Too Big to Fail - Andrew Ross Sorkin [211]
Paulson paused to gather his thoughts carefully. “The situation in March and the situation and the facts around Bear Stearns were very, very different to the situation that we’re looking at here in September, and I never once considered that it was appropriate to put taxpayer money on the line with…in resolving Lehman Brothers.”
It was an answer that would come back to haunt him. He had parsed his words carefully. Technically, his answer was true, but he knew that if Bank of America or Barclays had decided to buy Lehman he might have used taxpayer money to support a deal, but he wasn’t about to bring that up now.
As the questions poured in, Paulson grew more and more agitated. “Why is the Federal Reserve giving AIG a bridge loan?” one journalist asked.
“Let me say what is going on right now in New York has nothing to do with any bridge loan from the government. What’s going on in New York is a private-sector effort again focused on dealing with an important issue that I think is important that the financial system work on right now and there’s not more I can say on that.”
He was about to step down when he announced, “I’ve got time for one more question…the woman in the middle there,” he said, pointing to another reporter.
The journalist asked him how he handicapped the health of the banking system today.
“There are going to be some real rough spots along the road, but I believe we’re making progress. And when I look at the way the markets are performing today, I think it’s a testament to the way the financial industry has come together, because they’re dealing with an extraordinary set of circumstances and they’re dealing in a way we should all be proud of.
“Thank you very much.”
By midafternoon, chaos reigned in the conference room on the sixteenth floor of AIG, where more than a hundred bankers and lawyers, led by Goldman Sachs and JP Morgan, had assembled to begin conducting diligence on the company. The only problem was, no one there seemed to have any of the company’s actual numbers.
“Is there anyone who works for AIG in this room?” a voice shouted out. When no one raised a hand a wave of nervous laughter swept the room.
Finally, Brian Schreiber of AIG was summoned. Working on three hours of sleep, he looked as if he might have a breakdown right there. He took a moment to collect himself before beginning a presentation of the latest numbers. After he finished a less than inspiring performance, the core group from that morning at the Fed huddled in AIG’s boardroom.
For a while it seemed as if progress was being made. Lee and Winkelried felt confident that AIG’s assets were strong, at least strong enough for them to lend against. What they believed the company was experiencing was merely a liquidity crisis: If they could provide AIG with a bridge loan, they’d be home free.
The group started discussing drafting a preliminary term sheet. They’d try to raise $50 billion, in exchange for warrants for 79.9 percent of AIG. It was almost a punitive price, but given the insurer’s status, it might be their only alternative to bankruptcy. Winkelried and Lee also discussed the fees they would collect, which would be split between the firms. If they sought to raise $50 billion, that would leave each firm with a $1.25 billion fee for organizing the loan.
As the group dispersed to return to the Fed to present their progress report to Geithner, Ruth Porat of Morgan Stanley, who was representing the Fed, pulled aside John Studzinski of Blackstone, who was representing AIG. They were old friends; Studzinski used to run Morgan Stanley’s mergers and acquisitions practice in London.
“So, what do you think?” Porat asked.
“What do you mean?” Studzinski replied. “I can’t tell from this meeting whether there’s going to be a term sheet or not.”
“That’s not what I meant,” Porat replied. “We’re worried that these guys are going to try to steal the business.”
“He was as useless as tits on a bull.”
Bob Willumstad, normally a calm man, was in an uncharacteristic rage as he railed about Dan Jester of Treasury, while