Too Big to Fail [34]
On Saturday morning, when Fuld called back, there quickly seemed to be a problem separate and apart from Buffett’s concerns. Fuld and Callan were under the impression that Buffett had asked for a 9 percent dividend and warrants “up 40”—meaning that the strike price of the warrants would be 40 percent more than their current value. Buffett, of course, thought he had articulated that the strike price of the warrants would be at $40 a share, just a couple dollars from where they were now. For a moment, they were all talking past each other as if they were Abbott and Costello performing “Who’s on First?” Clearly, there had been a miscommunication, and Buffett thought it was just as well. The talks ended.
Back at his desk in New York, an annoyed Fuld told Callan that he considered Buffett’s offer to be preposterously expensive and that they should seek investments from other investors.
By Monday morning, Fuld had managed to raise $4 billion of convertible preferred stock with a 7.25 percent interest rate and a 32 percent conversion premium from a group of big investment funds that already had a stake in Lehman. It was a much better deal for Lehman than what Buffett was offering, but it hardly came with the confidence an investment from him would have inspired.
Later that morning, Fuld called Buffett to inform him of the success of his fund-raising effort. Buffett congratulated him but privately wondered whether Fuld had used his name to help raise the money.
Although he never brought the subject up, Buffett found it curious that Fuld never mentioned what he imagined was an important piece of news that had crossed the tape over the weekend: “Lehman hit by $355 million fraud.” Lehman had been swindled out of $355 million by two employees at Marubeni Bank in Japan, who had apparently used forged documents and imposters to carry out their crimes.
Once again it reminded Buffett of his experience at Salomon—this time when John Gutfreund and Salomon’s legal team hadn’t told him that the firm was involved in a massive auction bid-rigging scandal of Treasury bills, a scandal that nearly took down the firm.
You just can’t trust people like that.
CHAPTER THREE
On the evening of Wednesday, April 2, 2008, an agitated Timothy F. Geithner took the escalator down to the main concourse of Washington’s Reagan National Airport. He had just arrived on the US Airways shuttle from New York, and his driver, who normally waited outside of security for him, was nowhere to be found.
“Where the fuck is he?” Geithner snapped at his chief aide, Calvin Mitchell, who had flown down with him.
Geithner, the youthful president of the New York Federal Reserve, seldom exhibited stress, but he was certainly feeling it at the moment. It had been less than three weeks since he had stitched together the last-second deal that pulled Bear Stearns back from the brink of insolvency, and tomorrow morning he would have to explain his actions, and himself, to the Senate Banking Committee—and to the world—for the very first time. Everything needed to go perfectly.
“Nobody’s picking up,” Mitchell moaned as he punched the buttons of his cell phone, trying to reach the driver.
The Federal Reserve usually sent a special secure car for Geithner, who by now had grown accustomed to living inside the bubble of the world’s largest bank. His life was planned down to the minute, which suited his punctual, fastidious, and highly programmed personality. He had flown to the capital the night before the hearing precisely out of concern that something like this—a hiccup with his driver—would happen.
On the flight down he had studied the script he had been tinkering with all week. There was one point he wanted to