Too Big to Fail [48]
But Paulson was also concerned that Fuld was using the short-sellers as an excuse to avoid addressing the genuine problems at Lehman. “You know, the capital raise, as good as it was, is just one thing,” Paulson told him. “It’s not going to end there.” He reminded him that the pool of potential buyers for Lehman was not a large one.
“Look, Dick,” he continued. “There aren’t a lot of people out there saying, ‘I have to have an investment banking franchise.’ You have to start thinking about your options.”
It was a not-so-subtle hint to start thinking about selling the entire firm. Although the conversation agitated Fuld slightly, they’d had similar discussions before, so he took Paulson’s advice in stride.
The group took their seats, and as each of the speakers rose to talk, the perilous state of the economy became ever clearer. The credit crisis wasn’t just a U.S. problem; it had spread globally. Mario Draghi, Italy’s central bank governor and a former partner at Goldman Sachs, spoke candidly of his worries about global money-market funds. Jean-Claude Trichet told the audience that they needed to come up with common requirements for capital ratios—the amount of money a firm needed to keep on hand compared to the amount it could lend—and, more important, leverage and liquidity standards, which he thought was a much more telling indicator of a firm’s ability to withstand a “run on the bank.”
That night, after Fuld had finally found his car and driver outside the Treasury Building, he thumbed out an e-mail on his BlackBerry to Russo. “Just finished the Paulson dinner,” Fuld wrote at 9:52 p.m.
A few takeaways//
1-we have huge brand with treasury
2-loved our capital raise
3-really appreciate u + Reiders work onm [sic] ideas
4-they want to kill the bad HFnds [hedge funds]+ heavily regulate the rest
5-they want all G7 countries to embrace
Mtm stnds [Mark-to-market standards]
Cap stnds
Lev + liquidity stnds
6-HP [Hank Paulson] has a worried view of ML [Merrill Lynch]
All in all worthwhile.
Dick
On the following Tuesday, April 15, Neel Kashkari and Phillip Swagel hurried down past the guard house of the Treasury Building to where Hank Paulson and Bob Steel were waiting for them in the secretary’s black Suburban. The group was due at the Federal Reserve in Foggy Bottom at 3:00 p.m.—in ten minutes—and was running late.
The two men made something of an odd couple. Kashkari, dark with a bald dome, still dressed like the investment banker he had recently been, while Swagel, pale with dark hair and glasses, looked more like a wonky government official. A former academic, he had kept fit and seemed younger than his thirty-four-year-old colleague, even though he was eight years older.
Paulson had invited his young advisers to a meeting with Ben Bernanke so that they could present a confidential memo that the two of them had authored—a memo that had far-reaching implications for the nation’s increasingly unsteady financial system.
At Paulson’s request, they had done nothing less than to formulate a plan for what to do in the event of a total financial meltdown, outlining the steps that the Treasury Department might have to take and the new powers it would require to stave off another Great Depression. They had given the proposal the provocative title “Break the Glass: Bank Recapitalization Plan.” Like a fire alarm enclosed in glass, it was intended to be used only in an emergency, though with each passing day, it appeared more and more likely that the proposal was no mere drill.
As the Suburban raced to Bernanke’s office, Kashkari, who was unflappable by nature, remained calm. After a brief stint as a satellite engineer, he had gone to work as an investment banker for Goldman Sachs in San Francisco, where no one had ever needed to tell him that he was good at his job. He loved meeting with clients and putting