In FED We Trust Read Online Free Page A
Author: David Wessel
spokeswoman and chief of policy planning — jumped the gun, spreading the word of Paulson’s no-taxpayer-money-for-Lehman vow to the press. “U.S. Helps Lehman Go Up for Sale; Regulators Are Seeking a Weekend Deal Not Involving Public Money” read the front-page story in the
Washington Post
on Friday, September 12. Reuters news service, citing “a source familiar with Paulson’s thinking,” said the Treasury secretary was “adamant” that no government money be used. The Associated Press and the
Wall Street Journal
said much the same thing.
Davis and Wilkinson didn’t want Paulson to walk into a roomful of Wall Street CEOs who expected him to pull out the Treasury’s or the Fed’s checkbook to help one of them buy Lehman. Better to save the checkbook until the last minute. It also seemed plausible that Paulson was doing something more than staking out a tough bargaining position. Perhaps, as the press put it, Paulson was “drawing a line in the sand.” After all, he had said emphatically a few months before: “For market discipline to constrain risk effectively, financial institutions must be allowed to fail.”
Whatever Paulson’s reasons — and Wilkinson and Davis’s reasons for previewing them — Geithner thought that publicly drawing “a line in the sand”during a financial crisis was lunacy. Paulson’s staff seemed to be telling the world that the Treasury and the Fed had decided to cut Lehman loose to punish Wall Street miscreants. Sending a tough message — “Washington to Wall Street: Drop Dead” — at a moment of panic was wrong. Geithner lost his customary cool, telling Paulson emotionally: “The amount of public money you’re going to have to spend is going up, more than you would have otherwise! Your statement is way out of line!” Geithner understood, but Paulson and some of his staff didn’t appear to, that a tough bargaining stance in a room full of investment bankers made sense, but that the press, the markets, and foreign officials abroad couldn’t distinguish a bargaining position from a policy position.
“Y OU’RE D OING T HIS O NE”
Paulson and Geithner’s differences were suppressed as the CEOs of the twenty largest banks and investment houses gathered in a conference room on the first floor of the New York Fed at 6 P.M. , Friday, September 12. Paulson sat at one end of the table with Christopher Cox, the chairman of the Securities and Exchange Commission, beside him. Geithner sat at the other end. The goal: to get Wall Street to come up with enough money to make Lehman Brothers attractive to one of its two surviving suitors, Bank of America or Barclays, much as Bear Stearns had been married to JPMorgan Chase.
“We did the last one,” Paulson told the men, according to a person who was there. “You’re doing this one.” There would be no government bailout for Lehman. Either someone would buy the company, sharing the losses with other Wall Street firms, or the government would let it go under. He told the CEOs that if the government did put money in, the political reaction would be overwhelming, and Wall Street firms would feel the pain.
Geithner — in phrasing that would fuel speculation that he would have saved Lehman had it been up to him — told the assembled executives: “There is no political will for a federal bailout.”
Then, as Geithner always did in a crisis, he divided the necessary work among task forces. “He is very iterative,” one of Geithner’s aides said. “What’s the best idea? Go back and work on it. Come back in two hours. He’s incrediblytenacious. He just keeps going. How many iterations are required to get to where we want to go? Five hundred? OK, I’ll go to five hundred.”
Morgan Stanley, Merrill Lynch, and Citigroup were assigned to see if the industry could band together to run what Geithner called “a liquidation consortium” to sell off Lehman in pieces. Their mission was to do essentially what had happened back in
Washington Post
on Friday, September 12. Reuters news service, citing “a source familiar with Paulson’s thinking,” said the Treasury secretary was “adamant” that no government money be used. The Associated Press and the
Wall Street Journal
said much the same thing.
Davis and Wilkinson didn’t want Paulson to walk into a roomful of Wall Street CEOs who expected him to pull out the Treasury’s or the Fed’s checkbook to help one of them buy Lehman. Better to save the checkbook until the last minute. It also seemed plausible that Paulson was doing something more than staking out a tough bargaining position. Perhaps, as the press put it, Paulson was “drawing a line in the sand.” After all, he had said emphatically a few months before: “For market discipline to constrain risk effectively, financial institutions must be allowed to fail.”
Whatever Paulson’s reasons — and Wilkinson and Davis’s reasons for previewing them — Geithner thought that publicly drawing “a line in the sand”during a financial crisis was lunacy. Paulson’s staff seemed to be telling the world that the Treasury and the Fed had decided to cut Lehman loose to punish Wall Street miscreants. Sending a tough message — “Washington to Wall Street: Drop Dead” — at a moment of panic was wrong. Geithner lost his customary cool, telling Paulson emotionally: “The amount of public money you’re going to have to spend is going up, more than you would have otherwise! Your statement is way out of line!” Geithner understood, but Paulson and some of his staff didn’t appear to, that a tough bargaining stance in a room full of investment bankers made sense, but that the press, the markets, and foreign officials abroad couldn’t distinguish a bargaining position from a policy position.
“Y OU’RE D OING T HIS O NE”
Paulson and Geithner’s differences were suppressed as the CEOs of the twenty largest banks and investment houses gathered in a conference room on the first floor of the New York Fed at 6 P.M. , Friday, September 12. Paulson sat at one end of the table with Christopher Cox, the chairman of the Securities and Exchange Commission, beside him. Geithner sat at the other end. The goal: to get Wall Street to come up with enough money to make Lehman Brothers attractive to one of its two surviving suitors, Bank of America or Barclays, much as Bear Stearns had been married to JPMorgan Chase.
“We did the last one,” Paulson told the men, according to a person who was there. “You’re doing this one.” There would be no government bailout for Lehman. Either someone would buy the company, sharing the losses with other Wall Street firms, or the government would let it go under. He told the CEOs that if the government did put money in, the political reaction would be overwhelming, and Wall Street firms would feel the pain.
Geithner — in phrasing that would fuel speculation that he would have saved Lehman had it been up to him — told the assembled executives: “There is no political will for a federal bailout.”
Then, as Geithner always did in a crisis, he divided the necessary work among task forces. “He is very iterative,” one of Geithner’s aides said. “What’s the best idea? Go back and work on it. Come back in two hours. He’s incrediblytenacious. He just keeps going. How many iterations are required to get to where we want to go? Five hundred? OK, I’ll go to five hundred.”
Morgan Stanley, Merrill Lynch, and Citigroup were assigned to see if the industry could band together to run what Geithner called “a liquidation consortium” to sell off Lehman in pieces. Their mission was to do essentially what had happened back in
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