Jon Winkelried, Goldman’s co-president, had been walking the floors, trying to calm everyone’s nerves. “We could raise $5 billion in an hour if we wanted to,” he told a group of traders as if to suggest nothing was amiss.
But just then, at 1:00 p.m., the market—and Goldman’s stock—suddenly turned around, with Goldman rising to $87 a share, and then $89. Traders raced through their screens trying to determine what had been responsible for the lift and discovered that the Financial Services Authority in the U.K. had announced a thirty-day ban on short selling twenty-nine financial stocks, including Goldman Sachs. It was exactly what Blankfein and Mack had tried to persuade the SEC’s Christopher Cox to do.
The squawk boxes on Goldman’s trading floor soon crackled to attention. A young trader found a copy of “The Star-Spangled Banner” on the Internet and broadcast it over the speakers to commemorate the moment. About three dozen traders stood up from their desks, placed their hands over their hearts, and sang aloud, accompanied by rounds of high fives and cheers. The market was turning around,
Nine minutes later word began to spread that Paulson, too, was working on something big. “Treasury, Fed Weighing Wider Plan to Ease Crisis, Schumer Says” a Bloomberg headline read, buoying the market further.
At exactly 3:01 p.m. the market took off. Traders all over Wall Street turned up the volume when Charlie Gasparino of CNBC reported what he was hearing from his sources on Wall Street: The federal government was preparing “some sort of RTC-like plan” that would “get some or all of the toxic waste off the balance sheets of the banks and brokerages.” Taking “RTC” as code for “everything’s going to be all right,” traders pushed stocks higher immediately. Between the time Gasparino began his report and the segment ended, the market jumped 108 points, a brief respite from the steady downward spiral.
At the Treasury, Paulson and Kashkari had been on a conference call with Geithner and Bernanke for the past hour, trying to decide on a path of least political resistance for shoring up the banks. Bernanke, who seemed bothered by the plan, was arguing in favor of direct capital injections, a measure that had worked in other countries.
Geithner, who had been railing about the need for “decisive action,” all of a sudden started talking about the possibility of opening up the Fed window to virtually any financial institution with any kind of assets. It would be a bold act that would likely be applauded by investors.
“I don’t understand, what do you mean?” Kashkari piped up. “If the Fed really wanted to interpret its authorities creatively, it could do all this without legislation?”
Paulson shot Kashkari an angry look, as it was precisely what he had been hoping that Geithner might convince Bernanke to do—and thus save Paulson a trip to Congress.
“We can’t do that,” Bernanke admonished Geithner.
The call had to end quickly because Paulson and Bernanke were scheduled to brief President Bush in the West Wing on their plan at 3:30 p.m., and Bernanke still needed to drive over from the Fed.
As Paulson and Kashkari began the three-minute walk across the parking lot to the White House, Paulson received a call from Nancy Pelosi.
“Mr. Secretary,” she announced sternly, “we would like to meet with you tomorrow morning because of some of the chaos we see in the markets.”
Knowing that he would need to start building congressional support for his plan as soon as possible, he replied, “Madam Speaker, it cannot wait until tomorrow morning. We have to come
Upon reaching the Oval Office the Treasury officials took their places on the pair of sofas in the middle of the room. Vice President Cheney; Josh Bolten, Bush’s chief of staff—and Paulson’s old friend from Goldman—and several other White House staffers soon joined them, along with Bernanke and Warsh.
Paulson told Bush in no uncertain terms that the financial system was collapsing. “If we don’t act boldly, Mr. President,” he said, “we could be in a depression deeper than the Great Depression,” an assessment with which Bernanke concurred.
Bush was struggling to wrap his mind around the precise course of events. “How,” he questioned, “did we get here?”
Paulson disregarded the question, knowing that the answer would be way too long and lay in a heady mix of nearly a decade of overly lax regulation—some of which he had pushed for himself—overzealous bankers, and home owners living beyond their means. Instead he pressed ahead and told the president that he planned to seek at least $500 billion from Congress to buy toxic assets, explaining that he hoped the program would stabilize the system.
He hastened to point out the political ramifications, suggesting that buying toxic assets was overall a more palatable option than buying stakes in banks themselves.
Bush nodded in agreement but, still confounded by the $500 billion figure, asked, “Is that enough?”
“It’s a lot. It will make a difference,” Paulson assured him. Even if he did want to seek a higher number, Paulson told the president, “I don’t think we can get more.”
They all knew it was going to be a highly politicized issue, but Paulson insisted, “We absolutely need to go to Congress. Treasury doesn’t have the authority.”
For a moment, Paulson paused and then added, “In theory, Ben could always do it.”
Paulson, unexpectedly playing politics himself, appeared to be trying to see how far he could push Bernanke, who, as far as Paulson was concerned, had virtually unlimited powers as long as he was willing to use them.
“Ben, you can do this?” President Bush asked, sensing an opportunity.
Bernanke, however, did not appreciate being put on the spot and tried to sidestep the question. “That is really fiscal policy, not monetary policy,” he said in his professorial tone.
Bush understood. “We need to do what it takes to solve this problem,” he agreed, but given his low approval ratings, he knew he could be of little help on the Hill. “You guys should go up,” he told Paulson and Bernanke. The implication was clear: You’re on your own. But he insisted that the two men sell Congress on the idea quickly.
As they left the White House, Kashkari turned to Paulson and remarked, “I couldn’t believe the kind of pressure
