Too Big to Fail [40]
Now, as he entered the conference room with Scogin for one last round of Murder Board, he knew he had to be on his game. Treasury colleagues David Nason, chief of staff Jim Wilkinson, and Michele Davis, assistant secretary for public affairs and director of policy planning, were already seated with a small group across the table.
The burning question they all knew would be asked: What role had the government played in the negotiations that had led to the original $2-a-share price for Bear Stearns? None of the Treasury staffers had a clue as to what the other witnesses—JP Morgan’s Jamie Dimon and Bear’s Alan Schwartz—were going to say about what had actually occurred when they testified later in the day.
Steel knew that Paulson had pushed for a lower price to send the powerful message that shareholders should not profit from a government rescue. But no one at Treasury had ever confirmed that, and for Paulson’s and everyone else’s sakes, it would be best not to acknowledge what had really happened: On Sunday afternoon, March 16, Paulson had called Dimon and told him, “I think this should be done at a very low price.”
Steel knew he had to dodge that issue at the hearing. It was imperative, as Davis and others had stressed during Murder Board sessions and at other meetings, that he avoid getting drawn into a debate over whether $2 was the right price—or $10, for that matter. The key idea he had to focus on was Paulson’s overall concern that, because taxpayer money was involved, shareholders should not be rewarded. And more important, they encouraged Steel to remain adamant that Treasury had not negotiated the deal for Bear. If anything, he should deflect the question onto the Fed, which was the only government agency that legally could be party to such a transaction.
Before the role playing began, Nason briefed Steel on a key development. He recounted some recent conversations he had had with the staff of Senator Richard Shelby, the ranking Republican on the Senate Banking Committee. “Shelby’s going to be difficult,” Nason warned.
That was an understatement. Shelby was deeply unhappy with Paulson’s performance, not only because of the Bear Stearns bailout, but in response to another recent Paulson project: a provision in Bush’s economic stimulus package, introduced just days after the bailout, that raised the ceiling on the amount of mortgages that Fannie Mae and Freddie Mac could buy. For days Shelby had not returned the secretary’s phone calls, until Paulson finally barked at his staff, “Doesn’t he know I am the secretary of the Treasury?”
They also knew they had to be wary of Senator Jim Bunning, well known as a “markets know best” purist. “Senator Jim Bunning, Republican. Kentucky,” Steel replied jokingly when a picture of Bunning was held up during Murder Board. “Everything we’re doing? Yes, it’s all bullshit. We’re socialists. Thank you, Senator.”
The Murder Board preparations continued until minutes before Steel left for the hearing. The key objective now was to protect Steel, and the Treasury Department, from any last-minute surprises. Staffers carefully checked that morning’s newspapers to make certain there was no new revelation about Bear Stearns or some harsh opinion from a columnist that a senator might quote that morning. Happily, there was nothing.
Steel made the short trip from Treasury to Capitol Hill in a Treasury car with his aides. The hearing room in the Dirksen Senate Office Building was already buzzing with activity, as camera crews set up their equipment and photographers tested the light. As Steel took his seat, he noticed that Alan Schwartz of Bear Stearns had already