Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the FinancialSystem--and Themselves

NOTES AND SOURCES

When I first began this project I could have never imagined the twists and turns the reporting process would take. Relying on the many relationships I had developed on Wall Street and in Washington over the past decade as a reporter at the New York Times, I set about trying to reconstruct the record, pressing my sources to re-create hundreds of meetings and phone calls. Some participants were generous with their time; others were more reluctant, as the economic crisis remained an open wound.

But happily hundreds of participants did agree to speak with me, some for as long as ten hours. One CEO, whom I have known for several years, arrived at our first meeting with meticulous handwritten notes from the big weekend at the Fed, and had even drawn an illustration of where all the participants sat around the table. “I’m giving you them for the same reason I took them,” he explained. “This was history in the making.” Another source provided videotape recordings of several internal meetings, while others, often after some cajoling, allowed me to view their calendars or e-mail archives. The greatest challenge I faced, oddly enough, was dealing with what often felt like too much information. In trying to reconcile five different versions of a meeting, for instance—from people who were in a sleepless haze at the time—I often found myself repeatedly going back to the same sources to confirm even the tiniest details.

To aid in my reporting, I tried to rely as often as possible on the written record, and I was lucky to have found sources who often took incredible notes or provided access to internal documents, e-mails, presentations, scripts, etc. I also relied upon government documents that I obtained through Freedom of Information Act requests. Both Henry Paulson’s and Tim Geithner’s calendars helped provide key dates and times. However, it is worth noting that both of those calendars—like diaries I was provided by others—often contained errors about dates or specific meetings.

It was clear from the very beginning of this project that no matter how eager I was to interview these participants on the record, I was not going to get very far if I truly wanted to capture the personal, behind-the-scenes machinations of this dramatic period. As I indicated in the author’s note at the beginning of this volume, the majority of subjects interviewed took part only on the condition that they not be revealed as a source, though I was free to capture their contemporaneous words and feelings in the text as they remembered them.

Even in conversations that appear to be between only two people, it is remarkable how many others may have been privy to them. For example, many of the calls conducted by CEOs and government officials took place on speakerphone, sometimes with a dozen people listening in. Other times, a detailed description of a conversation might have been sent by e-mail immediately afterward by one of the participants to a colleague, and forwarded to others.

It is worth noting that much of the dialogue that appears in this book came from the best recollections of participants. As a result, it should be said that the dialogue cannot be considered to be the same as an exact transcript. I have sought out as many sources as possible for confirmation, especially for particularly memorable remarks, but the dialogue is only as good as the memories of those who recalled it.

I have also relied on a treasure trove of reporting by my peers in the business press, who, it must be said, did a remarkable job covering these events in real time, and I have sought to credit them in the notes that follow. Even in instances where I have confirmed the information independently, I have still tried to identify the news article that reported the information first, though I am sure I have inadvertently overlooked some publication or article that may have broken a piece of news or detail that is included in this volume.

Some of the best reporting that took place during this period, I am proud to say, came from my colleagues at the New York Times. But I must also acknowledge the excellent reporting by the Associated Press, Bloomberg, BusinessWeek, CBS’s 60 Minutes, CNBC, Forbes, Fortune, Institutional Investor, Reuters, the Washington Post, and the Wall Street Journal. Among others, I’d like to single out two remarkable reporters at the Wall Street Journal who I found myself citing frequently: Susanne Craig, who led that paper’s coverage of Lehman’s collapse, and Deborah Solomon, whose Washington coverage was first rate.

Finally, any fact or piece of dialogue not cited in the notes below came from one or more of my confidential sources or documentary evidence that was provided to me.

PROLOGUE

1 “Lehman Races Clock ”: Susanne Craig, Deborah Solomon, Carrie Mollenkamp, and Matthew Karnitschnig, “Lehman Races Clock; Crisis Spreads,” Wall Street Journal, September 13, 2008.

4 Goldman Sachs, ranked at the top of the five leading brokerages: Harper, “Wall Street Bonuses Hit Record,” Bloomberg.

4 Blankfein, alone took home $68 million: In addition to his salary, Blank fein earned a $67.9 million bonus in 2007—“the biggest ever for a top Wall Street executive.” Christine Harper, “Wall Street Bonuses Hit Record $39 Billion for 2007,” Bloomberg, January 17, 2008; Susanne Craig, Kate Kelly, and Deborah Solomon, “Goldman Sets Plan to Escape U.S. Grip,” Wall Street Journal, April 14, 2009.

4 “The whole world is moving”: Louis Uchitelle, “The Richest of the Rich, Proud of a New Gilded Age,” New York Times, July 15, 2007.

5 “ate their own cooking”: As Emanuel Derman, of hedge fund Prisma Capital Partners, noted: “These guys ate their own cooking; they didn’t just pass it on to clients.” Paul Barrett, “What Brought Down Wall Street?” BusinessWeek, September 19, 2008.

5 “The sudden failure or abrupt withdrawal”: Charles A. Bowsher, comptroller general of the United States, said this on May 18, 1994, before the Senate Committee on Banking, Housing, and Urban Affairs. http://www.gao.gov/products/GGD-94-133.

5 “The impact on the broader economy”: “Chairman Bernanke Testifies Before Joint Economic Committee,” U.S. Fed News, March 28, 2007.

5 Bear Stearns’ hedge funds failing: In July 2007, the High-Grade Structured Credit Strategies Fund and the High-Grade Structured Credit Strategies Enhanced Leverage Fund caved in. Kate Kelly, “Barclays Sues Bear Over Failed Funds,” Wall Street Journal, December 20, 2007.

6 BNP Paribas:“BNP Paribas Freezes Funds Amid Subprime Concern,” Bloomberg, August 10, 2007.

CHAPTER ONE

9 the twelve-acre estate: His Greenwich property, worth an estimated $11 million, has a home with twenty rooms, eight bedrooms, a tennis court, a squash court, and a pool house. It’s one of five Richard Fuld owns. Steve Fishman, “Burning Down His House,” New York, December 8, 2008.

9 supposed to be in India: Susanne Craig, “Lehman Finds Itself in Center of a Storm,” Wall Street Journal, March 18, 2008.

11 rumors were rampant that ING: Ibid. When asked about these rumors, an ING spokeswoman said the company would continue to offer funds but will be looking “more carefully at risk and collateral.”

11 Gregory, who lived in Lloyd Harbor: Lloyd Harbor was Gregory’s primary address, but he owned several other properties, including a 2.5-acre oceanfront estate in Bridgehampton and an apartment at 610 Park Avenue on Manhattan’s Upper East Side. See Michael Shnayerson, “Profiles in Panic,” Vanity Fair, January 2009.

11 helicopter for his daily commute: Ibid.

11 missed his son’s lacrosse game: Craig, “Lehman Finds Itself,” Wall Street Journal.

12 “Do we have some stuff”: Fuld, as quoted by the Financial Times: “Do we have some stuff on the books that would be tough to get rid of? Yes,” he said, referring to commercial and residential mortgage assets. “Am I worried about it? No. If you have some repricing of these things will we lose some money? Yes. Is it going to kill us? Of course not.” Ben White, “A Fighter on the Ropes,” Financial Times, June 14, 2008.

12 He had led Lehman through the tragedy and subsequent disruptions of 9/11: A few days after 9/11, with Fuld leading the way, the firm relocated to the Sheraton Manhattan hotel in Midtown, where desks replaced beds and the cocktail lounge became the global finance group’s base of operations. Eight months later, in April 2002, Lehman moved into its new headquarters. See Andy Serwer, “The Improbable Power Broker: How Dick Fuld Transformed Lehman from Wall Street Also-Ran to Super-Hot Machine,” Fortune, April 17, 2006.

12 buying this new tower from Morgan Stanley: In October 2001, Morgan Stanley sold its office building, located on Broadway and West Forty-ninth Street, to Lehman Brothers for $700 million. Charles V. Bagli, “Morgan Stanley Selling Nearly Completed Office Tower to Lehman for $700 Million,” New York Times, October 9, 2001.

13 “We’ve been characterizing Lehman Brothers”: Joe Kernen, Squawk Box, CNBC, March 17, 2008.

13 DBS Group Holdings: The memo, however, didn’t mention closing any existing accounts with the firms. Patricia Kowsmann, “DBS Not Entering New Positions with Lehman-Sources,” Dow Jones Newswires, March 17, 2008.

13 Moody’s reaffirmed its A1 rating: Craig, “Lehman Finds Itself,” Wall Street Journal.

14 “It’s paving the road with cheap tar”: Fuld, as quoted by Yalman Onaran and John Helyar, “Lehman’s Last Days,” Bloomberg Markets, January 2009.

15 “Lehman may have to follow Bear into the confessional ”: McCarty, as quoted by David Cho and Neil Irwin, “Crises of Confidence in the Markets; Federal Reserve’s Rescue of Bear Stearns Exposes Cracks in Financial System,” Washington Post, March 18, 2008.

15 “Bear Stearns’s demise”: Ibid.

15 “I don’t think we’re going bust this afternoon”: This was reported by Andrew Gowers, and while attributed to “the boss” in the Sunday Times of London, “the boss” on the line is actually Jeremy Isaacs, Lehman’s CEO for Europe and Asia, not Dick Fuld. See Andrew Gowers, “The Man Who Brought the World to Its Knees EXPOSED,” Sunday Times (London), December 14, 2008.

16 “I don’t care who you are”: Fuld, as reported by Gary Silverman and Charles Pretzlik, “R ichard Fuld—A Cunning Player Shows His Hand,” Financial Times, August 17, 2001.

16 As he fumed to the Washington Post: Ianthe Jeanne Dugan, “Battling Rumors on Wall St.; Lehman Brothers Chairman Launches Aggressive Defense,” Washington Post, October 10, 1998.

17 “We learned we need a lot of liquidity”: Fuld, in an interview with Craig, “Lehman Finds Itself,” Wall Street Journal.

17 white paper he presented in Davos: Russo’s presentation, titled “Credit Crunch: Where Do We Stand?,” was originally given at the Group of Thirty meeting on November 30, 2007. He updated the paper for the World Economic Forum in January 2008. See http://www.group30org/pubs/pub_1401.htm.

17 for $21 million were finished: A broker told the New York Post: “It’s got great bones, but it needs tons of work,” estimating that the renovation of Fuld ’s apartment would cost $10 million more. See “$21 Million Wreck,” New York Post, February 6, 2007.

18 he joined the Reserve Officers’ Training Corps: Fuld ’s ROTC recruitment has been reported previously by various publications, including the Wall Street Journal and Fortune, but this scene between Fuld and his sergeant, to the author’s knowledge, has never been published before.

19 United Merchants & Manufacturers: “Jacob W. Schwab, 89, Textile Manufacturer,” New York Times, March 30, 1982.

19 Fuld’s Lehman internship: Justin Schack, “Restoring the House of Lehman,” Institutional Investor—Americas, May 12, 2005; Tom Bawden, “Bruiser of Wall St Dick Fuld Looked After His People, But Didn’t Know When to Quit,” The Times (London), September 16, 2008; Annys Shin, “Capitol Grilling for Lehman CEO,” Washington Post, October 7, 2008.

19 “I truly stumbled into investment banking”: Schack, “Restoring the House,” Institutional Investor.

19 magnificent 1907 Italian Renaissance building: Ann Crittenden, “Lehman’s Office Move Marks End of an Aura,” New York Times, December 20, 1980.

20 “He didn’t let his emotions get the best of his judgment”: Edward Robinson, “Lehman’s Fuld, a Survivor, Now Eyes Investment Banking Business,” Bloomberg Markets, July 2008.

20 Glucksman, who died in 2006: Diana B. Henriques, “Lewis Glucksman, Veteran of a Wall St. Battle, Dies at 80,” New York Times, July 8, 2006.

21 Lehman’s history: Charles Geisst, The Last Partnership: Inside the Great Wall Street Dynasties (New York: McGraw-Hill, 2001), 49-51; Auletta, Greed and Glory On Wall Street, 27-30.

21 commercial paper-trading operation: Keith Dovkants, “The Godfather, a Man They Call the Gorilla and How a Banking Legend Was Lost,” Evening Standard (London), September 16, 2008.

21 While this anecdote has been reported previously, the scene and dialogue between Kaplan and Fuld have been reported newly by this author. A brief mention of this event was previously reported by Fishman, “Burning Down His House,” New York.

23 “The Gorilla,” a nickname … stuffed gorilla: Susanne Craig, “Trading Up: To Crack Wall Street’s Top Tier, Lehman Gambles on Going Solo,” Wall Street Journal, October 13, 2004; Schack, “Restoring the House of Lehman,” Institutional Investor—Americas; Louise Stor y, “At Lehman, Chief Exudes Confidence,” New York Times, June 17, 2008.

23 “I was one of those people who didn’t want to disappoint Dick ”: Fishman, “Burning Down His House,” New York.

23 the “Huntington Mafia”: Shnayerson, “Profiles in Panic,” Vanity Fair.

24 “Fucking bankers!”: Auletta, Greed and Glory, 118.

24 Glucksman, Peter Lusk ’s office: David Patrick Columbia, “Highs and Lows,” New York Social Diary, January 27, 2009.

24 Glucksman ousting Peterson: Ken Auletta, “Power, Greed and Glory on Wall Street: The Fall of the Lehman Brothers,” New York Times Magazine, February 17, 1985.

25 “That’s kind of like talking about my first wife”: Robinson, “Lehman’s Fuld,” Bloomberg Markets, July 2008.

25 Shearson/American Express acquiring Lehman: Robert J. Cole, “Shearson to Pay $360 Million to Acquire Lehman Brothers,” New York Times, April 11, 1984.

25 “I loved this place”: Ken Auletta, “The Fall of Lehman Brothers: The Men, the Money, the Merger,” New York Times, February 24, 1985.

25 “It was like a ten-year prison sentence”: Peter Truell, “Market Place: Is Lehman Ready to Take the Plunge?” New York Times, June 3, 1997.

25 “Stay together, and you will continue to do great things”: Gluck sman’s quote, as well as his pencil demonstration, from Robinson, “Lehman’s Fuld,” Bloomberg Markets.

26 Fuld pushed out Pettit: Peter Truell, “Pettit Resigns as President of Lehman Brothers,” New York Times, November 27, 1996; Peter Truell, “Christopher Pettit Dies at 51; Ex-President of Lehman Bros.,” New York Times, February 19, 1997.

26 “You’re the best business fixer I have”: Fishman, “Burning Down His House,” New York.

26 Fuld began by slashing payroll: And brokers, too. Fuld noted, “Within a week or 10 days we fired 60% of the 550 brokers [who] weren’t representing the firm.” He shaved expenses from $1.25 billion to under $1 billion and fired nearly two thousand people. See “Take Notice, It’s Lehman,” US Banker, May 1, 2001.

26 “Inside” to Fuld’s “Mr. Outside”: Fishman, “Burning Down His House,” New York.

26 “I want my employees to act like owners”: Schack, “Restoring the House of Lehman,” Institutional Investor.

