Too Big to Fail - Andrew Ross Sorkin [230]
Making little progress, Nides had another, perhaps shrewder, angle to play. He could call Andrew Cuomo, the New York State attorney general, who badly needed a cause to resurrect his political fortunes. Nides had a hunch that he might be willing to put a scare into the shorts. It was an easy populist message to get behind: Rich hedge fund managers were betting against teetering banks amid a financial crisis. Everybody remembered what Eliot Spitzer had managed to do to Wall Street from the same platform.
When Nides reached Cuomo, he pitched on announcing an investigation of the shorts. Cuomo had voiced concerns about short-selling before, but this would be a shot across the bow. “If you do this,” Nides said, “we’ll come out and praise you.” Nides knew Mack would be reluctant—he’d be assailing his own clients—but this was a matter of survival.
Before the market closed, Mack sent the following e-mail to the entire staff.
To: All Employees
From: John Mack
I know all of you are watching our stock price today, and so am I. After the strong earnings and $179 billion in liquidity we announced yesterday—which virtually every equity analyst highlighted in their notes this morning—there is no rational basis for the movements in our stock or credit default spreads.
What’s happening out there? It’s very clear to me—we’re in the midst of a market controlled by fear and rumors, and short sellers are driving our stock down. You should know that the Management Committee and I are taking every step possible to stop this irresponsible action in the market. We have talked to Secretary Paulson and the Treasury. We have talked to Chairman Cox and the SEC. We also are communicating aggressively with our long-term shareholders, our counterparties and our clients. I would encourage all of you to communicate with your clients as well—and make sure they know about our strong performance and strong capital position.
“It’s ridiculous that I can’t deal with Goldman at a time like this!” Paulson complained to his general counsel, Bob Hoyt. He was supposed to take part in a 3:00 p.m. call with Bernanke, Geithner, and Cox to discuss Goldman Sachs and Morgan Stanley, but unless he could get a waiver, he would be unable to participate.
With Morgan Stanley on the ropes, Paulson had been growing increasingly worried about Goldman, and if Goldman were to topple, it would, he believed, represent a complete destruction of the system. He’d had enough of recusing himself. Part of him regretted signing the original ethics letter agreeing not to get involved in any matter related to Goldman for his entire tenure. At the time it seemed a good-faith gesture to go above and beyond the typical one-year moratorium on dealing with former employers, but now, he thought, it had come back to bite him.
Geithner had raised this very issue back in March after the Bear Stearns deal. “You know, Hank, if another one of these banks goes,” he said, “I don’t know who would have the ability to take them over other than Goldman, and we have to do something about your waiver-recusal situation because I don’t know how we can do one of these without you.”
Given the extreme situation in the market, Hoyt told Paulson he thought it was only fair that he try to seek a waiver; Hoyt had, in fact, already even drafted the material needed to request one. As Paulson had sold all of his Goldman stock before he took office, Hoyt thought he could easily tell the Office of Government Ethics that Paulson had no conflict, apart from his remaining stake in Goldman’s pension plan, but that constituted only a small part of his overall wealth. After he turned sixty-five years old, Goldman would pay him $10,533 a year.
Paulson appreciated that the “optics” of receiving a waiver to engage with his former employer would only feed the continuing conspiracy theories about his efforts to help Goldman, but he felt he had no other choice. And he hoped it would remain