Too Big to Fail - Andrew Ross Sorkin [274]
In the final House tally, thirty-three Democrats and twenty-four Republicans who had voted against the bill on Monday now approved it. That afternoon, President Bush signed the Emergency Economic Stabilization Act of 2008, which created the $700 billion Troubled Assets Relief Program, or TARP. “We have shown the world that the United States will stabilize our financial markets and maintain a leading role in the global economy,” the president declared.
Of course, what none of the congressmembers nor the public knew was that TARP was being completely rethought within Treasury, as Jester, Norton, and Nason began developing plans to use a big chunk of the $700 billion to invest directly into individual banks.
Jester had flown back to his home in Austin for a brief respite, but he was constantly on his BlackBerry with Norton going over their various options. Norton and Nason, told by Treasury’s general counsel, Bob Hoyt, that they could not hire an outside financial adviser because of the inherent conflicts, made a series of outbound calls to Wall Street bankers on an informal basis to bounce various ideas off them about how to implement a capital injection program. Their call list included a cast of characters that had become well known to them through the recent spate of weekend deal-making: Tim Main and Steven Cutler of JP Morgan, Ruth Porat of Morgan Stanley, Merrill Lynch’s Peter Kraus, and Ned Kelly of Citigroup, among others. They intentionally did not call anyone from Goldman Sachs, concerned that the conspiracy theory rumor mill was already in overdrive.
Norton and Nason asked them all the same questions: How would you design the program? Should the government seek to receive common or preferred shares in exchange for their investment? How big a dividend would banks be willing to pay for the investment? What other provisions would make such a program attractive, and what provisions would make it unappealing?
But Jester, Norton, and Nason knew they had precious little time to complete their planning. Even with TARP approved, the markets did not immediately respond by stabilizing. The Dow Jones Industrial Average, which had been up as many as 300 points before the start of the voting, closed down 157.47 points, or 1.5 percent. After the Wells Fargo deal for Wachovia was revealed, shares of Citigroup fell 18 percent, their sharpest decline since 1988. For the week, the Standard & Poor’s 500 stock index was down another 9.4 percent.
“I’m the ugliest man in America,” Dick Fuld, beside himself in a mix of sadness and anger, privately acknowledged to his team of advisers before they strode into a congressional hearing in Washington on Monday, October 6, that had been called to examine the failure of Lehman Brothers. The markets remained in turmoil, falling another 3.5 percent despite the passing of TARP, as investors continued to question whether the program would actually work.
As he entered, spectators were waving pinks signs with handwritten scrawls proclaiming “Jail not Bail” and “Crook,” and in case Fuld didn’t fully comprehend how he was perceived, John Mica, a Republican congressman, announced, “If you haven’t discovered your role, you’re the villain today. You’ve got to act like a villain.”
For the past several weeks Fuld had been in a depression deeper than any he’d ever experienced, pacing his home in Greenwich at all hours, taking calls from former Lehman employees who wanted either to scream at him or to cry. He continued to go to the office, but it was unclear even to him what he was doing there. He was, however, sufficiently self-aware to finally comprehend what had happened and to perceive the full extent of the vitriol that was now being directed at him. He wanted to be defiant, but he found he couldn’t. He was at times saddened and angry—angry at himself, and increasingly angry at the government, especially at Paulson, whom he saw as having saved every firm but his. His beloved