27 point system similar to the one that he used to reward his son: Wall Street Journal, October 14, 2005.

27 his vacation with James Tisch: “Ben, lead the way”: Schack, “Restoring the House of Lehman,” Institutional Investor.

28 “Every day is a battle”: Fishman, “Burning Down His House,” New York.

28 “I tried to train investment bankers”: Robinson, “Lehman’s Fuld,” Bloomberg Markets.

28 Gregory’s $34 million, Fuld’s $40 million: Yalman Onaran, “Lehman Brothers Paid CEO Fuld $40 Million for 2007,” Bloomberg News, March 5, 2008.

29 people inside Lehman referred to as a “Joeicide”: Fishman, “Burning Down His House,” New York.

29 “People need broad experience”: Ibid.

29 Callan history, early career: Susanne Craig, “Lehman’s Straight Shooter,” Wall Street Journal, May 17, 2008.

30 “Would it be weird for someone like to me to work on Wall Street?”: From a profile of Callan in NYU Law School’s alumni newsletter, “Erin Callan, ’90: Chief Financial Officer, Lehman Brothers Holdings Inc.,” April 2008. See http://www.law.nyu.edu/alumni/almo/pastalmos/20072008almos/erincallanapril/index.htm

30 Citadel Investment Group, she orchestrated the sale of $500 million worth of five-year bonds: Pierre Paulden, “Rainmakers—Alpha Female,” Institutional Investor, June 2007.

31 her personal shopper at Bergdorf Goodman: Craig, “Lehman’s Straight Shooter,” Wall Street Journal.

31 negotiations to buy her dream home: According to New York City housing records, Callan signed both her deed and mortgage on April 16, 2008. Lysandra Ohrstrom, “15 CPW Alert! Lehman Lady Lands $6.5 M. Pad,” New York Observer, April 25, 2008.

31 15 Central Park West: James Quinn, “Sting Rubs Shoulders with Giants of Finance at $2bn Apartments,” Daily Telegraph (London), February 2, 2008; Christina S. N. Lewis, “Private Properties,” Wall Street Journal, October 3, 2008.

31 borrow $5 million to pay for the $6.48 million space: According to New York City housing records she took out a $5 million mortgage. Also see DealBook, “Lehman’s C.F.O. Checks into 15 C.P.W.,” New York Times, April 29, 2008.

31 “I don’t want to make too much of words”: Matt Lauer interview with Treasury secretary Henry Paulson, Today, NBC, March 18, 2008.

32 quoting from the front page of the Wall Street Journal: Robin Sidel, Greg Ip, Michael M. Phillips, and Kate Kelly, “The Week That Shook Wall Street,” Wall Street Journal, March 18, 2008.

33 Goldman, Lehman first-quarter earnings: Jenny A nderson, “Swinging Between Optimism and Dread on Wall Street,” New York Times, March 19, 2008.

33 “Lehman kind of confounded the doomsayers”: “Lehman Lifts Mood, and So Does Goldman,” International Herald Tribune, March 19, 2008.

33 “all in all solid”: Susanne Craig and David Reilly, “Goldman, Lehman Earnings: Good Comes from the Bad,” Wall Street Journal, March 19, 2008.

34 “There’s no question the last few days”: Callan, from transcripts of the Lehman Conference Call: Lehman Brothers Holdings Inc. (LEH) F1Q08 Earnings Call, March 18, 2008.

34 “You did a great job, Erin”: Ibid.

35 The stock would end the day up: Anderson, “Swinging Between Optimism and Dread,” New York Times; Rob Curran, “Lehman Surges 46% As Brokers Rally Back,” Wall Street Journal, March 19, 2008.

35 “The only complaint I have”: Patricia Sellers, “The Fall of a Wall Street Highflier,” Fortune, March 8, 2010.

35 she slapped him a high five: Curran, “Lehman Surges 46%,” Wall Street Journal.

35 “I still don’t believe any of these numbers”: Alejandro Lazo and David Cho, “Financial Stocks Lead Wall Street Turnabout,” Washington Post, March 19, 2008.

CHAPTER TWO

36 “That makes me want to vomit!”: A version of this story was previously reported by Kelly, Street Fighters, 204.

36 raise the price to $10: Kate Kelly, “The Fall of Bear Stearns: Bear Stearns Neared Collapse Twice in Frenzied Last Days,” Wall Street Journal, May 29, 2008.

37 “I could see something nominal, like one or two dollars per share”: Kelly, Street Fighters, 205.

37 government’s offer to backstop $29 billion of Bear’s debt: A week later, to limit exposure, the Fed revised its offer to $29 billion. See Robin Sidel and Kate Kelly, “J.P. Morgan Quintuples Bid to Seal Bear Deal,” Wall Street Journal, March 25, 2008.

37 Bear’s shareholders and employees had practically revolted: Ibid.

37 “This isn’t a shotgun marriage”: Moldaver, as reported by Kelly, “The Fall of Bear Stearns,” Wall Street Journal.

38 “All these years of deregulation by the Republicans”: Maura Reynolds and Janet Hook, “Critics Say Bush Is Out of Touch on the Economy,” Los Angeles Times, March 18, 2008.

38 Paulson advising Bush on his Economic Club speech: Kelly, Street Fighters, 34.

39 “You may need a bailout, as bad as that sounds”: Ibid.

39 worked in the Nixon White House: In 1972, after two years as a Pentagon aide, Paulson assisted John Ehrlichman, Nixon’s domestic policy chief, who would later be jailed for his role in Watergate. See “The Quiet Ascendancy of Hank Paulson,” Institutional Investor, July 1, 1998.

39 “I will get down here and”: David Cho, “A Skeptical Outsider Becomes Bush’s ‘Wartime General,’ ” Washington Post, November 19, 2008.

39 pushing especially hard for Paulson: See Fred Barnes, “Bolten’s White House: And Why Hank Paulson, the Former Goldman Sachs Chief, Is the New Treasury Secretary,” International Economy.

40 had been a “pioneer” for Bush: Landon Thomas Jr., “Paulson Comes Full Circle,” New York Times, May 31, 2006; Terence Hunt, “Treasury Secretary Snow Resigns, Replaced by Goldman Sachs Chairman Henry M. Paulson,” Associated Press, May 30, 2006.

40 “You started with Nixon”: Paulson, On the Brink, 19.

40 “This is a failed administration”: Ellis, The Partnership, 662.

40 “I love my job”: Susanne Craig, “Boss Talk: Goldman CEO Tackles Critics, Touchy Issues,” Wall Street Journal, April 26, 2006.

41 “Fear is the fountain of sickness”: Eddy, Science and Health, 391-92.

42 He demanded assurances, in writing: Cho, “A Skeptical Outsider,” Washington Post.

42 same status in the cabinet as Defense and State: Deborah Solomon, “Bush Taps Paulson as Treasury Chief—Goldman CEO Is Promised More Power Than Snow,” Wall Street Journal, May 31, 2006.

42 “As a prudential matter, I will not participate”: From the six-page “Ethics Agreement of Henry M Paulson Jr.,” dated June 19, 2008.

42 some 3.23 million shares: “Paulson to Sell His Goldman Shares,” Bloomberg News, June 22, 2006.

44 “Given how [Hank] moved from a low-ranking position”: Valerie Shanley, “Profile: Hank Paulson,” Sunday Tribune (Dublin), September 14, 2008.

45 Goldman Sachs was in turmoil: “Goldman Seeking Capital Investment; Firm Beset by Falling Profits, Departing Partners,” Bloomberg, September 16, 1994.

46 “Hank, nothing could please me more”: Ellis, The Partnership, 541.

46 cutting expenses by 25 percent: Emily Thornton, “Wall Street’s Lone Ranger,” BusinessWeek, March 4, 2002.

46 became co-chief executive in June 1998: Paulson was named Goldman’s co-chief executive and co-chairman on June 1, 1998—less than two weeks before Goldman voted to go public. “Goldman Sachs Promotes Paulson, Takes Step Toward Public Offering,” Dow Jones, June 1, 1998.

46 $300 million as part of a Wall Street bailout of Long-Term Capital: Lowenstein, When Genius Failed, 215.

46 Goldman pulling its IPO: Patrick McGeehan, “Goldman Shelves Plan to Go Public—Unsettled Markets Cited as Chief Cause,” Wall Street Journal, September 29, 1998.

46 retired from Goldman’s powerful executive committee: At the end of October, Goldman announced that Zuckerberg would retire at the end of its fiscal year (November). Anita Raghavan, “Zuckerberg, Goldman’s Vice Chairman, to Retire as the Guard Changes at Firm,” Wall Street Journal, October 23, 1998.

47 Corzine had tears in his eyes: Ellis, The Partnership, 609-13.

47 trading debut in a $3.66 billion offering: On May 4, 1999, after a seven-month delay, Goldman went public—selling an oversubscribed 69 million shares for $53 each—and officially ending its 130 years as a private partnership. “Goldman Sachs Shares Soar in Long-Awaited Trading Debut,” Dow Jones, May 4, 1999.

48 a $4.3 million home: Marc Gunther, “Paulson to the Rescue,” Fortune, September 29, 2008.

48 oversaw a department of 112,000: Ibid.

49 refurbishment of the building’s basement gym: Gunther, “Paulson to the Rescue,” Fortune.

49 “When there is a lot of dry tinder”: Paulson used similar language in an interview he later did with 60 Minutes correspondent Scott Pelley: “You know, we are about due for some kind of market turbulence,” he told the news program. “I didn’t expect quite this. But I said to the team, as we worked, ‘You never know, when there’s a lot of dry tinder out there, you never know what spark is gonna light the tinder.’ ” 60 Minutes, CBS News transcripts, September 28, 2008.

49 “We have these periods every six, eight, ten years”: Daniel Gross, “The Captain of the Street,” Newsweek, September 29, 2008.

49 “wind-down authorities”: At a September hearing on U.S. credit markets, Paulson said, “We were not left with the authorities we needed fully to protect the system and the taxpayer, because we have wind-down authorities, where the insurance or, you know, savings depositors, FDIC insurance—in 75 years, you know, we haven’t had a saver with FDIC insurance lose a penny.” See “Senate Committee on Banking, Housing and Urban Affairs Holds Hearing on U.S. Credit Markets,” Congressional Quarterly transcripts wire, September 23, 2008.

54 Good Housekeeping Seal of Approval: John Helyar and Yalman Onaran, “Fuld Sought Buffett Offer He Refused as Lehman Sank,” Bloomberg News, November 10, 2008.

CHAPTER THREE

58 an agitated Timothy F. Geithner took the escalator: Geithner’s plane left LaGuardia Airport at 7:00 p.m., arriving in D.C. at approximately 8:20 p.m. on Wednesday, April 2, 2008. Geithner’s daily schedules at the New York Fed can be viewed online at the New York Times Web site. See http://documents.nytimes.com/geithner-schedule-newyork-fed#p=1.

59 “The most important risk is systemic”: “Testimony Before the U.S. Senate Committee on Banking, Housing, and Urban Affairs, Washington, D.C,” April 3, 2008. See http://www.newyorkfed.org/newsevents/speeches/2008/gei080403.html.

59 the $29 billion government backstop: A week after the deal, J.P. Morgan agreed to cover $1 billion of Bear Stearns’ losses, lowering the Fed’s backstop to $29 billion. Robin Sidel and Kate Kelly, “J.P. Morgan Quintuples Bid to Seal Bear Deal,” Wall Street Journal, March 25, 2008.

59 comparing the Bear rescue unfavorably: “I have reached a certain age where I can remember quite a few things, and there are some resemblances between the present situation, I’m afraid, and the early 1970s,” said Paul Volcker, in a speech to the Economic Club of New York on April 8, 2008. See http://econclubny.org/files/Transcript_Volcker_April_2008.pdf.

59 “Ford to City: Drop Dead ”: On October 30, 1975, this New York Daily News headline appeared on the front page, a day after President Gerald Ford said publicly that there would be no federal bailouts for a near bank rupt New York. Ford later lamented that he had never actually used the words “drop dead ” in his speech. Sam Roberts, “Infamous ‘Drop Dead’ Was Never Said by Ford,” New York Times, December 28, 2006.

61 after announcing a record loss: On Sunday, November 4, 2007, Citigroup held an emergency board meeting, which revealed that there could be up to $11 billion in additional subprime write-downs. Later that day Citi installed Robert Rubin as chairman and released this statement from Prince: “It is my judgment that given the size of the recent losses in our mortgage-backed securities business, the only honorable course for me to take as chief executive officer is to step down. This is what I advised the board.” Jonathan Stempel and Dan Wilchins, “Citigroup CEO Prince Expected to Resign,” Reuters, November 4, 2007; Tomoeh Murakami Tse, “Citigroup CEO Resigns,” Washington Post, November 5, 2007.

61 “I’m not the right choice”: Jo Becker and Gretchen Morgenson, “Member and Overseer of Finance Club,” New York Times, April 27, 2009.

61 making $398,200 a year: Geithner’s salary in 2008 has been reported as being $411,200, but this figure also includes the first two weeks of 2009. Scott Lanman, “Geithner Nomination Takes Top Fed Wall Street Liaison,” Bloomberg News, November 24, 2008; Robert Schmidt, “Geithner Takes Salary Cut to Run Treasury, Gets Fed Severance,” Bloomberg News, January 27, 2008.

61 his monthly $80 haircut: Joseph Berger, “Suddenly, There’s a Celebrity Next Door,” New York Times, January 2, 2009.

62 punctuating his sentences with “fuck”: “A Reassuring Figure for Treasur y,” The Economist, November 22, 2008.

62 “He’s twelve years old!”: Robert Rubin recalled Pete Peterson telling him this after meeting Timothy Geithner. Peterson, when later asked about the comment, only remembered saying that Geithner looked young. Greg Ip, “Geithner’s Balancing Act—The Fed’s Go-to Man for Financial Crises Takes on Hedge Funds,” Wall Street Journal, February 20, 2007.

62 summoning the chief executives: Lowenstein, When Genius Failed, 216; Victoria Thieberger, “Fed’s McDonough a Cool Head in Financial Storms,” Reuters, January 16, 2003.

63 Geithner’s beginnings: Gary Weiss, “The Man Who Saved (or Got Suckered by) Wall Street,” Condé Nast Portfolio, June 2008; Yalman Onaran and Michael McKee, “In Geithner We Trust Eludes Treasury as Market Fails to Recover,” Bloomberg News, February 25, 2009; Daniel Gross, “The Un-Paulson,” Slate, November 21, 2008.

63 published a number of incendiary stories: Peter S. Canellos, “Conservatives Sour on ‘Rebel Media,’ ” Boston Globe, April 19, 2007.

63 Geithner played conciliator: Onaran and McKee, “In Geithner We Trust,” Bloomberg News.

63 recommendation from the dean at Johns Hopkins: George Packard, then dean of Johns Hopkins, recommended Geithner to Brent Scowcroft, then vice chairman of Kissinger Associates, which led to his research job. Deepak Gopinath, “New York Fed’s Geithner Hones Skills for Wall Street,” Bloomberg Markets, April 22, 2004.

