Blankfein hung up and looked up at Rogers. “Well, that was embarrassing. He had no idea what I was talking about!” From Blankfein’s perspective, he had done what he was asked to do, only to be shown up.
Blankfein phoned Geithner back immediately. “I just called Vikram,” he said testily. “As I think about it, you never told me whether Vikram was expecting a call, but I inferred it. He behaved as if he wasn’t expecting the call and he convinced me that he wasn’t expecting the call.”
Geithner had miscalculated—could Pandit not see the gift that was being handed to him? It defied all reason. But Geithner had no time to deal with anybody’s injured feelings. “Okay, I’ll talk to you later,” he said before hanging up. Blankfein sat there, wondering what the hell had just happened.
Alan Greenspan and his wife, Andrea Mitchell, the NBC News journalist, were mingling in the crowd outside the grand ballroom at the St. Regis Aspen Resort on Saturday morning, the second day of Teddy Forstmann’s weekend conference. They were all waiting for the next panel to begin, entitled “Crisis on Wall Street: What’s Next?” By Wall Street standards it was a star-studded event: The panelists included Larry Summers, the former Treasury secretary; Mohamed El-Erian, CEO of PIMCO, whose book When Markets Collide had just been published; CNBC’s conservative talk-show host Larry Kudlow; and perhaps the most intriguing, Bob Steel of Wachovia. Steel, who had considered canceling, had flown into Aspen that morning, leaving his home at 4:00 a.m. to arrive on time.
By the time the moderator, Charlie Rose, got to the Q&A portion of the panel, however, Steel was nervously checking his watch. Greenspan had entered a debate about the controversies of mark-to-market accounting, but Steel knew he had to get back to the East Coast immediately. The moment the panel ended, he tried to bolt out of the room but on the way out encountered Richard Kovacevich, the chairman of Wells Fargo, someone he thought could be a merger partner.
“I was going to call you next week,” Steel told him.
“Yes, I wanted to catch up,” Kovacevich replied.
“I’m running back to the airport. I’ll call you,” Steel promised.
Jumping into his black Jeep Wrangler on the way to the airport, he finally had a minute to check his BlackBerry and discovered that Kevin Warsh had sent him several e-mails urging him to contact him immediately.
“Listen, I have a call for you to make,” Warsh told Steel when he finally reached him. “We think you should connect with Lloyd!”
Steel, reading between the lines, was stunned: The government was trying to orchestrate a merger between Goldman Sachs and Wachovia! On its face, he knew that it could be a politically explosive deal, considering the two firms’ connections to Treasury. Paulson, he imagined, must be involved somehow. But, of course, Paulson wasn’t allowed to contact him directly. Steel was immediately anxious about the idea. If Goldman had really wanted to buy Wachovia, he thought, it would have done so long ago. After all, up until this week when he spoke to Mack, Goldman had been on Wachovia’s payroll as its adviser, and as such, knew every aspect of its internal numbers. So, if there was a bargain to be had, then Goldman hadn’t seen it. Still, Steel saw the merits in such a deal, and if it was being encouraged by the Federal Reserve, he imagined it might just happen.
“I spoke to Kevin, and he said to give you a call,” Steel began when he got through to Blankfein.
This call, unlike the Citibank fiasco, had been prewired. “Yes, I know,” Blankfein said. “We’d be interested in putting a deal together.”
Steel told Blankfein he was about to step onto Wachovia’s corporate jet and could be in New York by late that afternoon.
As his plane headed for the East Coast, Steel mused how a deal with Goldman would be something of a homecoming, even if it had come as a direct order from the government. Perhaps he could even wangle the chairman title.
Jamie Dimon had been hoping to be able to take his first day off in two weeks. That was until Geithner called him early Saturday morning and instructed him—the president of the New York Federal Reserve seldom suggested anything—to start thinking about whether he’d like to buy Morgan Stanley.
“You’ve got to be kidding me,” Dimon replied.
No, Geithner said, he was quite serious.
“I did Bear,” Dimon objected, referring to buying Bear Stearns. “I can’t do this.”
Geithner ignored his answer. “You’ll be getting a call from John Mack,” he said and hung up the phone.
Mack, who had had a similar peremptory call from Geithner, phoned Dimon five minutes later. Dimon reiterated that he didn’t want to buy Morgan Stanley, which he had already told Mack earlier in the week. But Dimon was under orders to try to help Mack, so the two rivals talked about whether JP Morgan could offer Morgan Stanley a credit line that might give it some breathing room. Dimon said he’d think about it and get back to him with a decision.
As soon as he got off the phone with Mack, Dimon called Geithner. “I talked to John,” he said. “We’re talking about getting him a credit line.”
“I don’t know if that’ll be enough,” Geithner said, frustrated at the news. His order had not been explicit, but he hinted heavily that the Federal Reserve very much wanted the two firms to form a union and wasn’t the slightest bit interested in any temporary measures.
Dimon immediately sent an e-mail to his operating committee, summoning them to the office, and within an hour, dressed in golf shirts and khakis, they had assembled in a conference room on the forty-eighth floor.
Dimon had a grimace on his face as he related the call he’d received from Geithner. Merging the “Houses of Morgan” was not a new idea but hadn’t come up in any serious fashion since June 20, 1973, when Morgan Stanley, JP Morgan, Morgan Guaranty, and the British Morgan Grenfell held a top secret meeting in Bermuda, code-named “Triangle,” at the Grotto Bay Hotel.
On a whiteboard Dimon used a black marker to sketch out what he had been thinking. “We can either buy them, buy part of them, or give them some type of financing.”
For the next two hours they went around in circles, considering their options. What parts of Morgan Stanley could be spun off? What parts could be warehoused (the term for buying a property, keeping it relatively intact if not in fact making it healthier, and then selling it later, when the market recovered)? Maybe they could buy Morgan Stanley, Dimon suggested aloud, and then create a new tracking stock for it?
But all these scenarios wound up circling back to the same problem: What, exactly, would they be buying? The overlap between the firms was enormous. And what were Morgan Stanley’s toxic assets really worth? These were all but unanswerable questions at that time.
John Hogan, JP Morgan’s chief risk officer, who had attended the meeting with Lehman Brothers the previous week, stepped out of the operating committee conference room and called Colm Kelleher and Ken deRegt at Morgan Stanley.
“I don’t know exactly what you guys have in mind, but under any scenario where we ‘help you,’ we’re going to need a bunch of information,” he said. “Could you go back and talk to Mack and find out exactly what it is that you’re expecting, that you’d like from us in terms of this ‘help’?” There was more than a little condescension in Hogan’s voice, and Kelleher and deRegt picked up on it immediately.
A half hour later Kelleher got back to Hogan with an outline for a request for a $50 billion line of credit. Kelleher was hoping that if JP Morgan did come through with an offer, Dimon would not be as punitive as CIC had been.
Hogan sent an e-mail to JP Morgan’s senior team with the subject line “URGENT and Confidential.” In it he spelled out the plan: