Too Big to Fail - Andrew Ross Sorkin [259]
Warsh was reviewing the new terms of the Goldman-Wachovia agreement. Steel and Cohn had come back to him with a slight revision to the previous proposal, allowing for Goldman Sachs to take the first $1 billion of losses, per Warsh’s suggestion. Cohn and Steel said they were committed to completing the deal that afternoon if the government would agree to provide assistance. The boards of both companies had been put on standby.
The general view in the room seemed to be that it was a good transaction: It would give Goldman a stable deposit base at the same time it provided Wachovia with a powerful investment bank and top-notch management.
But Geithner was quick to point out its drawbacks. “Does it make Goldman look weaker than they are?” he asked—the same question that Blankfein had raised earlier in the day. Geithner also wondered whether the Fed should be the one loaning the money. Since Wachovia’s regulator was the FDIC, perhaps it ought to be the one to bear that burden.
Checki couldn’t believe the gall of Goldman’s request. “They’re still driving these negotiations as though they have leverage,” he said. But he opposed the merger for a different reason: He was concerned that neither side had enough time to make a thoughtful decision, referring to the situation as “the shotgun wedding syndrome.”
Bernanke listened to the debate without comment.
Then Bill Dudley, a former Goldman man himself who thought the deal was unattractive for the government, also raised the same objection that Buffett had raised just hours earlier: It would prove a public relations disaster for the government.
“What are we doing here? Look at all of the connections you’ve got: Treasury and Steel and me. Goldman is everywhere. We have to be careful.”
After Geithner and Bernanke called Paulson, all three agreed they just couldn’t support the deal.
When Warsh delivered the news to Steel and Cohn, both men were flabbergasted. They had spent the last twenty-four hours trying to formulate an agreement at the behest of the government and were now being told it could not be carried out.
“I’m sorry, I understand, I’m just as frustrated as you are, we just don’t have the money, we don’t have the authorization,” Warsh explained.
Steel, feeling particularly slighted, told Warsh that he felt as if he were running from one bride to another, trying to find the right marriage to save his firm. First Morgan Stanley, and now Goldman Sachs.
Cohn, realizing that the conversation was about to get testy, said, “I think I should step out.”
“No, you should listen to this,” Steel insisted, raising his voice for the first time. “You should sit here and listen to every goddamn word of this.”
Anxiously talking into the speakerphone in the center of the table, Steel became even more irate. “What do you want me to do? Tell me what to do. You can’t make this work, you don’t like this, you don’t like that. Do you want to do the Midtown deal?” he said, referring to Morgan Stanley. “Do you want me to call Citi? I’ve got to protect my shareholders. That’s my job. Just tell me what the fuck you want me to do, because I’m tired of running in circles.”
“I don’t know if it’s true, but we’re hearing Goldman is announcing a deal with Wachovia in the next twenty-four hours,” John Mack announced to the management team gathered in his office. He had just learned of the rumor from a director at the meeting with his board and was distressed by the possibility. After all, it had been only Friday that they were in merger negotiations that didn’t seem to be going anywhere.
Taubman, the firm’s head of investment banking, was horrified. How could Goldman Sachs, Morgan Stanley’s most bitter rival, have been willing to take on all of Wachovia’s toxic assets? he thought to himself. Hadn’t Goldman seen the massive hole in Wachovia’s balance sheet? Then it dawned on him.