Too Big to Fail - Andrew Ross Sorkin [195]
“Okay, here we go!” Fuld said, believing they might be able to hang on a bit longer as they sorted out their options.
“This is great, great news,” Lowitt said, already tallying in his head the tens of billions of dollars of real estate assets he thought they might be able to pledge to the Fed. “We have enough collateral!”
“Lehman’s got to file immediately,” Paulson, leaning back in his chair, instructed Geithner and Cox. He made it clear that he didn’t want Lehman adding to the uncertainty in the marketplace by dragging the situation out any longer.
Paulson had another reason for insisting that Lehman file: If the Fed was going to open its discount window even wider to the remaining broker-dealers, he didn’t intend that Lehman be granted that access; doing so would represent another opportunity for moral hazard.
Cox said that he wanted to hold a press conference to announce the bankruptcy. As the sole regulator with formal authority over the firm, he felt he needed to communicate the news to the public before it crept out on its own and panic ensued.
He summoned Calvin Mitchell, the head of communications for the NY Fed, and Jim Wilkinson, Paulson’s chief of staff, into his temporary office and asked when a conference could be scheduled.
“Well, can’t you do it at the SEC office somewhere? Isn’t that more appropriate?” Mitchell asked, clearly uncomfortable about arranging a media event in the middle of such chaos.
“It’s easier to do it here; no one is there,” Cox insisted. “The journalists are here,” pointing out the window at the scrum of press lined up on Liberty Street.
“Okay, so, we could do it on this floor,” Mitchell said. “Or, if we do it on the main floor, we have a podium we can bring down.”
Cox liked the idea of holding the press conference downstairs and added, “That’s a good backdrop.”
As they began discussing the substance of what Cox would say at the conference about Lehman’s bankruptcy, Erik Sirri, the SEC’s head of markets and trading, pointed out a slight problem with the plan.
“We can’t announce this,” Sirri said. “We can’t say a company has filed for bankruptcy until they decide to file. And that’s a decision for Lehman’s board.”
Just after 1:00 p.m., Stephen Berkenfeld of Lehman called Stephen Danhauser of Weil Gotshal, the firm’s bankruptcy lawyer, frantically explaining that a group of Lehman executives—led by Bart McDade—had just been ordered to appear at the New York Fed. “You’d better get down there,” he urged, and said nothing further.
Seconds later, Danhauser grabbed three senior partners—Harvey Miller, Thomas Roberts, and Lori Fife—and dashed to the street to find a cab. As the four sat sweating in gridlocked traffic, Roberts took a call from a partner back at the Weil Gotshal office who told him that Citigroup had just asked about the firm’s availability to represent it as a creditor in a Lehman bankruptcy.
“That doesn’t make any sense,” Roberts told the partner. “We’re on our way to discuss a deal with Barclays.”
An hour after leaving the General Motors Building, the cab finally approached the New York Federal Reserve Building. News camera crews were still camped outside, watched over by uniformed Fed security. As the lawyers finally entered the building, they encountered Vikram Pandit of Citigroup hurrying out, looking as if he was late for another appointment.
Bart McDade and other Lehman representatives had already arrived upstairs and were sitting across from several rows of government officials and lawyers. Baxter, the general counsel for the New York Fed, was clearly running the meeting, as were lawyers from Cleary Gottlieb, representing the Securities and Exchange Commission.
McDade was just then telling Baxter, “You don’t understand the consequences. You don’t understand what is going to happen!”
Baxter, on noticing the arrival of the Weil Gotshal team, politely stopped the conversation