Finally, they got to the key provision: the equivalent of welfare checks, earmarked for the biggest banks in the nation.
Paulson read the talking point aloud: “To encourage wide participation, the program is designed to provide an attractive source of capital, on identical terms, to all qualifying financial institutions. We plan to announce the program tomorrow—and that you nine firms will be the initial participants. We will state clearly that you are healthy institutions, participating in order to support the U.S. economy.”
They all knew that line was wishful thinking. Bernanke and Geithner had talked earlier in the day about whether the sum would be sufficient to sustain even one troubled bank, Citigroup, the nation’s largest, let alone solve a full- fledged financial crisis. Geithner, for one, had been especially anxious that Citigroup, as he had been saying for weeks, “was next.”
Then they got to the question that Geithner and Paulson had been debating all day: How forceful could they be? Geithner had prevailed upon Paulson earlier to make accepting the TARP money as close to a requirement for the participants as possible. “The language needs to be stronger,” Geithner urged him. “We need to make clear that this is not optional,” Paulson agreed.
The new talking-point language reflected Geithner’s changes. “This is a combined program (bank liability guarantee and capital purchase). Your firms need to agree to both,” it stated. “We don’t believe it is tenable to opt out because doing so would leave you vulnerable and exposed.”
Just to drive home the point, one of the talking points warned, “If a capital infusion is not appealing, you should be aware that your regulator will require it in any circumstance.”
They had already tried to game out which of the CEOs would be resistant. Pandit might be tough, but he’d take it, Paulson thought. Dimon was in the bag. Blankfein might get snippy, but he wouldn’t get in the way. Mack needed the money, so that should be easy. Lewis might put up a fight. The biggest wild card was Dick Kovacevich of Wells Fargo: Would he be the one to derail it?
Paulson recounted how much trouble it had been just trying to get him to show up. “I could hardly get him on the airplane,” he told the group, who looked at him with a mixture of amusement and astonishment. “I just said, ‘Listen, the secretary of Treasury, the chairman of the Fed, the FDIC want you here! You better get here!” Everyone laughed, but got right back to business.
“David,” Paulson said, pointing to David Nason, “will walk through the numbers.” And Bob “will go over the comp issues,” meaning the delicate conversation about the industry’s famously extravagant way of compensating, or paying, its medium to big producers.
After that, Paulson explained, the plan was to sequester all the CEOs in separate rooms. “We let them think it over. They can talk to their boards. And we can answer their questions if they have them,” he said. “And then we’ll reconvene at 6:30 p.m.”
“Let’s hope this works,” Paulson said encouragingly, as the group got ready to march down the hallway to, if not the biggest meeting of their careers, certainly the most historic.
Outside the Treasury building every attempt that had been made to keep tight control over the meeting had become moot. Jamie Dimon had arrived at 2:15 p.m., some forty-five minutes early, and casually ambled down Hamilton as the group of camped-out photographers snapped picture after picture. “He caught us off guard!” Brookly McLaughlin, one of the press staffers, wrote to her colleague, who was trying to coordinate the logistics from her BlackBerry. Ronald Logue of State Street Bank showed up ten minutes later; Robert Kelly of Bank of New York and Blankfein arrived at 2:43; then Mack and Pandit. At 2:53, Lewis was still missing. Christal West was getting nervous until he finally arrived, with five minutes to spare, sneaking in through Paulson’s private entrance at the side of the building.
At 2:59 Christal West sent an e-mail to the group: “They’re all in.”
The centerpiece of the secretary’s imposing conference room is a twenty-four-foot-long mahogany table buffed to a high shine, with a Gilbert Stuart portrait of George Washington looming over it from one side of the room and a portrait of Salmon P. Chase, the secretary of the Treasury during Lincoln’s administration and the man responsible for putting the words “In God We Trust” on U.S. currency, from the other. Five chandeliers, lit by gas, hang from the vaulted rose-and-green ceiling. On the back of each of the twenty leather and mahogany chairs positioned around the table is the U.S. insignia in the configuration of the sign for the dollar.
The nine CEOs had already taken their seats, arranged alphabetically behind placards with their names, when Paulson, Geithner, Bernanke, and Bair entered. It was the first time—perhaps the only time—that the nine most powerful CEOs in American finance and their regulators would be in the same room at the same time.
“I would like to thank all of you for coming down to Washington on such short notice,” Paulson began, in perhaps the most serious tone he had yet taken with them individually during the dramatic events of the previous weeks. “Ben, Sheila, Tim, and I have asked you here this afternoon because we are of the view that the United States needs to take strong, decisive action to arrest the stress in our financial system.”
Blankfein, who was sitting directly across from Paulson, quickly turned solemn, while Lewis leaned forward to hear better.
“Over the recent days we have worked hard to come up with a three-part plan to address the turmoil,” Paulson explained.
Just as they had rehearsed, Geithner and Bernanke now took the group through the new commercial paper facility, followed by Bair’s explanation of the FDIC’s plan to guarantee bank debt. Paulson saved the key announcement for himself.
“Through our new TARP authority, Treasury will purchase up to $250 billion of preferred stock of banks and thrifts prior to year-end,” he said, with the gravity due the unprecedented measure. “The system needs more money, and all of you will be better off if there’s more capital in the system. That’s why we’re planning to announce that all nine of you will participate in the program.”
Paulson explained that the money would be invested on identical terms for each bank, with the strongest banks in the country taking the money to provide cover to the weaker banks that would follow suit. “This is about getting confidence back into the system. You’re the key to that confidence.”
“We regret having to take these actions,” he reiterated, and in case there was any confusion, he underscored the fact that he expected them to accept the money whether they wished to or not. “But let me be clear: If you don’t take it and you aren’t able to raise the capital that they say you need in the market, then I’m going to give you a second helping and you’re not going to like the terms on that.”
The bankers sat stunned. If Paulson’s aim had been to shock and awe them, the tactic had worked spectacularly well.
