“There’s nothing we can do about it at this point,” Geithner said, eager to focus the group’s attention on the larger problem at hand. He told them that he was expecting to receive a full progress update from JP Morgan and Goldman Sachs at 9:00 a.m., but cautioned that all the signals he had gotten from Dan Jester and Morgan Stanley had not been promising.
He advised them, consequently, to start thinking about a Plan B.
Jimmy Lee was worried he’d be late for the meeting at the NY Fed, having gotten stuck in traffic on the FDR after a quick trip back to his home in Darien to take a shower and put on some fresh clothes. While waiting he called Dimon from his cell phone. “So this is what I’m going to tell them,” he said about his planned presentation to the Fed. “I’m going to have to say the numbers are just too big. We can’t do it. No one can do it. The company is going down.”
“If that’s the answer, that’s the answer,” Dimon replied.
“This is my best judgment,” Lee assured him.
The good news—if it could be called that—was that Lee expected he’d have to tell only Dan Jester, since Geithner would be in Washington at the FOMC meeting.
When Lee finally arrived, he found everyone had already gathered in the conference room that had become the de facto lounge for these meetings. He took a seat near his colleague, Doug Braunstein, and they all began waiting patiently for Dan Jester.
The door opened and Jester and Norton entered, followed by Geithner, who gave no explanation for his unexpected presence.
“So where are we?” he asked in his clipped, all-business manner.
Jimmy Lee consulted his yellow pad, on which he had written two notes to himself in the margins: “Deal stands little chance” and “AIG out of cash.”
“We’ve gone through it all,” Lee said. “They have $50 billion in collateral and they need $80 to $90 billion. We’re short $30 to $40 billion. I don’t know how we can bridge that gap.”
Winkelried of Goldman then jumped in. “Let me just say there is a huge systemic risk to letting this institution fail. I don’t need to tell you the number of counterparties that would be exposed.”
A document generated listing AIG’s biggest counterparties in order of size was passed around. The most exposed firm listed on the orange and blue sheet was ABN AMRO, which had been acquired by Royal Bank of Scotland, with $65 billion; the second largest was Calyon; Goldman Sachs was the seventh; Barclays was the eighth; and Morgan Stanley was the ninth.
Geithner studied the figures, furrowing his brow every few lines, and after setting them down said, “Okay. Here’s what we’re going to do.” He paused, leaning forward for all to hear what he was about to say.
“I want everyone to put his cell phone away, BlackBerrys, everything. I don’t want anybody communicating outside of this room. Not to your office. Not to anybody. Do you understand me? This conversation is confidential,” he said. When Geithner was satisfied that everyone had complied, he posed a question for which no one in the group had been prepared: “What would it look like if we said the Fed was going to do this?”
For the past seventy-two hours the government had been insisting that it would not bail out any financial institution. Now, with that one sentence, Geithner had turned everything on its head. Even if it was just a hypothetical, the rules of engagement had evidently just changed.
Geithner continued, throwing out a series of questions. “How would this work? How would you structure the terms? How will the capital markets respond? How will the debt markets react?”
Goldman’s Winkelried could not hide a slight smile. Scully of Morgan Stanley, realizing the night before that he needed a Plan B, had already roughed out a term sheet based on the numbers that JP Morgan and Goldman Sachs had put together. If it was good enough for them—and by Morgan Stanley’s estimation, they were going to be stealing the company—it should be good enough for the Federal Reserve.
“Work on it,” Geithner said, and then left the room.
“Braunstein isn’t picking up his fucking phone,” Willumstad railed after dialing his cell several times, worried that he was being kept in the dark.
John Studzinski, his adviser from Blackstone, had just heard from one of his colleagues who was down at the NY Fed that he had seen Goldman and JP Morgan executives high-fiving one another—even while another team from the two banks was still camped out at AIG, rifling through its books.
Studzinski finally managed to reach Porat by text-messaging her. However, she was purposely being vague, and would only offer, “The deal is changing. Stop sharing information with JPM and GS.”
A few minutes later, Willumstad’s assistant announced that Tim Geithner, whom Willumstad had frantically attempted to reach several times that morning, was on the phone.
“Hi, Tim,” Willumstad said, somewhat impatiently.
“Give me a progress report,” Geithner instructed, rather than offering the progress report that Willumstad had been waiting for desperately.
“I just want you to know that we’re preparing for bankruptcy,” Willumstad told him steadily. “I’ve called the backup lines. I just think you should know that.”
Geithner seemed anxious and quickly cut him off with, “Don’t do that.”
“You have to give me a reason not to,” he said, mystified by the odd reply. “I have an obligation and responsibility. I can get $15 billion and keep me going for a couple of days. I have to protect the shareholders here.”
“Well, I’ll tell you something confidential,” Geithner finally said. “We’re working on some help for you, but there’s no guarantees, it has to be approved by Washington.”
Willumstad, still dubious, replied, “Well, unless you can assure me that there’s going to be some help, we’re