63 a very favorable impression on the former secretary of state: “He doesn’t try to walk into a room and take it over,” K issinger once said about Geithner. “He prevails with the power of his arg ument.” Candace Taylor, “Quiet NY Fed Chief Makes Loud Moves,” New York Sun, March 31, 2008.

64 “The Committee to Save the World ”: Time’s headline for its February 15, 1999, cover, which featured the faces of Treasury secretary Robert Rubin, Fed chairman Alan Greenspan, and Treasury deputy Larry Summers.

64 On Thanksgiving Day, Geithner called Summers: Jon Hilsenrath and Deborah Solomon, “Longtime Crisis Manager Pleases Wall Street, Mystifies Some Democrats,” Wall Street Journal, November 22, 2008.

65 “Tim’s controlled, consistent, with very good ground strokes”: Onaran and McKee, “In Geithner We Trust,” Bloomberg News.

65 New York Fed is the only one whose president is a permanent member: “The Federal Open Market Committee includes seven members of the Board of Governors and five Reserve Bank presidents. While the president of the Federal Reserve Bank of New York serves on a continuous basis, the other 11 Reserve presidents serve rotating one-year terms beginning January 1 of each year.” http://www.federalreserve.gov/FOMC/.

65 the annual salary of the New York Fed president: The Fed chairman’s salary in 2008 was $191,300. http://www.federalreserve.gov/generalinfo/faq/faqbog.htm.

65 “These changes appear to have made the financial system”: Geithner, from his “Remarks at the Global Association of Risk Professionals 7th Annual Risk Management Convention & Exhibition in New York City, February 28, 2006.” http://www.ny.frb.org/newsevents/speeches/2006/gei060228.html.

66 his deputy, Steel, would be there in his place: “I very much appreciate the opportunity to appear before you today to represent Secretary Paulson and the U.S. Treasury Department,” Steel said on April 3, 2008. “As you know, Secretary Paulson is on a long-scheduled trip to China.” Steel’s full speech is available at http://www.ustreas.gov/press/releases/hp904.htm.

67 underwriting more than 40 percent of all mortgages: Bethany McLean, “Fannie Mae’s Last Stand,” Vanity Fair, February 2009; Carol D. Leonnig, “How HUD Mortgage Policy Fed the Crisis,” Washington Post, June 10, 2008.

67 “Their securities move like water”: Justin Fox, “Hank Paulson,” Time, August 11, 2008.

67 The two men had known each other since 1976: Brendan Murray and John Brinsley, “Paulson’s Surrogate Steel Sees ‘Initial’ Progress in Markets,” Bloomberg News, March 19, 2008.

67 Steel came from a modest background: Rick Rothacker, Stella M. Hopk ins, and Christina Rexrode, “Wachovia’s New CEO Is Pro in Crisis Control,” Charlotte Observer, July 13, 2008.

69 “Was this a justified rescue”: Dodd’s question as well as succeeding statements from Bernanke, Steel, and Geithner are taken directly from official Fed transcripts from the first half of the hearing. See “Panel I of a Hearing of the Senate Banking, Housing and Urban Affairs Committee,” Federal News Service, April 3, 2008.

71 “Buying a house is not the same as buying a house on fire”: When asked about the logic behind Bear’s $2-a-share price, Dimon said: “I tell people that buying a house is not the same as buying a house on fire.” “Panel II of a Hearing of the Senate Banking, Housing and Urban Affairs Committee,” Federal News Service, April 3, 2008.

71 cancel the office’s newspaper subscriptions to cut costs: Dimon “obsesses over spending at the granular level,” so much so that he once told a vice president, who was listing the company’s print subscriptions, “You’re a businessman; pay for your own Wall Street Journal.” See Ken Kurson, “Jamie Dimon Wants Respect,” Money, February 2002.

71 “has suddenly become the most talked about”: Eric Dash, “Rallying the House of Morgan,” New York Times, March 18, 2008.

71 “quickly becoming Wall Street’s banker of last resort”: Robin Sidel, “In a Crisis, It’s Dimon Once Again,” Wall Street Journal, March 17, 2008.

71 “All hail Jamie Dimon!” Andrew Bary, “The Deal—Rhymes With Steal—of a Lifetime,” Barron’s, March 24, 2008.

72 “I want to be rich”: Leah Nathans Spiro, “Ticker Tape in the Genes,” BusinessWeek, October 21, 1996.

72 “I think you’re wrong!” Shawn Tully, “In This Corner! The Contender,” Fortune, March 29, 2006.

73 which his mother showed to Weill: Leah Nathans Spiro, “Smith Barney’s Whiz K id,” BusinessWeek, October 21, 1996.

73 “Can I show it to people here?” As Monica Langley reported: “Sandy liked the paper enough that he sent Jamie a note: ‘Terrific paper. Can I show it to people here?’ ” Langley, Tearing Down the Walls, 50.

73 “I won’t pay you as much ”: Ibid., 74.

73 “Jews are going to take over American Express!”: Ibid., 71.

73 watching Weill sleep off his martini lunches: Ibid., 103.

73 the $1.65 billion acquisition of Primerica: Robert J. Cole, “2 Leading Financiers Will Merge Companies in $1.65 Billion Deal,” New York Times, August 30, 1988.

74 A $1.2 billion purchase of Shearson: Dana Wechsler Linden, “Deputy Dog Becomes Top Dog,” Forbes, October 25, 1993.

74 “You’re a fucking asshole!”: Langley, Tearing Down the Walls, 201.

74 $4 billion deal for Travelers: Greg Steinmetz, “Primerica, Travelers Seal Merger Pact; Takeover May Speed Insurer’s Recovery,” Wall Street Journal, September 24, 1993.

74 “Promote her”: Langley, Tearing Down the Walls, 241.

74 “Now we can be father and daughter again”: Ibid., 254.

74 the $83 billion merger with Citicorp: Announced as a $70-billion merger Monday morning, by the day’s end Travelers had soared 18 percent and Citicorp 27 percent, bringing the merger’s value up to $83 billion. Langley, Tearing Down the Walls, 289-93. Michael Siconolfi, “Citicorp, Travelers Group to Combine in Biggest-Ever Merger,” Wall Street Journal, April 7, 1998.

75 “It’s bad enough how you treat me”: Langley, Tearing Down the Walls, 314.

75 “Don’t you ever turn your back on me while I’m talking!”: Roger Lowenstein, “Alone at the Top,” New York Times Magazine, August 27, 2000.

75 summoned Dimon to the corporate compound in Armonk: Timothy L. O’Brien and Peter Truell, “Downfall of a Peacemaker,” New York Times, November 3, 1998.

76 the Internet retailer Amazon: Duff McDonald, “The Heist,” New York, March 24, 2008.

76 Dimon brought in his own team of expense cutters: Shawn Tully, “In This Corner! The Contender,” Fortune, March 29, 2006.

76 “fortress balance sheet”: Jamie Dimon representing JP Morgan Chase at the Credit Suisse Group Financial Services Forum, February 7, 2008.

77 celebrating his fifty-second birthday over dinner: A listair Barr, “Dimon Steers J.P. Morgan Through Financial Storm,” MarketWatch.com, December 4, 2008.

78 “This wasn’t a negotiating posture”: “Panel II of a Hearing of the Senate Banking, Housing and Urban Affairs Committee,” Federal News Service, April 3, 2008.

78 “I am very troubled by the failure of Bear Stearns”: “Panel I of a Hearing of the Senate Banking, Housing and Urban Affairs Committee,” Federal News Service, April 3, 2008.

CHAPTER FOUR

79 private dinner to mark the end of a G7 summit: Treasury provided a list of dinner attendees to the press that Friday. Lehman’s Fuld was listed alphabetically between Larry Fink of BlackRock and John Mack of Morgan Stanley. “Attendees for G7 Outreach Dinner with Banks,” Reuters, April 11, 2008.

79 it would raise $4 billion: Jenny Anderson, “Trying to Quell Rumors of Trouble, Lehman Raises $4 Billion,” New York Times, April 2, 2008.

79 “We’re closer to the end than the beginning”: Joseph A. Giannone, “Goldman CEO Says Credit Crisis in Later Stages,” Reuters, April 10, 2008.

81 a new IMF Report: International Monetary Fund, “Global Financial Stability Report,” April 2008, 50.

81 staggering amount of leverage—the amount of debt to equity: “At the end of the first quarter in 2008, the leverage ratios at Morgan Stanley, Lehman Brothers, Merrill Lynch, and Goldman Sachs were 31.8, 30.7, 27.5, and 26.9, respectively, compared with an average of 8.8 for all U.S. commercial banks and savings institutions.” Senate Joint Economic Committee, “Financial Meltdown and Policy Response,” September 2008.

81 “Isn’t there something you can do to order us not to take all of these risks?”: Paulson, On the Brink, 70.

82 “You are all bright people”: Paulson, On the Brink, 130.

82 “Just finished the Paulson dinner”: “Hearing on Causes and Effects of the Lehman Brothers Bank ruptcy,” House of Representatives Committee on Oversight and Government, October 6, 2008. See http://oversight.house.gov/story.asp?ID=2208.

84 “Break the Glass: Bank Recapitalization Plan”: Author obtained a copy of the proposal from a confidential source.

84 Kashkari background: Deborah Solomon, “U.S. News: Paulson to Tap Adviser to Run Rescue Program,” Wall Street Journal, October 6, 2008.

85 chairman of the Federal Reserve on February 1, 2006: Bernanke’s first day fell on the first of the month; his swearing-in ceremony took place the following Monday. “Our mission as set forth by the Congress is a critical one,” Bernanke said at his Fed ceremony. Jeannine Aversa, “At Ceremonial Swearing-in, New Fed Chief Bernanke Vows to Work with Congress,” Associated Press, February 6, 2006.

85 Bernanke’s beginnings: John Cassidy, “Anatomy of a Meltdown,” New Yorker, December 1, 2008; Roger Lowenstein, “The Education of Ben Bernanke,” New York Times Magazine, January 20, 2008; Larry Elliott, “Ben Bernanke,” Guardian, June 16, 2006; Mark Trumbull, “Backstory: Banking on Bernanke,” Christian Science Monitor, February 1, 2006; Ben White, “Bernanke Unwrapped,” Washington Post, November 15, 2005.

86 Anna Friedmann, a Wellesley College student whom he married: John Cassidy, New Yorker, December 1, 2008.

87 “econometrics” research: Lowenstein, “The Education of Ben Bernanke,” New York Times Magazine, January 20, 2008.

87 planned to take a vacation: Ibid.

87 interest rate unchanged at 5.25 percent: “Fed Keeps Rates Steady,” Dow Jones, August 7, 2007.

87 “The committee’s predominant policy concern”: “Text of Federal Reserve’s Interest Rate Decision,” Dow Jones Capital Markets Report, August 7, 2007.

87 “They’re nuts! They know nothing!”: “Ben Bernanke needs to open the discount window… . He is being an academic! This is no time to be an academic. Open the darn discount window! … My people have been in this game for 25 years. And they are losing their jobs and these firms are going to go out of business, and he’s nuts! They’re nuts! They know nothing! … The Fed is asleep.” Jim Cramer, Street Signs, CNBC, August 3, 2007.

88 BNP Paribas announced that it was halting investors from withdrawing: As of August 7, after declining 20 percent in just under two weeks, the funds had some €1.6 billion ($2.2 billion) left in assets. Sebastian Boyd, “BNP Paribas Freezes Funds as Loan Losses Roil Markets,” Bloomberg News, August 9, 2007.

88 “The complete evaporation of liquidity”: Ibid.

88 bigger cash infusion than the one that had followed: On September 12, 2001, a day after the attacks, the European Central Bank (ECB) injected a record €69.3 billion. “ECB Injects 95 billion Euros Into Money Supply Amid US Subprime Worries,” Agence France-Presse, August 9, 2007.

88 “unprecedented disruptions”: Countrywide’s SEC filing late Thursday said it had adequate funding liquidity but added, “[T]he situation is rapidly evolving and the impact on the company is unk nown.” Randall W. Forsyth, “Why the Blowup May Get Worse,” Barron’s, August 13, 2007.

88 “Every banker knows that if he has to prove”: Bagehot, Lombard Street, 69.

89 reversed his earlier decision: On Friday, August 17, 2001, the Fed issued a statement lowering the rate on discount window borrowings, which buoyed the market. “S&P 500 Futures Sharply Higher on Fed Statement,” Dow Jones, August 17, 2007.

89 “at this point, the troubles in the subprime sector”: Bernanke delivered this speech via satellite to attendees of the 2007 International Monetary Conference in Cape Town, South Africa. See Ben Bernanke, “The Housing Market and Subprime Lending,” June 5, 2007. See http://www.federalreserve.gov/newsevents/speech/bernanke20070605a.htm.

90 “I’ve got some fairly heavy background in mathematics”: Faber, And Then the Roof Caved In, 95.

93 was also a die-hard Sox fan: Stanley Reed, “Barclays: Anything But Stodgy President Bob Diamond has turned the once-troubled investment banking unit into a powerhouse,” BusinessWeek , April 10, 2006.

93 they joined the board of Barclays at the same time: On June 1, 2005, Robert Diamond Jr., chief executive of investment banking and investment management, joined the board as an executive director, while Robert Steel, former vice chairman of Goldman Sachs, joined as a nonexecutive director. “Barclays PLC—Directorate Change,” Regulatory News Service, May 27, 2005.

95 Diamond had so abruptly left Morgan Stanley … in 1992: “ ‘ Coach’ Proud of His Trading Floor Origins,” Financial News, December 4, 2000.

95 losing an expensive bidding war for Dutch bank ABN AMRO: Seven months after its initial bid for ABN AMRO, and following a battle involving investors in China, Singapore, the Royal Bank of Scotland, and even Bank of America, Barclays withdrew its bid for the Dutch bank on October 5, 2007. Carrick Mollenkamp, “Barclays’s CEO Shifts to Plan B—U.K. Bank Pursues Emerging Markets as ABN Bid Fails,” Wall Street Journal, October 6, 2007.

CHAPTER FIVE

96 breakfast meeting with Dick Fuld: Took place on Thursday, April 2, 2008.

97 counted as one of his best friends Eliot Spitzer: When the prostitution scandal broke, Cramer had this to say about his Harvard Law School pal: “Eliot’s one of my oldest friends, so is Silda. You know, look, I hope it’s not true. You know, I read it like you did—I hope it’s not true… . Eliot’s my friend. So he’s my friend, he’ll be my friend after.” “DealBook: Wall Street on Spitzer: ‘There Is a God,’ ” New York Times, March 10, 2008.

97 the uptick rule: After the rule’s repeal on July 6, 2007, Cramer continuously lamented the loss on his show Mad Money. “Cramer Is Uptick ’d Off ” and “Out with Cox, in with Uptick Rule,” Mad Money, CNBC, May 4, 2009, November 21, 2008.

