Geithner appeared unconcerned, as if he had been expecting their call. McGee shot a nervous glance at McDade, as if to say,
Cohen, politely hoping to get Geithner to realize that he believed JP Morgan was doing this to undermine its rival, asked, “Do they need that protection?”
“I’m not in a position to judge that,” Geithner answered.
At 6:00 p.m. Paulson joined a strategy call with Geithner, Bernanke, and Cox. He felt they were about to go into crisis mode and feared another Bear Stearns-like weekend. This time, however, he was determined that it end differently. He believed they needed to prepare what he called a “LTCM-like solution”—in other words, he was committed to the idea of encouraging firms in the private sector to band together and put their own money up to somehow save Lehman Brothers. Geithner was supporting the concept, and apparently some Wall Street chiefs were as well. Geithner had received calls from both John Thain of Merrill Lynch and Vikram Pandit of Citigroup earlier in the day suggesting just such a solution.
Paulson was also deeply concerned about the apparent lack of resolve of both Bank of America and Barclays to “cross the finish line.” He had come to feel that Bank of America was merely going through the motions and was anxious that Barclays wasn’t especially serious about coming to an agreement either. “Listen, the thing about these Brits is that they always talk and they never close,” he told them. He also had a particular instinct about Barclays’ chairman, John Varley, whom he remembered from his Goldman days as a waffler. “Let me tell you,” Paulson said, “Varley is a weak man.”
Perhaps most important, Paulson stressed, was that they couldn’t afford the political liability of putting up government money for Lehman as they had for Bear Stearns. “I can’t be Mr. Bailout,” he insisted. He had been getting calls from politicians all week suggesting as much. Senator Dodd had called earlier to tell Paulson, “Fuld is a friend. Try to help, but don’t bail Lehman out.” Given that everyone on the conference call had already lived through the backlash of the Bear deal, they hardly needed convincing about not wanting to repeat it.
Still, Geithner was a bit hesitant about taking such a severe stance in public, but only because, as he explained, “we don’t want to scare people away. We need as many bidders in this as possible.”
Nonetheless, he quickly fell in line, and the four men made a pact: Unless something miraculous happened, they would plan to place calls to the CEOs of the major Wall Street houses late on Friday and have them all come down to the NY Fed, where they’d press them to come up with a private solution.
In the meantime, Paulson instructed them, the message should be clear:
Brian Schreiber, removing his thick-framed glasses to rub his eyes, could see from his examination of AIG’s daily cash tally that the firm could soon be out of money if it didn’t start selling assets quickly. He nervously began working through the list of people whom he could call whose companies would be capable of providing assistance almost immediately.
The first name that occurred to him was Chris Flowers. His fund had several billion dollars available to buy financial-services assets, and as a former financial-services banker he understood the insurance business well enough that he could move instantly if he was interested. They had also worked together before; Flowers had sought to partner with the firm to buy some smaller insurance companies in the past.
Schreiber tracked down Flowers over at Sullivan & Cromwell, still doing diligence on Lehman’s books.
“We have a huge problem,” Schreiber told him. “We’re going to run out of cash shortly, um, and, you know, we only have, you know, one or two shots to get this right.”
“Well, I’m in the middle of Lehman here,” Flowers replied. “I’m working with BofA.”
“Is there any way you could come down here tomorrow?” Schreiber persisted.
“We’ll come take a look,” he said somewhat noncommittally, uncertain whether he’d be finished with Lehman by then, and then added, “I see this is really important.”
After ending his conference call with Geithner and Bernanke, Paulson summoned Michele Davis, his head of communications, to his office.
“So, I talked to Lewis and Diamond. They’re, of course, all saying that they want government money,” he told her. “And we’ve got Pelosi and everybody else all over us,” he added, referring to rumblings that the Speaker of the House had made expressing her disapproval of any more bailouts.
Davis had brought with her a handful of articles that had already been published by the major papers on the Internet, and it was clear that a possible bailout would be the primary focus of the following day’s news cycle.
A Dow Jones article published at 7:03 p.m., just minutes earlier, opened: “With a beleaguered Lehman Brothers Holdings Inc. likely to be sold, one key issue is what a backstop from the Federal Reserve, if it materialized, would look like.”
“You cannot have this in tomorrow’s headlines, tomorrow’s newspapers saying this,” Davis said, shaking her head. “Everyone is going to think,
Although the subject was left unspoken, both she and Paulson knew another reason a Lehman bailout could quickly become a public relations nightmare: Bush’s brother, Jeb, the former governor of Florida, worked as an adviser to Lehman’s private-equity business. Bush’s cousin, George H. Walker IV, was on the firm’s executive committee. And then there was Paulson’s brother, Richard. The press, needless to say, would have a field day.
“We should make some calls,” she urged him, subtly suggesting they begin leaking to the press word that the government wouldn’t be pursuing any bailout of Lehman.
Paulson mulled over his dilemma. He had always opted to be cautious with the press and hated the very idea of leaking as a tactic. But he trusted Davis’s instincts, and in any case, he preferred not to get his own hands dirty in the matter.
“Do what we need to do,” he told her. “Just, you know, don’t have it be me on the record.”
