Paulson and Geithner had repeatedly told Diamond in no uncertain terms that the U.S. government was not going to help, but he hadn’t been able to determine if that was just a negotiating stance. As for the British government, there was no mystery there to him: It was perfectly clear that it wouldn’t get involved.
What Barclays needed was a partner—a big, rich one—and it was a matter that Diamond knew he had to discuss with his brain trust, which was led by Archibald Cox Jr., Barclays Capital’s chairman (and the son of the Watergate prosecutor), Rich Ricci, the firm’s COO, and Jerry del Missier, Barclays Capital’s co-president. Diamond had also hired his own outside adviser, Michael Klein, a smart former senior banker at Citigroup. Klein had resigned from Citigroup months earlier rather than be marginalized by Pandit’s new team, but he was still a hot commodity. To keep him from going to work for a competitor, Citigroup had agreed to pay him out $28 million in deferred compensation that he would have lost by leaving. In exchange, he had to stay “on the beach” for an entire year. Diamond, convinced he needed Kein on his side, had called Pandit earlier in the week to get his on the beach status temporarily suspended so that he could work for Barclays on an emergency basis.
As they began brainstorming about the trading-guarantee problem, Klein asked aloud, “Who could possibly do this?”
“This is the kind of thing that, a year ago, you’d go to AIG, and they would have wrapped this for you, right?” del Missier asked.
That clearly was no longer possible, and Klein offered, “What about Buffett?” “Yeah, but Buffett only does deals if it’s a fantastic deal for Buffett,” del Missier pointed out.
Klein had done some deals with the Omaha Oracle when he was at Citigroup and had all his phone numbers. He called and found Buffett at the Fairmont Hotel Macdonald in Edmonton, Alberta, as he and his second wife, Astrid Menks, were about to leave for a gala, unbeknownst to them, as the surprise guests.
Klein put him on speakerphone with Diamond and his team. Del Missier began to explain to Buffett why the guarantee was so important. “If Lehman trades dollars for yen with somebody, that bank needs to know that Lehman is going to deliver the dollars before they deliver the yen,” he told Buffett. “If there are worries that they’re going to be able to settle that trade, the whole thing is going to unravel.”
Buffett understood what was at stake but couldn’t fathom guaranteeing Lehman’s books for up to two months. But wanting to be polite, he suggested, “If you fax me something written out about it, when I get back, I’ll be glad to read it.”
As he shut his cell phone and strolled to his car on the way to the gala, Buffett remembered the last time he had received a call like this. What a mess that turned out to be. In 1998, the week before the rescue of Long-Term Capital, Jon Corzine of Goldman Sachs called asking if he’d consider joining a group interested in buying the giant, troubled hedge fund. Buffett was about to leave on a trip to Alaska with Bill and Melinda Gates, so he asked Corzine to send him some information on that deal. Then he ended up spending a day trying in vain to get his satellite phone to connect while he viewed grizzly bears in Pack Creek. He tried to orchestrate a deal between himself, Goldman, and AIG, but failed. It was a big waste of time and energy. Maybe he had to stop being so polite to these Wall Street boys.
Downstairs at the New York Fed, the CEOs and their underlings had all begun milling around the lunch buffet tables. Despite the grave assignment they’d been given, there was little they could actually accomplish on the spot. Not only did they not have computers with them, but the people with any real expertise in analyzing balance sheets and assets were either with the Lehman team upstairs or back at their offices, poring over volumes of spreadsheets.
In one corner a number of executives, trying to pass the time, were doing vicious imitations of Paulson, Geithner, and Cox. “Ahhhh, ummm, ahhhh, ummm,” one banker muttered, adopting Paulson’s stammer. “Work harder, get smarter!” another shouted, mocking Geithner’s Boy Scoutish exhortations. A third did his best impression of Christopher Cox, whom they were all convinced had little understanding of high finance: “Two plus two? Um—could I have a calculator?” In another corner, Colm Kelleher, Morgan’s CFO, had begun playing BrickBreaker on his BlackBerry, and soon an unofficial tournament was under way, with everyone competitively comparing scores.
After lunch, they were all summoned back into the main conference room, where John Thain’s absence did not go unnoticed.
If there was one topic besides Lehman’s future on the minds of the CEOs, it was the fate of their own firms. What would Lehman’s bankruptcy mean for them? Was Merrill really next? What about Morgan Stanley or Goldman Sachs? And what about JP Morgan or Citigroup? While commercial banks like JP Morgan had large, stable deposit bases, they still funded part of their business the same way the broker-dealers did: by regularly rolling over short- term commercial paper contracts that had become subject to the same erosion of confidence that had brought down Bear Stearns—and now Lehman Brothers. To them the waning trust only suggested the nefarious handiwork of short-sellers.
At one point, John Mack questioned the whole idea of bailouts and ruminated aloud about whether they should just let Merrill fail, too, even though seated just a few places away from him was Peter Kraus, who was standing in for John Thain. The question quickly quieted the room. Some thought he was gaming all of them—maybe he wanted to buy Merrill on the cheap? What they didn’t know was that he had approached Thain just hours earlier and had set a meeting for that evening.
Dimon looked at Mack dumbfounded. “If we do that,” he said caustically, “how many hours do you think it would be before Fidelity would call you up and tell you it was no longer willing to roll your paper?”
When Thain finally did call Ken Lewis, the conversation was brief and to the point—merely a discussion of the logistics of their meeting. Thain was concerned enough to get the details correct that he called Lewis back a second time to confirm which entrance of the Time Warner Center he ought to use.
Before driving over to Lewis’s apartment, Thain met with Fleming at the firm’s Midtown offices to strategize. He made it clear to Fleming that the discussions were purely exploratory—and that he wanted to sell only a small stake in the firm, maybe up to 20 percent.
“He’s not going to go for that,” Fleming warned. “Lewis is going to say that he wants to buy the whole company.”
Thain opened the car door himself, making a beeline to the entrance. Ducking under the extended steel-and- glass awning, with its One Central Park address, he rushed solo up the South Tower to Lewis’s apartment.
Lewis greeted Thain warmly in a room with striking views but one that revealed its status as a corporate apartment by the virtual absence of artwork or furniture.
“Given all the events that were going on,” Thain said, once they settled themselves, “I am concerned about the