99 “unbelievable portfolio from Peloton”: Founded in 2005 by Ron Beller and Geoffrey Grant, the London hedge f und Peloton Partners was forced into a fire sale in February 2008. Cassell Bryan-Low, Carrick Mollenkamp, and Gregory Zuckerman, “Peloton Flew High, Fell Fast,” Wall Street Journal, May 12, 2008.

101 people pay as much as $3,250: Hugo Lindgren, “The Confidence Man,” New York, June 23, 2008.

101 Tomorrow’s Children Fund: Ira W. Sohn conference proceeds go to this fund, which helps children with serious blood disorders and cancer (Sohn, a trader, died of cancer at twenty-nine). See http://www.atcfkid.com/.

101 “We start by asking why a security is likely to be misvalued in the market”: Einhorn, Fooling Some of the People All of the Time, 14.

101 “The Nonrecurring Room”: Jesse Eisinger, “Diary of a Short-Seller,” Condé Nast Portfolio, May 12, 2008.

102 had announced that it was stopping investors: At 2:30 a.m. on August 9, Dow Jones posted a press release from BNP Paribas: “The complete evaporation of liquidity in certain market segments of the US securitisation [sic] market has made it impossible to value certain assets fairly regardless of their quality or credit rating. The situation is such that it is no longer possible to value fairly the underlying US ABS assets in the three above-mentioned funds. We are therefore unable to calculate a reliable net asset value (‘NAV’) for the funds.” See “BNP Paribas Unit to Suspend NAV Calculation of Some Funds,” Dow Jones, August 9, 2007.

102 code named “The Credit Basket”: Lindgren, “The Confidence Man,” New York.

102 “It is early, and we don’t give guidance on future periods”: Chris O’Meara, Lehman’s Chief Financial Officer, from the “Q3 2007 Lehman Brothers Holdings Inc. Earnings Conference Call,” September 18, 2007.

103 “This is crazy accounting”: Lindgren, “The Confidence Man,” New York.

104 “Lehman is not that materially different from Bear Stearns”: David Einhorn, “Private Profits and Socialized Risk,” Grant’s Spring Investment Conference, April 8, 2008. 105 “I can only feel that you set me up”: Einhorn’s exchange with Callan reported by Susanne

Craig, “Finance Chief Is Demoted,” Wall Street Journal, June 13, 2008. 105 “This is classic value”: “Stock Picks from Sohn Investment Conference,” Reuters, May 23, 2008.

106 shares of Allied plunged nearly 11 percent: Stephen Taub, “Speaking Candidly,” Alpha, May 2005.

106 the Securities and Exchange Commission started investigating him: Lindgren, “The Confidence Man,” New York.

106 “One of the key issues I raised about Allied ”: This and all succeeding speech quotes by David Einhorn of Greenlight Capital are from his “Accounting Ingenuity” speech at the Ira W. Sohn Investment Research Conference, May 21, 2008.

CHAPTER SIX

109 “Who talked?”: Susanne Craig, “Lehman Struggles to Shore Up Confidence,” Wall Street Journal, September 11, 2008.

109 “Losses Push Lehman to Weigh Raising New Capital”: Susanne Craig, “Losses Push Lehman to Weigh Raising New Capital,” Wall Street Journal, June 3, 2008. 110 it had tapped the Federal Reserve’s discount window: Lehman emphatically denied the rumors on June 3, 2008, referencing its previous quarter, which had ended with more than $40 billion of liquidity. Joe Bel Bruno, “Lehman Brothers Treasurer: Firm Did Not Tap Fed Discount Window to Avert Cash Problems,” Associated Press, June 3, 2008.

110 stock was pummeled: Ibid. Lehman’s shares fell 15 percent in the afternoon of Tuesday, June 3, after Lehman liquidity rumors surfaced.

112 “Lehman’s straight shooter”: Susanne Craig, “Lehman’s Straight Shooter,” Wall Street Journal, May 17, 2008.

112 “The Most Powerful Woman on Wall Street”: Jesse Eisinger, “Diary of a Short-Seller,” Condé Nast Portfolio, April 2008.

113 Lehman’s deal with Woori: Hae Won Choi, “Woori Sets Pact with Lehman to Cut Bad Debt,” Wall Street Journal Asia, September 6, 2002; Donald Kirk, “No Pause for Woori,” Institutional Investor, July 1, 2002.

113 having judged his credentials inadequate, had tried unsuccessfully to stop it: In June 2008, instead of settling in to his new office at KDB, Min spent several days addressing complaints and protests from K DB trade union workers enraged about his appointment. Song Jung-A, “Man Behind Doubts Rise over KDB’s Push for Global Status,” Financial Times, September 2, 2008.

113 he sang a song called “Leopard in Mt. Kilimanjaro”: K im Yeon-hee, “K DB’s CEO: A Leopard on the Hunt for Lehman,” Reuters, September 5, 2008.

114 “Korea situation sounds promising”: Goldfarb’s e-mail, sent May 26, 2008, was made available from the House Oversight and Government Reform Committee’s investigation on the “Causes and Effects of the Lehman Brothers Bank ruptcy.” See “Lehman Brothers Email Regarding Punishing Short Seller,” http://oversight.house.gov/storyasp?ID=2208.

114 set off for Korea: According to flight records obtained by the Wall Street Journal. See Craig, “Lehman Struggles to Shore Up Confidence,” Wall Street Journal, September 11, 2008.

114 The Shilla: http://www.shilla.net/en/seoul/.

114 Hana Financial, which was also considering an investment: Hana Financial Group was one of several top South Korean banks (Shinhan, Woori) reportedly contemplating a Lehman bid. The company, however, publicly “denied any interest in joining a consortium bidding for Lehman Shares.” K im Yeon-hee, “K DB Confirms Lehman Talks; Korea Bank Shares Fall,” Reuters, September 1, 2008.

116 Matthew Lee … sent a letter: Report of the Examiner in the Chapter 11 proceedings of Lehman Brothers Holdings by Anton R. Valukas, chairman of Jenner & Block. See: http://lehmanreport.jenner.com/.

117 “Basically window dressing”: Report of the Examiner in the Chapter 11 proceedings of Lehman Brothers Holdings by Anton R. Valukas, chairman of Jenner & Block. See: http://lehmanreport.jenner.com/.

117 “I am very aware… . It is another drug we r on”: Report of the Examiner in the Chapter 11 proceedings of Lehman Brothers Holdings by Anton R. Valukas, chairman of Jenner & Block. See: http://lehmanreport.jenner.com/.

117 “not to make any remarks”: Lehman’s five-page severance agreement with Matthew Lee was signed on June 18.

118 bringing in $3.9 billion in revenue: Lehman’s investment banking net revenues rose from $3.2 billion in 2006 to $3.9 billion in 2007, a 24 percent increase, according to the company’s 10-K filing with the Securities and Exchange Commission on January 29, 2008.

120 Over at Neuberger Berman: Lehman sealed its $2.6 billion purchase of Neuberger Berman on October 31, 2003.

120 demanding that top Lehman managers forgo bonuses: Vale, Walker, and Fuld’s e-mail string is available under “Lehman Brothers Email Regarding Suspending Executive Compensation,” House Oversight and Government Reform Committee’s investigation, http://oversight.house.gov/story.asp?ID=2208.

121 Few seemed to flaunt their personal wealth as much as he did: Michael Shnayerson, “Profiles in Panic,” Vanity Fair, January 2009; Christina S. N. Lewis, “Hot Words in Finance: ‘For Sale,’ ” Wall Street Journal, January 16, 2009.

122 He gave generously to charities: Shnayerson, “Profiles in Panic,” Vanity Fair; “Spelman Receives $10 Million Gift,” Jet, November 19, 2007.

123 he used it to ram through deals much more quickly: About Walsh, Aby Rosen told the New York Times: “He was fast… . He doesn’t try to kill you or retrade. To be honest, there are very few people in the industry you can say that about.” See Devin Leonard, “How Lehman Brothers Got Its Real Estate Fix,” New York Times, May 3, 2009; Dana Rubinstein, “Mark Walsh, Lehman’s Unluckiest Gambler,” New York Observer, October 1, 2008.

124 her input was virtually nil: See Nick Mathiason, Heather Connon, and Richard Wachman, “Banking’s Big Question: Why Didn’t Anyone Stop Them?” Observer (London), February 15, 2009.

125 Lehman paid nearly $100 million for Grange Securities: Chris Wright, “Can Lehman Build on Grange?” Euromoney, July 2007.

125 Had there been a sound reason for acquiring Eagle Energy: In 2006, Lehman purchased one third of Eagle Energy and agreed to buy the remaining two thirds a year later. “Lehman Buys Rest of Energy Marketing Co. Eagle Energy,” Reuters, May 9, 2007.

125 deals that did concern him were the ones that Lehman had failed to get: Leonard, “How Lehman Brothers Got Its Real Estate Fix,” New York Times.

126 “I am very disappointed ”: On the morning of June 9, Fuld said: “I am very disappointed in this quarter’s results. Notwithstanding the solid underlying performance of our client franchise, we had our first-ever quarterly loss as a public company. However, with our strengthened balance sheet and the improvement in the financial markets since March, we are well-positioned to serve our clients and execute our strategy.” See “Lehman Brothers Announces Expected Second Quarter Results,” Reuters, June 9, 2008.

126 Lehman’s second-quarter earnings: Susanne Craig and Tom Lauricella, “Big Loss at Lehman Intensifies Crisis Jitters,” Wall Street Journal, June 10, 2008; “Preliminary 2008 Lehman Brothers Holdings Inc. Earnings Conference Call,” June 9, 2008.

126 “Dick Fuld is Lehman”: George Ball, “Lehman’s $2.8B Loss,” Squawk Box, CNBC, June 9, 2008.

126 “Are you saying ‘I told you so’”: Carl Quintanilla, “Lehman’s Q2 Loss,” Squawk Box, CNBC, June 9, 2008.

127 an e-mail to Fuld from Benoît D’Angelin: See “Lehman Brothers Email Regarding Lack of Accountabilit y,” House Oversight and Government Reform Committee’s investigation, http://oversight.house.gov/stor y.asp?ID=2208.

129 So she sent Fuld a two-sentence e-mail: Read to the author by a confidential source.

130 Fuld met with the investment bankers for lunch on Wednesday, June 11: Previously referenced by Steve Fishman, “Burning Down His House,” New York, December 8, 2008, as well as Susanne Craig, “Lehman Shuffles 2 Key Jobs in Bid to Restore Confidence—Finance Chief Is Demoted; ‘Wall Street Wants a Head,’ ” Wall Street Journal, June 13, 2008.

133 Gasparino hectoring Lehman’s spokesperson: Dealbreaker.com posted a series of Gasparino’s taped voicemail messages to Kerrie Cohen. “Charlie Gasparino Leaves The Greatest Voicemail(s) of All Time,” September 22, 2008. http://dealbreaker.com/2008/09/charlie-gasparino-leaves-the-g.php.

133 “Our credibility has eroded”: Yalman Onaran, “Lehman Drops Callan, Gregory; McDade Named President,” Bloomberg News, June 12, 2008.

CHAPTER SEVEN

135 “Lehman is not a Bear Stearns situation”: “BlackRock ’s Fink Says Lehman Not Another Bear—CNBC,” Reuters, June 11, 2008.

135 Fleming had helped broker a 2006 deal to merge Merrill’s $539 billion asset-management business: On February 15, 2006, Merrill Lynch agreed to sell its investment managers business to Black Rock in exchange for a 49.8 percent stake in the combined company. “Given its complexity, the transaction was put together quickly, helped by the close friendship that Mr. Fleming, who took Black Rock public at a price of $14, and Mr. Fink enjoy.” Landon Thomas Jr., “On the Menu for Breakfast: $1 Trillion,” New York Times, February 16, 2006.

136 “Everyone is shrinking their balance sheet”: Joseph A. Giannone, “Merrill CEO Wants Ongoing Fed Access, Rules Reform,” Reuters, June 10, 2008.

136 “We all have concerns about what we read in the papers”: Joe Bel Bruno, “Merrill CEO Sees More Industry Consolidation,” Associated Press, June 10, 2008.

137 Merrill’s shares down 32 percent for the year: Tenzin Pema, “Merrill Lynch Outlook Cut at JP Morgan,” Reuters, June 11, 2008.

137 who was sometimes referred to as “I-Robot”: “Stiff, cerebral and intimidating, John Thain is not a ‘people person.’ Behind his back his nickname is ‘I Robot.’ ” See Dominic Rushe, “The IRobot Rides In to Sort Out Merrill Lynch,” Sunday Times (London), November 18, 2007.

137 Fink, ironically, had lead the exchange’s search committee that selected him: Kate Kelly, Greg Ip, and Ianthe Jeanne Dugan, “For NYSE, New CEO Could Be Just the Start,” Wall Street Journal, December 19, 2003.

137 shutting the wood-paneled Luncheon Club and firing the exchange’s barber: Asked about his firing of the NYSE barber, a kindly old man who made $24,000 a year, Thain said: “The barber was a very nice guy who’d been there for a very long time… . [I]t’s difficult to argue that a publicly traded company needs to have its own barber.” Gary Weiss, “The Taming of Merrill Lynch,” Portfolio, May 2008.

137 when he interned at Procter & Gamble: Justin Schack, “The Adventures of Superthain,” Institutional Investor—Americas, June 14, 2006.

138 “When he made conversation”: Lisa Kassenaar and Yalman Onaran, “Merrill’s Repairman,” Bloomberg Markets, February 2008.

138 “Would it hurt you to suck up to me once in a while?”: Ibid.

138 “So, I think you said before that you’re comfortable”: Deutsche Bank analyst Mike Mayo, asked Thain during a conference call. “John A. Thain, Chairman and Chief Executive Officer-Merrill Lynch, to Participate in a Conference Call Hosted by Deutsche Bank on June 11—Final,” Fair Disclosure Wire, June 11, 2008.

138 “At the end of last year when we were looking to”: Ibid.

138 having heard him repeatedly say, “We have plenty of capital”: On March 8, 2008, Thain told France’s Le Figaro: “Today I can say that we will not need additional funds. These problems are behind us. We will not return to the market.” To the Japanese Nikkei Report on April 3, he said: “We have plenty of capital going forward, and we don’t need to come back into the equity market.” At a news conference in Mumbai on May 7: “We have no present intention of raising any more capital.” See Nick A ntonovics, “Merrill CEO Says Won’t Need More Capital,” Reuters, March 8, 2008; “Full Text of Interview with Merrill Lynch CEO John Thain,” Nikkei Report, April 4, 2008; John Satish Kumar, “Credit Crunch: Merrill’s Thain Backs Auction-Rate Securities,” Wall Street Journal, May 8, 2008.

138 as “the most vulnerable brokerage after Lehman”: Reinhardt Krause, “Lehman Bros. Extends Slide as Wall St. Doubts Future,” Investor’s Business Daily, June 13, 2008.

