I had Callan’s cell phone number, so I called her when I heard the news. “Erin, it’s Maria Bartiromo,” I said when she answered. “I’m sorry about what has happened. Can you talk to me a little bit about what’s going on?” She sighed and said, “Look, Maria, I’ve been crying all day. I’m sitting in the Hamptons having a glass of wine, and I’m done.” Her voice trembled. “I can’t stand them,” she said.
“I want to keep in touch,” she told me, and I agreed. We scheduled dinner for a month later, but she canceled a few days before the date. Although I had always been fair with her, I think Callan was in media-avoidance mode. No surprise there. Soon after, she joined Credit Suisse as managing director and head of the hedge fund business. She worked for only five months before taking an indefinite leave of absence and disappearing from public view. We didn’t speak again.
The siege continued into 2008. “We had five months of total fear,” Larry Fink, CEO of Blackrock, the largest asset manager, would confess to me later. He described a scenario that was nearly unprecedented, a dramatic loss of confidence in the markets. The conventional wisdom has always been that the markets are all-knowing—that there’s an innate wisdom that never gets questioned. But suddenly, Fink explained, “the marketplace was frightened. Everything was very uncertain. The fear was quite large. I remember having dialogue with others—‘Can we save all the companies? Should they all be saved?’ Everyone wanted a positive resolution.”
In fact, they were desperate for one. In interviews throughout the summer, I kept hearing shaky hope. The spin was nonstop. Everyone was using a baseball analogy to express some optimism. “We’re in the eighth inning, Maria,” they’d say. “We’re in the bottom of the ninth.” But when I spoke with Brad Hintz in June, he just laughed and called it a miscalculation. “A lot of the managements in these firms are saying, ‘We’re in the seventh inning…we’re in the eighth inning.’ The problem is, no one told them it was a doubleheader.”
“It wasn’t just Lehman on the line,” an executive there told me. “Investment banking is a confidence game. If the market has zero confidence, every single one of us with this model is dead. It’s not because we’re bad firms.”
The damage went beyond the banks, though. The growing mortgage crisis was also shaking the foundations of the large and sacrosanct Fannie Mae and Freddie Mac.
Dan Mudd, the head of Fannie Mae, found himself swept up in events during the summer of 2008. Mudd, fifty-two, the son of famed television newsman Roger Mudd, had been at Fannie Mae since 2000, and it had been a somewhat rocky tenure. A decorated Marine who served in Beirut, Mudd had established a solid business reputation internationally before he came to Fannie Mae, including serving as president of GE Capital Asia-Pacific and GE Capital-Japan. One day in early 2000, he received a call at his office in Tokyo from a headhunter, asking if he’d be interested in interviewing at Fannie Mae for the position of chief operating officer. Fannie Mae, an acronym for the Federal National Mortgage Association, was a government-sponsored company, chartered by Congress to provide liquidity, stability, and affordability to the housing market. Millions of Americans had mortgages through Fannie Mae and its counterpart, Freddie Mac (Federal Home Loan Mortgage Corporation). They were, in many people’s eyes, the standard-bearers for the American dream.
Mudd said he wasn’t interested in making a move, but the headhunter pressed him. “Why don’t you at least talk to them, have breakfast or something the next time you’re in Washington,” he said. It turned out that Mudd was headed for Washington that week for his parents’ fiftieth anniversary. He figured why not; he had nothing to lose. He arranged an interview with CEO Franklin Raines.
Raines, an accomplished businessman a few years older than Mudd, had an impressive résumé. He had been vice chairman of Fannie Mae for several years before joining the Clinton administration as the director of the Office of Management and Budget. He then returned to Fannie Mae as CEO once he’d left the administration. Raines’s personal story was well known to Mudd. He was a classic example of someone who had pulled himself up by the bootstraps. The son of a Seattle janitor, he was the first African American to run a Fortune 500 company. But the initial meeting between Raines and Mudd did not go well.
“It was the worst interview of my life,” Mudd later told me. “There was no chemistry, nothing there. The conversation didn’t flow. It was like pulling teeth to get any answers from him.” He left the interview shaking his head in disbelief. It had seemed like a colossal waste of time.
Mudd went back to Tokyo and forgot about it, but to his amazement, the headhunter called him a couple of weeks later and said, “Raines really liked you.” He suggested that Mudd meet with board members and other principals.
The more Mudd thought about it, the more attractive the notion of moving back to Washington became. His parents and siblings lived there, and now that his children were approaching their teens, he thought it would be nice to be in the bosom of the extended family once again. He was also attracted to the job, to the idea of getting more involved in public policy, albeit in a market-oriented way. He believed he could make a contribution. He decided to take the plunge, and he started at the company in the winter of 2000.
It was a difficult adjustment. The pseudogovernmental nature of Fannie Mae was anathema to Mudd, who had always been a straight shooter in business. He had problems with the culture, the sense of secrecy, the constant need to double-check decisions
