Too Big to Fail - Andrew Ross Sorkin [242]
That day, Morgan Stanley’s stock had fallen 46 percent, only to turn around in the last hours of trading, ending up 3.7 percent, or 80 cents. Between word of the government’s intervention and the short-selling ban, Mack was hoping that he’d finally have some breathing room.
He knew, though, that beneath the surface the firm was hurting. Hedge funds continued to seek redemptions. Other banks were buying insurance against Morgan Stanley’s going under, covering more than $1 billion. Within the past two days, Merrill Lynch had bought insurance covering $150 million in Morgan debt. Citigroup, Deutsche Bank, UBS, AllianceBernstein, and Royal Bank of Canada had all made similar moves to protect themselves from a collapse.
Mack knew that what the firm needed most was an investor to step up and take a big stake in the company to shore it up. “I don’t know how this happened,” he confided in Nides, searching himself. Morgan Stanley had been considered too conservative and Mack pushed the firm to take on more risk at exactly the wrong moment. And now here they were, in the perfect storm, on the cusp of insolvency.
Mack could think of only one investor who might be seriously interested in making a sizable investment in the firm: China Investment Corporation, China’s first sovereign wealth fund. Wei Sun Christianson, CEO of Morgan Stanley China, a fifty-one-year-old dynamo with close relationships throughout the government, had initiated discussions with Gao Xiqing, president of CIC, within the past twenty-four hours. She happened to be in Aspen at a conference with him hosted by Teddy Forstmann, the leveraged buyout king who coined the phrase “Barbarians at the Gate” in the late 1980s, during the bidding war for RJR Nabisco. CIC already held a 9.9 percent stake in Morgan Stanley, and Gao indicated to Christianson that he’d be interested in buying up to 49 percent of the firm. Gao had a major incentive to keep Morgan Stanley alive: He had invested $5 billion in the firm in December 2007, which was now worth half that. Another one of his major investments, in Blackstone Group’s IPO, was down more than 70 percent. If Morgan Stanley filed for bankruptcy, he might lose his job.
Mack and Nides discussed the deal, and while neither man was particularly interested, given their choices, they knew it might prove to be the only solution. Gao, whom Mack had come to know as a fellow Duke trustee, was planning to fly to New York Friday night to meet with them.
Earlier in the day, Mack had spoken with Paulson, who prided himself on his extensive Chinese contacts, trying to persuade him to make a call to the Chinese government to encourage them to pursue the deal. It was a tad unusual to ask the government to serve as a broker, but Mack was desperate. “The Chinese need to feel as if they are being invited in,” Mack explained. Paulson said he’d work on it and see if President Bush would be willing to call China’s president, Hu Jintao. “We need an independent Morgan Stanley,” he affirmed.
Nides, however, had a more cynical view of Paulson’s desire to protect Morgan Stanley. “He’ll keep us alive,” Nides told Mack, “because if he doesn’t, then Goldman will go.”
CHAPTER EIGHTEEN
Hoarse and a little haggard, Paulson made his way to the podium in the press room of the Treasury Building the morning of Friday, September 19, 2008, to formally announce and clarify what he had dubbed earlier that morning the Troubled Asset Relief Program, soon known as TARP, a vast series of guarantees and outright purchases of “the illiquid assets that are weighing down our financial system and threatening our economy.”
He also announced an expansive plan to guarantee all money market funds in the nation for the next year, hoping that that move would keep investors from fleeing them. But he had already gotten an earful that morning about