139 For a single day John Thain had the job he had wanted for his entire career: Kassenaar and Onaran, “Merrill’s Repairman,” Bloomberg Markets. Craig Horowitz, “The Deal He Made,” New York, July 10, 2005.

139 At Robert Hurst’s Fifth Avenue apartment: Ellis, The Partnership, 613.

139 Corzine off skiing in Telluride, Colorado: Ibid.

139 Thain, a longtime lieutenant and friend of Corzine: Ibid. Corzine had long been an ally of Thain’s, helping him secure the chief financial officer job in 1994 and later a spot on the executive committee. They went skiing together in Colorado and dined out with their wives in Manhattan. Thain was the trustee-designate for the Corzines’ children’s trusts. See also Noam Scheiber, “The Brain in Thain,” New York, January 8, 2007.

139 Thain was the one to have to break the news to him: Ibid.

139 “Jon has decided to relinquish the CEO title”: Ibid.

139 accumulating several hundred million dollars in stock from the IPO: After Goldman’s IPO, Thain’s 3.1 million shares were worth about $171 million. Kimberly Seals McDonald, “Goldman’s Bounty—Top Execs Will Pocket up to $869m in IPO,” New York Post, April 13, 1999; Erica Copulsky, “Goldman Notifies Top Non-Partners of Payout Formulas,” Investment Dealers Digest, May 3, 1999.

140 he bought a ten-acre property in Rye: Charlie Gasparino, “John Thain’s $87,000 Rug,” Daily Beast, January 22, 2009.

140 determined to take a two-week trip to Vail at Christmastime: Susanne Craig and Dan Fitzpatrick, “Merrill Architects Criticized,” Wall Street Journal, January 20, 2009.

140 he took Thain out to dinner: Ellis, The Partnership, 660.

140 leaving to become CEO at the New York Stock Exchange: While Thain’s NYSE appointment was confirmed on December 18, 2003, his first day was not until January 15, 2004. “Recap of Stories on NYSE Naming Goldman’s Thain As CEO,” Dow Jones, December 18, 2003.

141 was paid a $15 million signing bonus: Cardiff de Alejo Garcia, “Financial News: Thain to Get up to $11M from Restricted Shares,” Dow Jones, September 16, 2008.

141 raised $12.8 billion from the sovereign wealth funds: Other investors in this group include Japan’s Mizuho bank group and the Korea Investment Corp. Jed Horowitz, “Merrill Seeks Intl Investments for Itself, Clients: Pres,” Dow Jones, February 6, 2008.

141 He also went about slashing costs: Susanne Craig, “The Weekend That Wall Street Died,” Wall Street Journal, December 29, 2008.

141 flowers that were costing the firm some $200,000: Ibid.

142 a signing bonus of $39.4 million, even though Montag wouldn’t begin work: An SEC filing revealed that in addition to Montag’s $600,000 annual salary, Merrill agreed to pay him a bonus of $39.4 million in cash and stock-based compensation for fiscal year 2008, which he would receive in January 2009. “Merrill Lynch to Pay New EVP Montag $600,000 Salary,” Dow Jones Corporate Filings Alert, May 2, 2008.

142 Thain would hire Peter Kraus: Kevin Kingsbury, “Kraus the Latest Ex-Goldman Hire at Merrill,” Dow Jones, May 5, 2008; Heidi N. Moore, “Merrill’s K raus Gets $25M, Then Leaves,” Dow Jones, December 22, 2008.

142 And then there was his office: Charlie Gasparino, “John Thain’s $87,000 Rug,” Daily Beast, January 22, 2009.

142 angling for the Treasury Secretary post if John McCain: Louise Story and Julie Creswell, “Love Was Blind,” New York Times, February 8, 2009.

143 “It’s kind of ‘Raise as you go’ ”: Fair Disclosure Wire, June 11, 2008.

143 Thain and O’Neal breakfast: During break fast between John Thain and Stan O’Neal, Thain pressed him to give him some guidance about his views on the management team. O’Neal replied, “The only person you ought to watch out for is Bob McCann.” McCann was the head of the firm’s brokerage business and the two had a long-standing mutual distrust.

144 Merrill’s $27 billion in CDO and subprime: In November 2007, Merrill announced that its total exposure to subprime mortgages and collateralized debt obligation was $27.2 billion. UBS analyst Glenn Schorr said that hiring Thain “doesn’t change the fact that Merrill has $27 billion of CDO/subprime exposure and is likely facing further write-downs in the near term.” “Thain to the Rescue,” Investment Dealers Digest, November 19, 2007.

144 [O’Neal rise]: John Cassidy, “Subprime Suspect: The Rise and Fall of Wall Street’s First Black C.E.O,” New Yorker, March 31, 2008; David Rynecki, “Can Stan O’Neal Save Merrill?” Fortune, September 30, 2002.

144 Merrill’s beginnings, Wheaties, “Bullish on America”: “Charles Merrill, Broker, Dies, Founder of Merrill Lynch Firm,” New York Times, October 7, 1956; “Advertising: Jackpot,” Time, August 20, 1951; Joseph Nocera, “Charles Merrill,” Time, December 7, 1998; Suzanne Woolley, “A New Bull at Merrill Lynch,” Money, March 1, 2002; Helen Avery, “Merrill Shrugs Off the Herd Mentality,” Euromoney, August 1, 2004.

145 “I think this is a great firm”: Charles Gasparino, “Bull by the Horns,” Wall Street Journal, November 2, 2001.1.

146 “Ruthless,” O’Neal would tell associates, “ isn’t always that bad ”: David Rynecki, “Putting the Muscle Back in the Bull,” Fortune, April 5, 2004.

146 O’Neal’s top management team as “the Taliban” and calling O’Neal “Mullah Omar”: Ibid.

147 acquired one of the biggest subprime mortgage lenders in the nation, First Franklin: Erick Bergquist, “Merrill Wins Bidding for First Franklin,” American Banker, September 6, 2006.

147 left Merrill in February 2006: Avital Hahn, “Leading CDO Team Breaks into Two; Ricciardi Joins Cohen Brothers as CEO,” Investment Dealers Digest, February 27, 2006.

147 “whatever it takes”: Kim, as three people heard and remembered him saying. Serena Ng and Carrick Mollenkamp, “Merrill Takes $8.4 Billion Credit Hit,” Wall Street Journal, October 25, 2007.

147 replaced by thirty-nine-year-old executive Osman Semerci: Bradley Keoun, “Merrill Names Semerci, D’Souza to Run FICC, Equities,” Bloomberg, July 25, 2006.

148 Kim took home $37 million: SEC filing disclosed a $14.45 million cash bonus and a $22.2 million stock incentive bonus, in addition to his salary of $350,000. See Nicolas Brulliard, “Merrill Lynch Exec VP Fleming Gets $20.4M Stk Bonus,” Dow Jones Corporate Filings Alert, January 24, 2007.

148 Semerci, more than $20 million: Louise Story, “Bonuses Soared on Wall Street Even as Earnings Were Starting to Crumble,” New York Times, December 19, 2008.

148 Fleming and Fakahany sent a letter to Merrill’s directors: Cassidy, “Subprime Suspect,” New Yorker.

148 O’Neal sent an overture to Wachovia about a merger: Jenny Anderson and Landon Thomas Jr., “Merrill’s Chief Is Said to Float a Bid to Merge,” New York Times, October 26, 2007.

149 “I wouldn’t hire Stan to wash windows”: Cassidy, “Subprime Suspect,” New Yorker.

CHAPTER EIGHT

151 remained close in the decade since Dimon had been forced out: Regarding Citigroup, Dimon told New York magazine: “I left ten years ago… . No, I didn’t leave, I was fired. I was kicked out of the nest.” Duff McDonald, “The Heist,” New York, March 24, 2008.

151 A glass cabinet displayed replicas of two wood-handled pistols: Crisaf ulli, “Replicas of the famous pistols are displayed in the JPMorgan lobby, while the originals—curious icons of the bank ’s storied past—are displayed on the executive floor,” The House of Dimon, 7.

151 Like Dimon, Willumstad had been outmaneuvered by Weill: He announced his departure in July but didn’t officially step down until September 5, 2005. David Enrich, “Citigroup Pres Willumstad to Step Down in Sept,” Dow Jones, July 14, 2005.

151 Brysam Global Partners: Brysam began business at the end of January 2007. “Willumstad and Magner Establish Private Equity Firm that Will Focus on Financial Services Investments in Emerging Markets,” Business Wire, January 22, 2007.

151 His partner, Marge Magner, was another Citigroup exile: With Citigroup since 1987, Magner had most recently been chairman and CEO of the company’s Global Consumer Group. Mark McSherry and Jonathan Stempel, “Citigroup’s Consumer Chief Magner to Leave,” Reuters, August 22, 2005.

151 He was the chairman of the board of American International Group: Willumstad first joined AIG’s board as a director in early 2006. Later that year Frank Zarb, acting as interim chairman, suggested him for the job. Emily Thornton and Jena McGregor, “A Tepid Welcome for AIG’s New Boss,” BusinessWeek, June 30, 2008.

152 Willumstad’s beginnings: Lynnley Browning, “A Quiet Banker in a Big Shadow,” New York Times, March 10, 2002.

152 at a conference in Boca Raton: Gillian Tett, “The Dream Machine,” Financial Times, March 25, 2008.

152 blitzkrieg of acquisitions: Commercial Credit acquired Primerica, Shearson, and Travelers in 1993, Aetna’s property and casualty business in 1996, Salomon Brothers in 1997, culminating with Citigroup in 1998. Shawn Tully, “The Jamie Dimon Show,” Fortune, July 22, 2002.

154 Removing Sullivan, installing Willumstad: Liam Pleven, Randall Smith, and Monica Langley, “AIG Ousts Sullivan, Taps Willumstad as Losses Mount,” Wall Street Journal, June 16, 2008.

154 in a small office in Shanghai: Shelp, Fallen Giant, 17-28, 153-60; Brian Bremner, “AIG’s Asian Connection; Can It Maintain Its Strong Growth in the Region?” BusinessWeek, September 15, 2003.

154 market value of $300 million: Carol J. Loomis, “AIG: Aggressive. Inscrutable. Greenberg,” Fortune, April 27, 1998.

154 with a market value of just under $80 billion: At the end of AIG’s second quarter (August 2008), it had over $1 trillion in assets and about $78 billion in shareholders equity. Matthew Karnitschnig, Liam Pleven, and Peter Lattman, “AIG Scrambles to Raise Cash, Talks to Fed,” Wall Street Journal, September 15, 2008.

155 Greenberg’s upbringing: Reports conflict on Greenberg’s age at the time of his father’s death. This author has chosen to go with the age listed in Shelp, Fallen Giant, 95-96.

155 Greenberg talked his way into a job as a $75-a-week insurance underwriting trainee: “On a whim, he wandered into the offices of Continental Casualty in lower Manhattan in 1953 and talked his way into the office of the personnel director. Greenberg thought the man was excessively rude, so he stormed into the office of a vice president and told him that Continental’s personnel director was a ‘jerk.’ He was rewarded with a job as a $75-a-week underwriting trainee. Before the end of the decade, he was Continental’s assistant vice president in charge of accident and health insurance.” See Devin Leonard, “Greenberg & Sons,” Fortune, February 21, 2005.

155 C.V. Starr’s story and AIG: Ibid.; Monica Langley, “Eastern Front: AIG and Fired Chief Greenberg Cross Paths Again—in China.” Wall Street Journal, December 2, 2005; Shelp, Fallen Giant, 95-102.

156 “Sit down, Gordon, and shut up”: Shelp, Fallen Giant, 104.

156 He drove himself relentlessly: Fortune reported that Greenberg installed a StairMaster on the corporate jet as well, to keep fit in flight. Leonard, “Greenberg & Sons,” Fortune.

156 He showed little affection for anyone: As he told Cindy Adams, “You learn fast who your friends are. Some I considered close became a lot less close. They separated quickly. Many you think loyal are suddenly not and you find out during adversity… . But Snowball gives me extra love. She sleeps with me. Puts her head on my shoulder.” Cindy Adams, “Ex-AIG Executive on Friends, Family,” New York Post, October 25, 2005.

156 Jeffrey, Evan Greenberg: Albert B. Crenshaw, “Another Son of CEO Leaves AIG,” Washington Post, September 20, 2000; Christopher Oster, “Uneasy Sits the Greenbergs’ Insurance Crown,” Wall Street Journal, October 18, 2004; Diane Brady, “Insurance and the Greenbergs, like Father like Sons,” BusinessWeek, March 1, 1999.

157 AIG agreed to pay $10 million: According to an SEC press release: “AIG developed and marketed a so-called ‘non-traditional’ insurance product for the stated purpose of ‘income statement smoothing,’ i.e., enabling a public reporting company to spread the recognition of known and quantified one-time losses over several future reporting periods… . AIG issued the purported insurance policy to Brightpoint for the purpose of assisting Brightpoint to conceal $11.9 million in losses that Brightpoint sustained in 1998.” U.S. Securities and Exchange Commission, “AIG Agrees to Pay $10 Million Civil Penalty,” September 11, 2003. http://www.sec.gov/news/press/2003-111.htm.

157 AIG agreed to pay $126 million to settle: “In consenting to settle the Commission’s action and related, criminal charges, AIG has agreed to pay disgorgement, plus prejudgment interest, and penalties totaling $126,366,000.” Securities and Exchange Commission v. American International Group, Inc., Litigation Release No. 18985, November 30, 2004. See http://www.sec.gov/litigation/litreleases/lr18985.htm.

157 deferred prosecution agreement: Pamela H. Bucy, “Trends in Corporate Criminal Prosecutions Symposium: Corporate Criminality: Legal, Ethical, and Managerial Implications,” American Criminal Law Review, September 22, 2007.

157 “Dr. Strangelove of Derivatives”: Lynnley Browning, “AIG’s House of Cards,” Portfolio, September 28, 2008.

158 Warren Buffett called them weapons of mass destruction: In the past he had referred to them as “time bombs” and “financial weapons of mass destruction.” Clare Gascoigne, “A Two-Faced Form of Investment—the Culture of Derivatives,” Financial Times, May 3, 2003.

158 Sosin fled to AIG: Sosin signed a joint venture agreement with AIG on January 27, 1987, and shortly recruited the ten men who would join his team, which already included Drexel’s Randy Rackson and Barry Goldman as partners. See Robert O’Harrow Jr. and Brady Dennis, “The Beautiful Machine,” Washington Post, December 29, 2008.

158 traders got to keep some 38 percent of the profits: Ibid. AIGFP reportedly kept 38 percent of the profits, with AIG retaining 62 percent. The Washington Post noted that Greenberg later said this figure was 65 percent.

158 “You guys up at FP ever do anything to my Triple-A rating”: Ibid.

158 formed a “shadow group”: Ibid. Randall Smith, Amir Efrati, and Liam Pleven, “AIG Group Tied to Swaps Draws Focus of Probes,” Wall Street Journal, June 13, 2008.

