. He and Bernanke had had lengthy discussions with Bair about the subject. At first, she had offered a compromise: The FDIC would provide the guarantee, but only to bank deposits, which left firms like Goldman Sachs and Morgan Stanley still exposed. But Bair seemed to be coming around; Paulson had put the full-court press on her, at one point taking her aside in his office and telling her, “I’ll make sure you get the credit.” For her part, she thought Paulson was under enormous political pressure to put the program into place, in part because a number of European governments were putting together similar facilities. The guarantee would end up being perhaps the largest—though often overlooked—part of the program. It put the government on the hook for potentially hundreds of billions, if not more, in liabilities, providing the ultimate safety net for the banking system.
Nason and Paulson had been debating the guarantee issue all week. To Nason, it represented the “biggest policy shift in our history.” He told Paulson, “This is an enormous decision. It must be debated in front of everyone so that everyone’s nodding their heads in agreement.”
At one of the meetings that weekend, Geithner, who supported the guarantee, debated the issue with Nason, who played devil’s advocate but also had his own misgivings about the larger implications of the government effectively providing an unlimited backstop for an entire industry.
Still, Geithner finally prevailed, and Bair agreed to the plan.
The final piece of business would be to coordinate how they could invite the banks to Washington and what would be the best way to encourage them to accept the TARP money. There was agreement that if they could assemble all the CEOs in one room, the peer pressure would be so great that they’d be inclined to go along with the proposal.
After deciding on a list of prospective banks, it fell to Paulson to call them. (He had gotten out of making the calls for the Lehman weekend, so it was his turn.)
At 6:25 p.m. he returned to his office and began reaching out. His message was simple. He would tell the CEOs to come to Washington, but he would do everything he could to avoid providing any specific details about the reason for the invitation
Lloyd Blankfein, at a client dinner Sunday night at the Ritz-Carlton in Washington for the International Monetary Fund weekend, made eye contact with Gary Cohn, and they both walked to the corner of the room.
“Hank just called,” Blankfein said in a hushed tone, “and told me I have to be at Treasury tomorrow at three p.m.”
“For what?” Cohn asked.
“I don’t know.”
“What did he tell you?” Cohn said, confused.
“I pushed him, trust me, I pushed him,” Blankfein replied. “The only thing he told me is I’d be ‘happy.’”
“That scares me,” Cohn said.
“I knew it would really warm the cockles of your heart,” Blankfein said with a laugh.
Ken Lewis was in his kitchen at his home in Charlotte on Sunday night, getting ready for dinner, when Paulson called.
“Ken,” Paulson said with no introduction. “I need you to come