Lewis, increasingly frustrated, could see the conversation needed to move along and stated, “I have three things to say. There’s obviously a lot to like and dislike about the program. I think given what’s happening, if we don’t have a healthy fear of the unknown, then we’re crazy.”
Second, “if we spend another second talking about compensation issues, we’ve lost our minds!”
And finally, he said adamantly, “I don’t think we need to be talking about this a whole lot more,” adding, “We all know that we are going to sign.”
Still, Kovacevich kept stirring in his seat. This is practically socialism!
As Bernanke cleared his throat, the room fell silent again.
“I don’t really understand why there needs to be so much tension about this,” he said in his professorial way. He explained that the country was facing the worst economy since the Great Depression and pleaded with them to think about “the collective good. Look, we’re not trying to be intimidating or pushy… .”
Paulson gave him a look as if to suggest, Yes, in fact, I am being pushy!
John Mack, who had been sitting silently for most of the meeting, turned to Geithner and said, “Give me the paper.” Taking a pen from his breast pocket he signed the document and, with a flick of his finger, sent it sliding back across the table. “Done,” he exclaimed, thus unceremoniously certifying what Paulson hated calling a bailout.
“But you didn’t write your name in,” Geithner pointed out. “You write it in,” Mack instructed, and Geithner penned the words “MORGAN STAN-LEY” in block letters at the top. “And you didn’t put the amount in,” Geithner protested.
“It’s $10 billion,” Mack replied nonchalantly.
Thain, looking at Mack in dismay, said, “You can’t sign that without your board.”
“No?” Mack replied. “My board’s on twenty-four-hour notice. They’ll go along with it. And if they don’t, they’ll fire me!”
Blankfein indicated that he, too, needed to speak with his board. “I don’t feel authorized to do that on my own,” he said, with everyone else agreeing that they, too, would need to go through proper channels.
Dimon stood up, walked to the corner of the room near the window, and decided that he was going to convene a board meeting by phone right then and there. He called his assistant, Kathy, and told her to get the directors on the line. The other CEOs dispersed to separate conference rooms to call their offices.
At 4:01 Wilkinson finally replied to Kaplan’s e-mail. “We are there except for one,” he wrote, referring to Wells Fargo. “This deal will get done.”
Outside in the hallway, a huge grin was on Pandit’s face. “We just got out. They’re going to give us $25 billion, and it comes with a guarantee,” he said into the cell phone, sounding as if he had just won the Powerball lottery.
Mack, having already signed the agreement, called Roy Bostock, one of Morgan Stanley’s board members, hoping he could help calm the waters with the other directors over his impetuous decision.
“I want to give you a heads-up,” he told him. “We’re going to be having a board call in about twenty minutes or so. It’s going to be to approve accepting $10 billion in TARP money,” he said, before pausing. “But I already have.”
Bostock knew what was being asked of him. “I understand. The board will not throw an ax in the wheel here.”
When the Morgan Stanley call finally began, Bostock started by saying, “John, we didn’t have any choice but for you to sign that. It was the right thing to do.” Bostock called for a vote before there could be much discussion. “I’m in favor,” he began.
In stark contrast, Dimon’s tone when he spoke to his own board was bleak. “This is asymmetrically bad for JP Morgan,” he said, whispering into his cell phone. In other words, the money would help the weaker banks catch up to them. “But we can’t be selfish. We shouldn’t stand in the way.”
At 5:38, Bob Hoyt, while collecting the signed papers, shot an e-mail to the team, “On my way—that’s 5 down, 4 to go.”
Paulson, Geithner, Bernanke, and Bair sat in Paulson’s office, waiting. With the exception of Kovacevich’s grumbling, the meeting had gone well, much better than they had anticipated. They had effectively just nationalized the nation’s financial system, and no one had had to be removed from the room on a stretcher. Paulson, running his fingers over his stomach, as he always did when he was deep in thought, still couldn’t believe he had pulled it off.
Paulson had just gotten off the phone with Barack Obama—then the presidential front-runner—who had just finished up a speech about the economy in Toledo, Ohio, to tell him the news. He then tried John McCain, but couldn’t get through.
At 6:23 p.m. Wilkinson wrote to the team, “8 out of 9 are in… . [S]tate [S]treet is just waiting on board… . [W]e are basically done.”
Two minutes later, at 6:25 p.m., Wilkinson triumphantly reported the final tally from his BlackBerry: “We now have 9 out of 9.”
Kaplan, at the White House, replied, “Awesome.”
David Nason carried the signed papers down the hallway to Paulson.
Standing in the doorway of the secretary’s office, Nason paused for a moment as Paulson and his half dozen senior staffers took a minute to appreciate the significance of the moment.
“We just crossed the Rubicon,” he said.
EPILOGUE
In the span of just a few months, the shape of Wall Street and the global financial system changed almost beyond recognition. Each of the former Big Five investment banks failed, was sold, or was converted into a bank holding company. Two mortgage-lending giants and the world’s largest insurer were placed under government control. And in early October, with a stroke of the president’s pen, the Treasury—and, by extension, American taxpayers—became part owners in what were once the nation’s proudest financial institutions, a rescue that would have seemed unthinkable only months earlier.
Wiring tens of billions of dollars from Washington to Wall Street, however, did not immediately bring an end to the chaos in the markets. Instead of restoring confidence, the bailout had, perversely, the opposite effect: Investors’ emotions and imaginations—the forces that John Maynard Keynes famously described as “animal spirits”—ran wild. Even after President Bush signed TARP into law, the Dow Jones Industrial Average went on to lose as much as 37 percent of its value.
But there was another kind of fallout, too—one that had a far more profound effect on the American psyche than did the immediate consequences of the dramas being played out daily on Wall Street. In the days and weeks that followed the first payouts under the bailout bill, a national debate emerged about what the tumult in the financial industry meant for the future of capitalism, and about the government’s role in the economy, and whether that role had changed permanently.
A year later such concerns remain very much at the forefront of the national conversation. As this book was going to press, a raucous public outcry, complete with warnings about creeping socialism, questioned the government’s role not just in Wall Street, but in Detroit (since the bank rescue, the government also supplied billions of dollars in aid to two automotive giants, General Motors and Chrysler, to restructure in bankruptcy court) and in the health care system. Washington has also named an overseer, popularly known as a “pay czar,” to review compensation at the nation’s bailed-out banks.
One unexpected result of this new federal activism was that traditional political beliefs had been turned on their head, with a Republican president finding himself in the unaccustomed position of having to defend a hands-on approach. “The government intervention is not a government takeover,” President Bush asserted on October 17, 2008, as he sought to counter his critics. “Its purpose is not to weaken the free market. It is to preserve the free market.”