159 BISTRO and JP Morgan: Gillian Tett, “The Dream Machine,” Financial Times, March 24, 2006; Jesse Eisinger, “The $58 Trillion Elephant in the Room,” Portfolio, November 2008.

159 “How could we possibly be doing so many deals?”: Brady Dennis and Robert O’Harrow Jr., “Downgrades and Downfall,” Washington Post, December 31, 2008.

160 “It is hard for us, without being flippant”: Ibid.

160 “does not rely on asset-backed commercial paper”: “American International Group Investor Meeting—Final,” Fair Disclosure Wire, December 5, 2007.

161 In 2007 one of its biggest clients, Goldman Sachs, demanded: Serena Ng, “Goldman Confirms $6 Billion AIG Bets,” Wall Street Journal, March 21, 2009.

161 “It means the market’s a little screwed up”: AIG investor meeting, Fair Disclosure Wire, December 5, 2007.

161 “We have, from time to time, gotten collateral calls from people”: Ibid.

162 Greenberg’s forced resignation, Spitzer’s criminal threat: According to the Wall Street Journal, Spitzer threatened AIG’s board with criminal charges unless it dismissed Greenberg. He was forced out as chairman and CEO on March 14, 2005. Spitzer filed a civil fraud suit against the firm in May, accusing AIG of “sham transactions.” James Freeman, “Eliot Spitzer and the Decline of AIG,” Wall Street Journal, May 16, 2008; Daniel Kadlec, “Down … But Not Out,” Time, June 20, 2005.

162 AIG’s $500 million boost: James Bandler, “Hank ’s Last Stand,” Fortune, October 13, 2008.

162 He immediately contacted PricewaterhouseCoopers: Theo Francis and Diya Gullapalli, “Insurance Hazard: Pricewaterhouse’s Squeeze Play,” Wall Street Journal, May 3, 2005.

164 consulting contract, at the rate of $1 million a month: Gretchen Morgenson, “Behind Biggest Insurer’s Crisis, a Blind Eye to a Web of Risk,” New York Times, September 28, 2008; Carrick Mollenkamp, Serena Ng, Liam Pleven, and Randall Smith, “Behind AIG’s Fall, Risk Models Failed to Pass Real-World Test,” Wall Street Journal, November 3, 2008.

164 a $7.8 billion loss: Liam Pleven, “AIG Posts Record Loss, As Crisis Continues Taking Toll,” Wall Street Journal, May 9, 2008.

164 International Lease Finance Corp. was pushing for a split: J. Lynn Lunsford and Liam Pleven, “AIG Leasing Unit Mulls Split-Up,” Wall Street Journal, May 12, 2008.

164 “I am as concerned as millions of other investors”: Liam Pleven and Randall Smith, “Financial Rebels with a Cause: AIG—Hank Greenberg, Who Built the Giant Insurer, Steps Up His Attack,” Wall Street Journal, May 13, 2008.

165 “steps that can be taken to improve”: Liam Pleven and Randall Smith, “Big Shareholders Rebel at AIG—Letter to the Board Cites Problems with Senior Management,” Wall Street Journal, June 9, 2008.

165 to meet with the three investors: Ibid. Francesco Guerrera and Julie MacIntosh, “AIG removes Sullivan as chief executive,” Financial Times, June 15, 2008.

165 The company had paid Manchester United $100 million: “Manchester United Signs Shirt Deal with American Insurance Giant,” Associated Press, April 6, 2006.

166 “AIG Offers Empathy, Little Else”: Liam Pleven and Randall Smith, “AIG Offers Empathy, Little Else—Some Shareholders Left Wanting More After Insurer’s Slips,” Wall Street Journal, May 15, 2008.

166 an additional $10 billion in new collateral: Randall Smith, Amir Efrati, and Liam Pleven, “AIG Group Tied to Swaps Draws Focus of Probes,” Wall Street Journal, June 13, 2008; Liam Pleven, “AIG’s $5.4 Billion Loss Roils the Markets—Investors Impatient on New CEO’s Plan as Problems Attack the Complex Insurer,” Wall Street Journal, August 8, 2008.

167 The two men agreed to have dinner together: Liam Pleven, “Two Financial Titans Put on Best Face,” Wall Street Journal, June 17, 2008; Lilla Zuill, “New AIG Chief and Ex-CEO Greenberg Set to Meet Thursday,” Reuters, June 18, 2008.

CHAPTER NINE

168 Oil, most crucially, was going for $140 a barrel: A record for oil futures in Russia, this price was predicted to rise—and it did—hitting $147 in July. “Russia’s Crude Money Box,” International Securities Finance, June 26, 2008.

168 Russia was pumping out millions of barrels a day: The International Energy Agency said that as of June 11, 2008, Russia was producing 9.5 million barrels of oil per day. Jason Bush, “Prime Minister Putin Primes the Pump,” BusinessWeek, June 30, 2008.

169 who had coined the appellation for those four economies: Goldman’s chief economist Jim O’Neill, leading a team from the firm, created the acronym in 2001, when they were making growth predictions about the four emerging markets. See Dominic Elliott, “Fundamentals Drive the ‘BRIC’ Rebound,” Wall Street Journal, July 27, 2009.

169 defaulting on the nation’s debt: “On August 13, with dollars fleeing the country, its reserves dwindling, its budget overtapped, and the price of oil, its chief commodity, down 33 percent, the government imposed controls on the ruble.” Lowenstein, When Genius Failed, 140-45.

169 Long-Term Capital Management: Ibid.

169 “I really think we are a little better”: Bethany McLean, “The Man Who Must Keep Goldman Growing,” Fortune, March 17, 2008.

170 They had bet against something called the ABX Index: Chris Blackhurst, “The Credit Crunch Genius Who Masterminded a £2 billion Jackpot,” Evening Standard (London), December 18, 2007.

170 “I don’t speak Russian”: Ellis, The Partnership, 37.

170 Yeltsin’s new government named the firm its banking adviser: “Russia Hires Goldman Sachs as Adviser,” Washington Post, February 18, 1992.

170 Goldman pulled out of the country in 1994 but would eventually return: Joseph Kahn and Timothy L. O’Brien, “For Russia and Its U.S. Bankers, Match Wasn’t Made in Heaven,” New York Times, October 18, 1998.

170 Adolf Hitler had planned to hold his victory celebration there: Hitler had chosen Astoria’s Winter Garden ballroom for his victory ball, scheduled for November 7, 1941, but Germany’s summer invasion of the Soviet Union didn’t go as planned. Stacks of invitations were later discovered in Berlin’s Nazi headquarters after the war. Corinna Lothar, “Gem of the North—St. Petersburg Reclaims Its Glory as Russia’s ‘Window to the West,’ ” Washington Times, December 27, 2003.

172 short, fat, bearded guy who wore tube socks: Jenny Anderson, “Goldman Runs Risks, Reaps Rewards,” New York Times, June 10, 2007.

172 Blankfein’s beginnings: Neil Weinberg, “Sachs Appeal,” Forbes, January 29, 2007; Ellis, The Partnership, 669; Bethany McLean, “The Man Who Must Keep Goldman Growing,” Fortune, March 17, 2008; Susanne Craig, “How One Executive Reignited Goldman’s Appetite for Risk,” Wall Street Journal, May 5, 2004.

172 dating a Wellesley student from Kansas City, he took a summer job at Hallmark: Ellis, The Partnership, 707.

172 “If we don’t show up Monday it’s because we’ve hit the jackpot”: Craig, “How One Executive Reig nited,” Wall Street Journal, May 5, 2004.

172 “prelife crisis”: Ibid.

173 taking a job as a salesman of gold coins and bars, she cried: Ibid. Also see “Laura Jacobs Engaged to Lloyd C. Blankfein,” New York Times, May 15, 1983.

173 the firm acquired J. Aron in late October 1981: On October 29, 1981, Goldman Sachs announced its acquisition of J. Aron & Company for an undisclosed amount (at the time industry experts said it was “slightly more than $100 million”). H. J. Maidenberg, “Goldman Sachs Buys Big Commodity Dealer,” New York Times, October 30, 1981.

173 they pounded their desks with their fists and threw their: Endlich, Goldman Sachs, 96.

173 “You can call yourself contessa, if you want”: Bethany McLean, “Rising Star: Lloyd Blankfein, Goldman Sachs,” Fortune, February 6, 2006.

173 Winkelman first noticed Blankfein: Craig, “How One Executive Reignited,” Wall Street Journal.

174 “We’ve never seen it work to put”: Ellis, The Partnership, 266.

174 structuring a trade that allowed a Muslim client to obey the Koran’s proscriptions: Craig, “How One Executive Reignited,” Wall Street Journal.

174 Winkelman was crushed when he was passed over for Corzine: Adrian Cox and George Stein, “Winkelman, Denied Top Goldman Job, Seeks to Fix Refco,” Bloomberg News, October 24, 2005.

174 he announced that he had selected Blankfein as his replacement: Jenny Anderson, “Blankfein Next in Line at Goldman,” New York Post, December 19, 2003; Kate Kelly, Greg Ip, and Ianthe Jeanne Dugan, “For NYSE, New CEO Could Be Just the Start,” Wall Street Journal, December 19, 2003.

174 “Legally, we would be buying Morgan”: Ellis, The Partnership, 639.

175 Gramm-Leach-Bliley Act: Barbara A. Rehm, “Commerce, a Reform Gem, in Fed ’s Hands,” American Banker, November 9, 2000.

177 collateral dispute with AIG: Serena Ng, “Goldman Confirms $6 Billion AIG Bets,” Wall Street Journal, March 21, 2009.

177 Dmitry Medvedev had recently been elected to succeed him: Medvedev was elected Russia’s president on Sunday, March 2, 2008, after Putin had officially endorsed him in December. Peter Finn, “Putin’s Chosen Successor, Medvedev, Elected in Russia; Power-Sharing Is Main Focus After a Crushing Win,” Washington Post, March 3, 2008.

178 visiting the Persian Gulf states; attending the Group of Eight meeting of finance ministers in Osaka: Paulson’s trip began at the end of May with Saudi Arabia, Qatar, and the United Arab Emirates. In Abu Dhabi, he delivered a speech on the importance of open investment and then headed off to Osaka, where he met with Japanese finance minister Fukushiro Nukaga, before the G8 conference began. “Treasury Secretary Paulson to Travel to the Middle East,” Department of the Treasury Press Releases/Statements, May 28, 2008; “Nukaga, Paulson Set to Meet Ahead of G-8 Finance Ministers’ Talks,” Japan Economic Newswire, June 13, 2008.

178 “To address the perception that some institutions”: “Remarks by U.S. Treasury Secretary Henry M. Paulson, Jr. on the U.S., the World Economy and Markets before the Chatham House,” July 2, 2008. See http://www.treas.gov/press/releases/hp1064.htm.

179 Spaso House: See moscow.usembassy.gov/spaso.html.

179 private sessions with Medvedev and Putin: David Lawder, “Paulson in Russia to Meet with Medvedev, Putin,” Reuters, June 29, 2008.

179 “best practices”: “Putin—No Sovereign Wealth Fund in Russia Yet,” Reuters, June 30, 2008.

CHAPTER TEN

181 rehire Michael Gelband and Alex Kirk: See Susanne Craig, “Gelband, Kirk Rejoin Lehman in Shake-Up,” Wall Street Journal, June 25, 2008; Jed Horowitz, “Lehman’s New President McDade Brings in His Own Team,” Dow Jones, June 25, 2008.

182 classmates at the University of Michigan Business School: Susanne Craig, “Lehman Vet Grapples with the Firm’s Repair,” Wall Street Journal, September 4, 2008.

182 on Little St. Simons Island: According to Paulson’s calendar, he left Dulles Airport at 8:00 a.m. on Friday, July 4, 2008, headed for Georgia, where he would “remain overnight” for three nights.

183 Paulsons bought up three quarters of the ten-thousand-acre property: Mary Jane Credeur, “Paulson’s Georgia Investment Rises as Blind Trust Becomes Joke,” Bloomberg News, January 14, 2008.

183 “The U. S. economy is … facing a trio of headwinds”: From Paulson’s speech in London on the U.S., the world economy and markets, July 2, 2008. See http://www.treas.gov/press/releases/hp1064.htm.

183 brother, Richard Paulson, worked as a fixed-income salesman in Lehman’s Chicago office: Anita Raghavan, “Paulson Brothers on Either Side of Lehman Divide,” Forbes, September 12, 2008.

184 reporting a $708 million loss: After restating its first quarterly loss since 2001 (it had mistakenly reported $393 million), Wachovia ousted Ken Thompson as chairman and—a month later—as CEO. See David Mildenberg and Hugh Son, “Wachovia Ousts Thompson on Write-downs, Share Plunge,” Bloomberg News, June 2, 2008.

184 flown back home on a private chartered jet to Dulles Airport: According to his calendar, Paulson left Georgia at 2:00 p.m. on Monday, July 7, arriving back in Washington, D.C., at 3:42 p.m.

184 Freddie tumbled as much as 30 percent: On Monday, July 7, 2008, Fannie Mae shares fell $3.04, or 16.2 percent, to $15.74, their lowest since 1992, while Freddie stock was down $2.59, or 17.9 percent, to $11.91, its lowest since 1993. See James R. Hagerty and Serena Ng, “Mortgage Giants Take Beating on Fears over Loan Defaults,” Wall Street Journal, July 8, 2008.

184 Fannie shares slid 16.2 percent: Ibid.

184 wrote that revised accounting rules might require Fannie and Freddie to raise: Harting Report released on Monday, July 7, 2008. Aaron Lucchetti, “How Fannie/Freddie Selldown Went Down,” Wall Street Journal, July 12, 2008.

185 “the closest thing I’ve seen to a holy war”: In February 2007, Paulson told the House of Representatives’ budget committee: “I feel very strongly that we need a regulator that’s independent, got more muscle, and a number of other changes… . I also know people feel very strongly on both sides of this issue. I’ve never witnessed anything quite like this. It’s the closest thing I’ve seen to a holy war.” “US House to Have GSE Bill by End-Mar,” Reuters, February 7, 2007.

186 “we are the equivalent of a Federal Reserve system for housing”: Franklin Raines, as reported by David A. Vise, “The Financial Giant That’s in Our Midst,” Washington Post, January 15, 1995.

186 55 percent of the $11 trillion U.S. mortgage market: Shannon D. Harrington and Dawn Kopecki, “Fannie, Freddie Downgraded by Derivatives Traders,” Bloomberg, July 9, 2008.

186 “In moving, even tentatively, into this new area of lending”: Steven A. Holmes, “Fannie Mae Eases Credit to Aid Mortgage Lending,” New York Times, September 30, 1999.

186 “[We] always won, we took no prisoners”: Mudd wrote this in a note to Franklin Raines in November 2004. See James Tyson, “Fannie, Freddie Retreat as Mortgage Bonds Mutate,” Bloomberg News, September 6, 2006.

187 Bush administration lowered the amount of capital: Damian Paletta and James R. Hagerty, “U.S. Puts Faith in Fannie, Freddie,” Wall Street Journal, March 20, 2008.

