Too Big to Fail [32]
As everyone began to leave, the Treasury secretary stopped Bob Steel and pulled him aside to discuss the special assignment he had given to himself. “I’m going to lean on Dick,” he announced.
An hour later his assistant, Christal West, had Dick Fuld on line one.
“Dick,” Paulson said cheerily, “how are you?”
Fuld, who had been in his office waiting for the phone call, answered, “Holding up.”
They had checked in with each other a handful of times over the past week since the Bear deal, but they hadn’t discussed anything substantial. This morning’s call was different. They talked about the fluctuations in the market and Lehman’s stock. All the banks were suffering, but Lehman’s share price was being hammered the most, down more than 40 percent for the year. More worrisome was that the shorts were smelling blood, meaning that the short position—the bet that Lehman’s stock had much further to fall—was swelling, accounting for more than 9 percent of all Lehman shares. Fuld had been trying to convince Paulson to have Christopher Cox, chairman of the SEC, get the short-sellers to stop trashing his firm.
Paulson was not unsympathetic to Fuld’s position, but he wanted an update on Lehman’s plans to raise capital. Fuld had already been hearing from some of his top investors that this would be a wise course of action, especially while things were still relatively positive for the firm in the press.
“It would be a real show of strength,” Paulson said, hoping to persuade him.
To Paulson’s surprise, Fuld said he agreed and had already been thinking about it. Some of his bondholders had been pressing him to raise money on the back of the firm’s positive earnings report.
“We’re thinking about reaching out to Warren Buffett,” Fuld replied. That had been a carefully considered remark; Fuld knew that Paulson was a friend of the legendary Omaha investor. Although Buffett had a public disdain for investment bankers in general, for years he had used Goldman’s Chicago office for some of his business, and Paulson and Buffett had become friends.
An investment by Buffett was the financial world’s equivalent of a Good Housekeeping Seal of Approval. The markets would love it. “You should pitch him,” Paulson said, relieved that Fuld was finally taking action in that direction.
Yes, Fuld agreed. But he had a favor to ask. “Could you say something to Warren?”
Paulson hesitated, reflecting that it probably wasn’t a particularly good idea for a Treasury secretary to be brokering deals on Wall Street. The situation could only be complicated by the fact that Buffett was a Goldman client.
“Let me think about it, Dick, and get back to you,” Paulson said.
On March 28, Warren Buffett, the legendary value investor, sat in his office at Berkshire Hathaway’s Omaha headquarters, working at the plain wooden desk that his father had once used, waiting for Dick Fuld’s call. A day earlier, the call had been arranged by Hugh “Skip” McGee, a Lehman banker, who had reached out to David L. Sokol, chairman of Berkshire Hathaway–owned MidAmerican Energy Holdings. (Buffett receives such pitch calls almost daily, so he regarded this one as a fairly routine matter.)
He didn’t know Fuld well, having met him on only a few occasions; the last time they had been together, he had been seated between Fuld and Paul Volcker, the former chairman of the Federal Reserve, at a Treasury dinner in Washington in 2007. Wearing one of his trademark off-the-rack, no-fuss suits and tortoise-rimmed glasses, Buffett had been making the rounds when he had managed to spill a glass of red wine all over Fuld just before dessert arrived. The world’s second-richest man (after Bill Gates) turned crimson as the dinner guests—a group that included Jeffrey Immelt of General Electric, Jamie Dimon of JPMorgan Chase, and former