Too Big to Fail - Andrew Ross Sorkin [258]
Paulson was still skeptical. “They won’t do it,” he said with a sigh.
“You and I disagree,” Mack sputtered, agreeing to keep him updated on his progress as he hung up the phone.
Calling the Fed’s Kevin Warsh out of a meeting to come to the phone, Gary Cohn outlined the preliminary Goldman-Wachovia terms for him. They had agreed to a deal at market—Friday’s closing price of $18.75—and considering that Wachovia’s stock had jumped 29 percent that day on the back of the TARP news, Cohn thought it was a generous concession.
But then he wound up for his big pitch: To complete the deal, he said, Goldman would need the government to guarantee, or ring-fence, Wachovia’s entire portfolio of ARM option mortgages—all $120 billion worth.
Warsh stopped Cohn in midsentence. “We’re just not prepared to do that,” he said. “We can’t look as if we’re just writing a blank check.” Warsh, who was still championing the idea of a merger, explained that they needed to think about the “optics” of the deal. He suggested that if they structured it so that Goldman would take a first loss on the deal—in the same way that JP Morgan had agreed to accept the first $1 billion of losses at Bear Stearns before the Federal Reserve would step in and guarantee the next $29 billion—the government might well consider acting as a backstop.
As several of Wachovia’s board members milled about a Goldman conference room, waiting to get some feedback on the deal from Steel, Joseph Neubauer, the chairman and chief executive officer of ARAMARK Holdings Corporation, looked down at his cell phone, which was buzzing. It was Paulson.
Neubauer knew Paulson well; Goldman had been ARAMARK’s banker, taking it public and private a handful of times and making Neubauer—and the firm—millions of dollars. But Neubauer felt this was a risky call. Paulson, he thought, was not supposed to involve himself with anything related to Wachovia or Goldman, and here he was phoning him in the midst of perhaps the most transformative transaction either might ever pursue. Paulson had phoned Neubauer the day before to gauge whether a deal would ever be workable, but that had just seemed like an exploratory call. Now they were in the heat of negotiations. Paulson justified making the call because he wasn’t speaking directly with Steel, but Neubauer worried that in practical terms it seemed like a meaningless distinction.
“This is not just about Goldman Sachs,” Paulson told him. “I’m concerned about Wachovia. Aren’t you concerned?”
Paulson hadn’t told Neubauer that he had received an ethics waiver to get involved with matters relating to Goldman. Instead, he just continued to press him to take the Goldman bid seriously, worried that Wachovia’s board did not appreciate the severity of the situation in the world economy. “I think there should be a sense of urgency,” Paulson instructed him.
When Neubauer put the phone down, he looked up at the other board members.
“You’re not going to believe this. That was Hank.”
He didn’t need to explain to the directors why the call was so surreal. To many in the room, the Treasury secretary had just ordered them to merge with Goldman.
At Treasury, Jim Wilkinson, Paulson’s chief of staff, was by now practically sleepwalking down the halls. Paulson had just updated him of the Goldman-Wachovia talks and asked him for his counsel. Should the government provide assistance? Wilkinson, in his stupor, said he thought that it sounded like a reasonable idea.
But a half hour later, after a cup of coffee and further reflection, Wilkinson changed his mind. He realized that such a deal would be a public relations nightmare at the worst possible time, just as they were trying to pass TARP. Paulson would lose all credibility; he would be accused of lining the pockets of his friends at Goldman; the “Government Sachs” conspiracy theories would flourish.
Wilkinson ran back into Paulson’s office with Michele Davis.
“Hank, if you do this, you’ll get killed,” Wilkinson said frantically. “It would be fucking crazy.”
Ben Bernanke was being piped in