187 “Congress ought to recognize”: Dawn Kopecki and Shannon D. Harrington, “Fannie, Freddie Tumble on Bailout Concern, UBS Cut,” Bloomberg, July 10, 2008.

188 “You’re not going to like this conversation”: Portions of this exchange, including Fuld having heard “a lot of noise,” were first reported by Kate Kelly and Susanne Craig, “Goldman Is Queried About Bear’s Fall,” Wall Street Journal, July 16, 2008.

189 “There’s blood in the water, let’s go kill someone!”: According to a former Morgan Stanley trader, Frank Partnoy, from his book Fiasco, 99.

189 “I see that again, and you’re fired”: Michael Carroll, “Morgan Stanley’s Global Gamble,” Institutional Investor, March 1, 1995.

189 House Financial Services Committee hearing: “Systemic Risk and the Financial Markets” hearing, with witnesses Henry Paulson and Ben Bernanke, held on July 10, 8. See http://financialservices.house.gov/hearing/hr008.shtml.

189 “We’re going to need broader emergency authorities”: Ibid.

190 some confusion about tracking down Greenspan’s home phone number: First reported by Deborah Solomon, “The Fannie & Freddie Question—Treasury’s Paulson Struggles with the Mortgage Crisis,” Wall Street Journal, August 30, 2008.

191 “considering a plan to have the government take over”: Stephen Labaton and Steven R. Weisman, “U.S. Weighs Takeover Plan for Two Mortgage Giants,” New York Times, July 11, 2008.

191 It had already been a long morning for Paulson: Paulson’s calendar.

191 “Today our primary focus is supporting Fannie Mae”: Brendan Murray, “Paulson Backs Fannie, Freddie in Their ‘Current Form,’ ” Bloomberg News, July 11, 2008.

192 briefed Bush on the Fannie and Freddie situation: Later that morning, at the Department of Energy, Bush said: “I want to thank the members of my economic team for assembling here at the Department of Energy. Secretary Bodman, thank you for hosting us. First of all, Secretary Paulson came by this morning to brief me on the financial markets. Freddie Mac and Fannie Mae are very important institutions. You spent a fair amount of time discussing these institutions. He assured me that he and Ben Bernanke will be working this issue very hard.” Office of the Press Secretary, “President Bush Meets with Economic Team,” July 11, 2008, 11:38 a.m. EDT.

192 Paulson had a call with Sheila Bair: Verified from his calendar.

192 FDIC was about to seize IndyMac: On Friday, July 11, 2008, the Office of Thrift Supervision closed IndyMac Bank, F.S.B, with total assets of $32.01 billion, transferring its operations to the FDIC. “OTS Closes IndyMac Bank and Transfers Operations to FDIC,” July 11, 2008. See http://www.fdic.gov/news/news/press/2008/pr08056.html.

195 “We have a new kind of bank ”: James Surowiecki, “Too Dumb to Fail,” New Yorker, March 31, 2008.

195 “We’re giving serious consideration to becoming a bank holding company”: Fuld’s plea to become a bank holding company was first reported by Julie MacIntosh and Francesco Guerrera, “Lehman Failed to Convince Fed Officials over Survival Strategy,” Financial Times, October 6, 2008; and subsequently reported by Julie Creswell and Ben White, “The Guys from ‘Government Sachs,’ ” New York Times, October 19, 2008.

196 “As long as I am alive this firm will never be sold”: Susanne Craig, Jeffrey McCracken, Aaron Lucchetti, and Kate Kelly, “The Weekend That Wall Street Died,” Wall Street Journal, December 29, 2008.

196 he came close to buying Lazard: See Cohan, The Last Tycoons, 517-20.

196 About Greg Curl: Zachary R. Mider, “Lewis Turns to Tomato-Growing ‘Unknown Genius’ on Merrill Deal,” Bloomberg News, September 24, 2008.

197 “Okay, you can fight him”: Daniel S. Morrow, “Kenneth Lewis Oral History,” Computer-world Honors Program International Archives, May 3, 2004. See www.cwhonors.org/archives/histories/Lewis.pdf.

199 “No, we wouldn’t use our petty cash to buy an investment bank ”: Heidi N. Moore, “Ken Lewis Tells Investment Bankers All Is Forgiven,” WSJ Blog/Deal Journal, June 11, 2008.

200 Paulson, unshaven and wearing jeans, was pacing the halls and pestering his staff: This scene was first reported by Deborah Solomon, who quoted Wilkinson as saying: “[Y]ou need to leave us alone so we can do our jobs.” Author’s subsequent reporting revealed slightly different wording. See Deborah Solomon, “The Fannie & Freddie Question—Treasury’s Paulson Struggles with the Mortgage Crisis,” Wall Street Journal, August 30, 2008.

200 take a quick bike ride: Ibid.

201 “Fannie Mae and Freddie Mac play a central role”: “Paulson Announces GSE Initiatives,” press release, Department of the Treasury, July 13, 2008. See http://www.treas.gov/press/releases/hp1079.htm.

201 “Our proposal”: “Part I, Part II of a Hearing of the Senate Banking, Housing and Urban Affairs Committee,” Federal News Service, July 15, 2008.

203 SEC to begin cracking down on improper short selling: The SEC issued an emergency diktat to halt “unlawful manipulation through ‘naked ’ short selling,” which was set to start that Monday, July 21, 2008, and expire after thirty days. Kara Scannell and Jenny Strasburg, “SEC Moves to Curb Short-Selling,” Wall Street Journal, July 16, 2008.

204 Lehman’s board: Dennis K. Berman, “Where Was Lehman’s Board?” WSJ Blog/Deal Journal, September 15, 2008.

205 Ken Wilson was standing in line at Westchester County Airport: Susanne Craig, “In Ken Wilson, Paulson Gets Direction from the Go-To Banker of Wall Street,” Wall Street Journal, July 22, 2008.

206 On the evening of July 21, Paulson arrived for a dinner: From Paulson’s July calendar, with dinner scheduled from 6:45 to 8:30 p.m.

CHAPTER ELEVEN

209 “to conduct a thorough strategic”: “American International Group Names Robert B. Willumstad Chief Executive Officer,” transcript of an AIG board conference call, June 16, 2008.

210 reported $5.4 billion loss: Liam Pleven, “AIG Posts $5.4 Billion Loss as Housing Woes Continue,” Wall Street Journal, August 7, 2008.

210 Geithner had greeted him with his usual firm, athletic handshake: According to Geithner’s calendar, they were scheduled to meet from 9:30 to 10:30 a.m. on Tuesday, July 29, 2008.

212 Morgan Stanley would receive a token payment of $95,000: Aaron Lucchetti, “The Fannie-Freddie Takeover: Two Veterans Led Task for Morgan Stanley,” Wall Street Journal, September 8, 2008.

213 “Either investors are going to be massively diluted”: Al Yoon, “Freddie Posts 4th Straight Qtrly Loss, Slashes Dividend,” Reuters, August 6, 2008.

214 Freddie’s reported loss of $821 million: Ibid.

214 In the first week of August; On that Monday: These meetings took place on August 4 and 5.

214 Min Euoo Sung arrived in Manhattan from Seoul: Lehman’s “secret meetings” with K DB were reported by Henny Sender and Francesco Guerrera, “Lehman’s Secret Talks to Sell 50% Stake Stall,” Financial Times, August 20, 2008.

219 “In the event the slow erosion of confidence turns into a rout”: Donald Kohn’s e-mail to Ben Bernanke was released as part of the Report of the Examiner in the Chapter 11 proceedings of Lehman Brothers Holdings by Anton R. Valukas, chairman of Jenner & Block. See: http://lehmanreport.jenner.com/.

219 Fuld owned ninety-seven acres in the area: “Lehman Brothers CEO Is Local Land Baron,” Idaho Mountain Express, September 24, 2008.

221 “A bubble, once ‘pricked’ ”: Ben Bernanke and Mark Gertler, “Monetary Policy and Asset Price Volatility,” Federal Reserve Bank of Kansas City’s Economic Symposium, Jackson Hole, Wyoming, 1999. See http://www.kc.frb.org/Publicat/sympos/1999/S99gert.pdf.

221 “the Bernanke doctrine”: John Cassidy, “Anatomy of a Meltdown,” New Yorker, December 1, 2008.

221 “It is not the responsibility of the Federal Reserve”: Ben Bernanke, “Housing, Housing Finance, and Monetary Policy,” Federal Reserve Bank of Kansas City’s Economic Symposium, Jackson Hole, Wyoming, August 31, 2007. See http://www.federalreserve.gov/newsevents/speech/bernanke20070831a.htm.

222 One day a little Dutch boy: Alan S. Blinder, “Discussion of Willem Buiter’s, ‘Central Banks and Financial Crises,’ ” Federal Reserve Bank of Kansas City’s Annual Economic Symposium,” Jackson Hole, Wyoming, August 23, 2008. See http://www.kc.frb.org/publicat/sympos/2008/blinder.08.25.08.pdf.

222 “statutory resolution regime for nonbanks”: Ben Bernanke, “Reducing Systemic Risk,” Federal Reserve Bank of Kansas City’s Annual Economic Symposium,” Jackson Hole, Wyoming, August 22, 2008.

223 Moody’s cut its ratings: Jody Shenn, “Fannie, Freddie Preferred Stock Downgraded by Moody’s,” Bloomberg News, August 22, 2008.

224 having shorted subprime before anyone else: Andy Kessler, “The Paulson Plan Will Make Money for Taxpayers,” Wall Street Journal, September 25, 2008.

224 Paulson had heard rumors when he was in China: Paulson, On the Brink, 161. Paulson’s account was later denied by a Russian spokesman. “Russia at that time was a country that invested huge funds in these organizations and was not interested in rocking these institutions,” Dmitry Peskov reportedly said to the Russian state-run news agency RIA Novosti.

228 analyst report issued by Goldman Sachs raising questions about the firm: Hugh Son, “AIG Falls as Goldman Says a Capital Raise Is ‘Likely,’ ” Bloomberg News, August 19, 2008.

228 As the company had warned in an SEC filing: Figures are from AIG’s 10-Q filing on August 6, 2008.

229 AIG owning seventy-one state-regulated insurance subsidiaries: AIG issued a press release on September 18, 2008, assuring policyholders that their protection was a top priority. “The 71 state-regulated insurance companies within AIG did not receive a bailout; they are financially solvent,” it said. “The federal bailout of the non-insurance portions of AIG does not negatively change the solvency strength of its insurance subsidiaries.” http://www.aig.com.

231 “rather than letting these conditions fester”: “The result has been that they have been unable to provide needed stability to the market. They also find themselves unable to meet their affordable housing mission. Rather than letting these conditions fester and worsen and put our markets in jeopardy, FHFA, after painstaking review, has decided to take action now.” “Fhfa Director Lockhart Issues Statement on Safety and Soundness Concerns,” U.S. Fed News, September 7, 2008.

231 Treasury’s takeover terms: Rebecca Christie and John Brinsley, “U.S. Takeover of Fannie, Freddie Offers ‘Stopgap,’ ” Bloomberg News, September 8, 2008.

232 “any action we take”: As Obama told reporters in Indiana on September 6, 2008. See http://www.msnbc.msn.com/id/26577811/.

CHAPTER TWELVE

234 Reuters headline: Kim Yeon-hee and Chris Wickham, “Eyes on Lehman Rescue as Korea Lifeline Drifts,” Reuters, September 8, 2008.

234 had held a briefing with reporters: Ibid.; Susanne Craig, Diya Gullapali, and Jin-Young Yook, “Korean Remarks Hit Lehman,” Wall Street Journal, September 9, 2008.

234 Shares of Lehman dropped precipitously: Joe Bel Bruno, “Lehman Shares Plunge 30 percent on Report that Talks with Korea Development Bank Ended,” Associated Press, September 9, 2008.

234 annual banking conference: The Lehman Brothers Global Finance Services Conference was held at New York ’s Hilton Hotel from September 8-10, 2008. Wachovia CEO Robert Steel presented on Tuesday, September 9, according to the press release: “Wachovia CEO Robert K. Steel to Present at Lehman Conference,” PR Newswire, September 3, 2008.

234 “Here we go again”: Fuld, as quoted in an article by John Helyar and Yalman Onaran, “Fuld Sought Buffett Offer He Refused as Lehman Sank,” Bloomberg News, November 10, 2008.

234 “Time Running Out for Lehman”: “Stocks to Watch,” CNBC, September 9, 2008.

235 “We’ve got to act fast”: John Helyar and Yalman Onaran, “Fuld Sought Buffett Offer He Refused as Lehman Sank,” Bloomberg News, November 10, 2008.

235 meeting with Jamie Dimon: According to official calendars obtained from the Department of the Treasury, this meeting was scheduled for 8:30 a.m. on September 9, 2008, and was one of several listed on Paulson’s calendar.

236 “[A]ll he wanted was the bazooka”: Alison Vekshin, “Dodd Plans Senate Hearing on Fannie, Freddie Takeover,” Bloomberg News, September 8, 2008.

236 “Secretary Paulson knew more than he was telling us”: From a statement issued by Bunning on September 8, 2008, titled “Bunning Rips Bailout of Fannie and Freddie.”

238 Lehman’s stock had plunged 38 percent: Joe Bel Bruno, “Lehman Shares Plunge 30 Percent on Report That Talks with Korea Development Bank Ended,” Associated Press, September 9, 2008.

239 AIG’s lawyers and advisers: Scott Pegram, “Davis Polk, Weil Gotshal, Sullivan, Simpson Work on AIG Restructuring,” New York Law Journal, March 5, 2009.

239 including Rodgin Cohen: Matthew Karnitschnig and David Enrich, “A Lawyer for All Wall Street Navigates Tempestuous Times,” Wall Street Journal, October 9, 2008.

239 Two documents given to Geithner: Obtained by author from confidential source.

240 Jester hadn’t been required to sell all his Goldman stock: Greg Farrell and Stephanie Kirchgaessner, “Goldman links to US Treasury Raise Questions,” Financial Times, October 12, 2008.

240 $3.9 billion loss: On the morning of Wednesday, September 10, Lehman announced its preliminary third-quarter earnings and an estimated net loss of $3.9 billion. See “Lehman Brothers Announces Preliminary Third Quarter Results and Strategic Restructuring,” PR Newswire, September 10, 2008.

241 “‘I would much rather have partners that are really, really smart motherfuckers than guys that I like’ ”: Mr. Briger confirmed making such an observation but disputes using the word “motherfucker” despite the accounts of several other sources who either heard it directly or in the retelling from Alex Kirk after he ran down the hall.

247 “The stock is coming down”: Dick Bove to Erin Burnett, Streets Signs, “LEH Shares Down,” CNBC, September 9, 2008.

