Too Big to Fail - Andrew Ross Sorkin [280]
Still, Geithner, along with Paulson, quickly prevailed on the group that the only way the program could become effective would be if they could persuade the biggest banks—banks like Goldman Sachs and Citigroup—to accept the money. As they started sketching out a list of firms they wanted to persuade to sign up on Day One, with plans to invite them to Washington on Monday to propose that they accept the investment, a question was raised about whether they should make the program available to insurance companies. David Nason suggested they invite MetLife to be a charter TARP participant.
“How are we going to do that?” Geithner asked.
“Well, you regulate them, Tim,” Nason said, to knowing smiles in the room.
The debate about capital injections was playing out against the backdrop of Paulson’s own ongoing worries about the fate of Morgan Stanley. He had been back and forth on the phone with Mack, who he knew was trying to clinch a renegotiated deal. But he had also learned that the Japanese had reached out to the Federal Reserve, seeking assurances that the U.S. government wasn’t planning to come in and make an investment in Morgan Stanley after it did—fearing that if it did, it would wipe out all shareholders. When Warsh first called Geithner to tell him the news, his reaction was simple: “Fuck!” That afternoon they worked to write a letter to the Japanese government assuring them that Mitsubishi would not be negatively impacted any more than other shareholders by any future government intervention in the firm. Of course, Morgan Stanley was unaware of the government’s plans—or the extent of the back-channel conversations taking place between the governments to orchestrate the deal.
Perhaps the biggest fireworks that weekend concerned the one unresolved portion of the plan that Paulson was still hoping to announce: the FDIC guarantee of all deposits. He and Bernanke had had lengthy discussions with Bair about the subject. At first, she had offered a compromise: The FDIC would provide the guarantee, but only to bank deposits, which left firms like Goldman Sachs and Morgan Stanley still exposed. But Bair seemed to be coming around; Paulson had put the full-court press on her, at one point taking her aside in his office and telling her, “I’ll make sure you get the credit.” For her part, she thought Paulson was under enormous political pressure to put the program into place, in part because a number of European governments were putting together similar facilities. The guarantee would end up being perhaps the largest—though often overlooked—part of the program. It put the government on the hook for potentially hundreds of billions, if not more, in liabilities, providing the ultimate safety net for the banking system.
Nason and Paulson had been debating the guarantee issue all week. To Nason, it represented the “biggest policy shift in our history.” He told Paulson, “This is an enormous decision. It must be debated in front of everyone so that everyone’s nodding their heads in agreement.”
At one of the meetings that weekend, Geithner, who supported the guarantee, debated the issue with Nason, who played devil’s advocate but also had his own misgivings about the larger implications of the government effectively providing an unlimited backstop for an entire industry.
Still, Geithner finally prevailed, and Bair agreed to the plan.
The final piece of business would be to coordinate how they could invite the banks to Washington and what would be the best way to encourage them to accept the TARP money. There was agreement that if they could assemble all the CEOs in one room, the peer pressure would be so great that they’d be inclined to go along with the proposal.
After deciding on a list of prospective banks, it fell to Paulson to call them. (He had gotten out of making the calls for the Lehman weekend, so it was his turn.)
At 6:25 p.m. he returned to his office and began reaching out. His message was simple.