248 “This is coming directly from Paulson”: This quote is one of only a few that caused confusion and consternation among various sources. All the sources for this scene agree that this was the comment that McDade made at the time, based on his conversation with Fuld. It is also clear that Paulson spoke to both Blankfein and Fuld about how the two firms should talk to each other and about a sale of Lehman’s real estate assets. It is also clear that David Viniar, Goldman’s CFO, placed a call to Dan Jester earlier in the day seeking help to orchestrate negotiations, which is detailed in an earlier scene. Paulson’s calendar cites a series of phone calls between Paulson and Fuld and Paulson and Blankfein that day, with at least one in rapid succession back to back from each other. Furthermore, multiple sources privy to both of those conversations say that Paulson suggested that Fuld hold discussions with Goldman, as one of many options. So far, nothing is in dispute. What is confusing is why Fuld is under the impression that Goldman is working for the government. There is no evidence that was the case and no evidence that Paulson said so directly. What appears most likely is that there was a miscommunication, with Fuld making certain assumptions and Goldman, during its phone calls with McDade and Kirk, doing little to disavow these views until Wednesday morning, when clarity was required to execute the confidentiality agreement to begin due diligence.

248 Ken Lewis: Shawn Tully, “Meanwhile, Down in Charlotte … ,” Fortune, October 13, 2008.

CHAPTER THIRTEEN

253 The lead of the New York Times: Jenny Anderson and Ben White, “Wall Street’s Fears on Lehman Bros. Batter Markets,” New York Times, September 10, 2008.

253 “Some may worry that Treasury”: Ibid.

253 Wall Street Journal noted: “The firm’s situation differs markedly from that of Bear Stearns, which was taken over earlier this year after it ran into a liquidity crisis. Unlike Bear Stearns, Lehman has access to new Federal Reserve facilities that can provide short-term funding when the markets won’t, in addition to the ability to exchange illiquid assets for safer securities such as Treasurys.” Susanne Craig, Randall Smith, Serena Ng, and Matthew Karnitschnig, Wall Street Journal, September 10, 2008.

253 reduced the amount of business: On September 16, 2008, GLG Partners issued the following statement regarding Lehman Brothers: “With respect to Lehman, GLG last week transferred substantially all of the remaining positions of the GLG Funds to other prime brokers. The majority of these transfers have already settled and we expect the remainder to settle shortly. We believe the residual exposure of the GLG Funds to Lehman will not be material. Lehman is also a shareholder in GLG, owning approximately 33.7 million shares, through Lehman (Cayman Islands), a Cayman Islands company, about 13.7 per cent of the total GLG stock outstanding.”

255 “That’s it? That’s fucking it?”: McDonald and Robinson, A Colossal Failure of Common Sense, 314.

255 “The firm remains committed”: From a press release issued by Lehman that morning. “Lehman Brothers Announces Preliminary Third Quarter Results and Strategic Restructuring,” September 10, 2008.

256 Herlihy had worked on nearly every deal Bank of America had orchestrated: “Bailout Lawyer Optimistic Worst Is Over,” WSJ Blog/Deal Journal, October 16, 2008.

257 forecast a third-quarter loss of $3.9 billion: Ben White, “With Big Loss Forecast, Lehman to Spin Off Assets,” New York Times, September 11, 2008.

257 “In light of these last two days”: Lehman Brothers preliminary F3Q08 Earnings Call Transcript, September 10, 2008.

258 “The real estate held-for-sale portfolio”: Ibid.

259 “To the extent you might need $7 billion”: Ibid.

260 “The Bungalow”: “HSBC’s Canary Wharf headquarters towers over that of Barclays. So much so that HSBC workers have christened their neighbour’s building ‘the bungalow.’ A spokesman for Barclays retorts: ‘Size is not our objective—growth is.’ Touche.” Dominic Walsh, “Barclays Bungalow; City Diary,” Times (London), July 8, 2006.

261 having both vied for the top job in 2003: Grant Ringshaw, “Barclays’ Odd Couple John Varley and Bob Diamond,” Sunday Times, (London), February 17, 2008.

261 In 2007, Diamond earned $42 million to Varley’s $8.4 million: “Barclays’ Diamond Gets 21 Million Pounds in Pay and Bonus,” Reuters, March 27, 2008; Ben Livesey and Jon Menon, “Barclays Pays Diamond Five Times More than CEO Varley,” March 26, 2007.

261 “Bob Diamond 3, John Varley 0”: Ringshaw, “Barclays’ Odd Couple,” Sunday Times (London).

263 trying to buy ABN AMRO: After a harrowing nine-month takeover battle, Barclays withdrew its bid of €67.5 billion for ABN AMRO in October 2007, finally conceding to a consortium led by the Royal Bank of Scotland. Julia Werdigier, “Barclays Withdraws Bid to Take Over ABN Amro,” New York Times, October 6, 2007.

264 been on the phone with Tim Geithner and Hank Paulson twice about it: From Geithner’s calendar for Wednesday, September 10, 2008.

265 “Unless I’ve missed something”: Brian Blackstone, “Ex-Fed Official Poole: Fed Not Defining Post-Bailout World,” Dow Jones, September 10, 2008.

266 Any hope that the SpinCo plan was going to turn Lehman’s fortunes around: Susanne Craig, Randall Smith, Serena Ng, and Matthew Karnitschnig, “Lehman Faces Mounting Pressures,” Wall Street Journal, September 10, 2008.

267 announced his plans to “retire” from the firm: Mark Kleinman, “Jeremy Isaacs to Step Down at Lehman,” Daily Telegraph, September 7, 2008.

267 $5 million severance: Danny Fortson, “Five Lehman Chiefs Coop $100m Days Before Collapse,” Sunday Times (London), October 12, 2008.

267 “engage in detrimental activity”: From Exhibit A of Lehman’s “Termination Arrangements for Executives” in a section called “Restrictive Covenants.” Document was made public by the House Oversight and Government Reform Committee and is available online under “Materials for Lehman Brothers Compensation Meeting,” http://oversight.house.gov/story.asp?ID=2208.

269 pocketing some $540 million from an investment in Shinsei Bank: Matthew Miller, “Cash Kings,” Forbes, October 9, 2006.

269 town house on the Upper East Side for $53 million: Zachery Kouwe, “Sallie’s Suitor—Flowers’ Power: Art of the Deal,” New York Post, October 7, 2007.

270 Goldfield happened to be the banker depicted: Roger Lowenstein, When Genius Failed, 170-85.

270 Greenberg … bought millions of preferred shares: In June 2008, Lehman sold $6 billion in common and preferred shares to a group of investors, which included Hank Greenberg. Greenberg would not disclose how much he spent. Lavonne Kuykendall, “Greenberg: Lehman ‘A Great Franchise,’ Now Has Enough Capital,” Dow Jones, June 10, 2008.

270 “Management did not successfully put to rest”: Patrick M. Fitzgibbons, “Lehman in Sale Talks as Survival Questioned—Sources,” Reuters, September 11, 2008.

271 “The change in rating agency posture”: Alistair Barr,“Treasury, Fed Reportedly Helping as Deal Sought by This Weekend,” MarketWatch.com, September 11, 2008.

271 “He is as feisty as ever”: Louise Story, “Tough Fight for Chief at Lehman,” New York Times, September 11, 2008.

272 buy Chicago’s LaSalle Bank from ABN: “ABN AMRO Shareholders Vote in Favor of Sale, Breakup,” Dow Jones, April 26, 2007.

273 It is with deep regret: Letter obtained by author.

274 had just gotten off the phone with Geithner: The Wall Street Journal reported that Willumstad made his first call to Geithner on Thursday, but they didn’t actually speak on the phone until Friday morning. Author’s subsequent reporting places the phone conversation on Thursday morning. See Monica Langley, Deborah Solomon, and Matthew Karnitschnig, “Bad Bets and Cash Crunch Pushed Ailing AIG to Brink,” Wall Street Journal, September 18, 2008.

275 If the agency cut AIG’s credit rating by even one notch, it could trigger a collateral call of $10.5 billion: Greg Farrell, Aline van Duyn, and Nicole Bullock, “S&P in Warning after AIG Shares Plunge,” Financial Times, September 12, 2008.

274 The cost to insure the debt of AIG: Lilla Zuill, “AIG Woes Knock Its Market Value Below Peers,” Reuters, September 11, 2008.

274 Hank Greenberg, being deposed that day: In the midst of settling a Delaware shareholder suit for $115 million, Greenberg began his deposition with Andrew Cuomo for a civil fraud lawsuit, which would stretch over the next several days. Amir Efrati, “Greenberg Settles AIG Shareholder Case,” Wall Street Journal, September 12, 2008.

274 “What the hell are you people waiting for?”: James Bandler, “Hank ’s Last Stand,” Fortune, October 7, 2008.

275 If the agency cut AIG’s credit rating: Mary Williams Walsh and Jonathan D. Glater, “Investors Turn Gaze to A.I.G.,” New York Times, September 12, 2008

276 Texaco trucks and Eastern Airlines jets: Stephen Labaton, “Bankruptcy Bar: Never So Solvent,” New York Times, April 1, 1990.

276 he billed clients nearly $1,000 an hour: Jonathan D. Glater, “The Man Who Is Unwinding Lehman Brothers,” New York Times, December 14, 2008.

276 He had grown up in the Gravesend neighborhood of Brooklyn: Ibid.; Labaton, “Bankruptcy Bar,” New York Times.

277 “Bankruptcy,” he once said, “ is like dancing”: Ibid.

284 “Fuld is a friend. Try to help, but don’t bail Lehman out”: Paulson, On the Brink, 181.

286 “With a beleaguered Lehman”: Jessica Papini, “Possible Govt Backstop for Lehman Buy Has Two Prior Models,” Dow Jones, September 11, 2008.

287 “Federal officials currently”: Efrati, “Greenberg Settles,” Wall Street Journal.

287 “But while the Treasury Department”: Walsh and Glater, “Investors Turn Gaze to A.I.G.,” New York Times.

287 “At least in the Bear case”: “Lehman’s Fate,” Wall Street Journal, September 12, 2008.

288 “Source: There will be no government money”: Steve Liesman to David Faber, Faber Report, CNBC, September 12, 2008.

290 “Lehman is going down”: Susanne Craig, Jeffrey McCracken, Aaron Lucchetti, and Kate Kelly, “The Weekend that Wall Street Died,” Wall Street Journal, December 29, 2008.

290 “We’re not Lehman”: Ibid.

291 “concerns about AIG’s ability to shed”: “AIG Shares Fall 20 Percent On Mortgage Woes,” Reuters, September 12, 2008.

CHAPTER FOURTEEN

299 he had given her some $4,600 in donations: On February 21, 2007, Lloyd Blankfein made two contributions, of $2,300 each, to Hillary Clinton’s Presidential Campaign. See http://www.opensecrets.org.

300 after testifying at a hearing for the Committee on Energy and Natural Resources: “Summit to Consider How to Achieve a More Secure, Reliable, Sustainable, and Affordable Energy Future for the American People.” Friday, September 12, 2008.

302 BofA shares closed that day at $33.74: Bank of America rose $.68 or 2.1 percent, to $33.74 on Friday, September 12, 2008. “Finance Companies Shares Mixed at the Close of Trading,” Associated Press, September 12, 2008.

303 “a quality which, for lack of a better word, I can best describe as epic.” Christopher Gray, “Mix of Limestone and Sandstone, in Florentine Style,” New York Times, November 11, 2001.

303 a three-level vault: www.newyorkfed.org.

303 Emergency meeting at NY Fed: Evan Thomas and Michael Hirsh, “Paulson’s Complaint,” Newsweek, May 16, 2009.

305 “He is in denial,” Paulson continued: Author obtained notes from the emergency meeting at the New York Federal Reserve.

305 “There is no political will for a federal bailout”: Deborah Solomon, Dennis K. Berman, Susanne Craig, and Carrick Mollenkamp, “Ultimatum by Paulson Sparked Frantic End,” Wall Street Journal, September 15, 2008.

306 “I assume we are going to talk about AIG?”: Tett, Fool’s Gold, 233.

306 “Stop being such a jerk ”: Kate Kelly, “The Fall of Bear Stearns,” Wall Street Journal, May 29, 2008.

309 Fuld swallowed his pride and dialed Lewis’s home in Charlotte: According to the Wall Street Journal, Fuld placed the call to Lewis on the afternoon of Sunday, September 14, 2008. Subsequent reporting by the author has revealed that the call was actually made on the evening of Friday, September 12, 2008. See Susanne Craig, Jeffrey McCracken, Aaron Lucchetti, and Kate Kelly in “The Weekend That Wall Street Died,” Wall Street Journal, December 29, 2008.

310 the same home he had purchased in 1958 for $31,500: Roger Lowenstein, “King Midas—Warren Buffett,” Independent on Sunday, February 18, 1996.

319 David Bonderman of Texas Pacific Group: Riva D. Atlas and Edward Wong, “Texas Pacific Goes Where Others Fear to Spend,” New York Times, August 25, 2002.

319 watched his investment lose virtually all of its value in less than half a year: Peter Lattman, “WaMu Fall Crushes TPG,” Wall Street Journal, September 27; Geraldine Fabrikant, “WaMu Tarnishes Star Equity Firm,” New York Times, September 27, 2008.

320 Paulson hated Flowers, and the antipathy was mutual: Peter Truell and Joseph Kahn, “Goldman Sachs Nears Decisive Talks on Going Public,” New York Times, June 2, 1998.

324 “Urgent. Code name: Equinox”: Craig, McCracken, Lucchetti, and Kelly, “The Weekend that Wall Street Died,” Wall Street Journal. For a more detailed account of Weil Gotshal’s involvement in the Lehman bankruptcy, see Ben Hallman, “A Moment’s Notice; Weil Gotshal Put Together the Largest Bankruptcy in U.S. History in Record Time.” American Lawyer, December 1, 2008.

329 “If we do that”: Cohan, House of Cards.

332 Eric R. Dinallo: Matthew Karnitschnig, Liam Pleven, and Peter Lattman, “AIG Scrambles to Raise Cash, Talks to Fed,” Wall Street Journal, September 15, 2008.

335 Merrill had just sold $8.55 billion of convertible stock: “Thain Gains $2 Mln on Merrill Lynch Share Purchase,” Reuters, July 31, 2008.

335 the restaurant plays host to Wall Street bigwigs over lunch: Landon Thomas Jr. “Make Your Best Offer and Pass the Parmesan, Please,” New York Times, October 2, 2005.

338 the “good bank”: Cohan, House of Cards, 445.

339 “How much equity do you need to raise”: This exchange between Gary Shedlin and Michael Klein was first reported in William D. Cohan’s article for Fortune magazine, soon followed up in his book, House of Cards. According to Cohan, “Shedlin confirmed the exchange to Fortune; Klein did not respond to requests to be interviewed.” See William D. Cohan, “Three Days That Shook the World,” Fortune, December 16, 2008.

339 lost $20 billion more than anyone had recorded: Eric Dash and Andrew Ross Sorkin, “Throwing a Lifeline to a Troubled Giant,” New York Times, September 18, 2008.

CHAPTER FIFTEEN

342 “I don’t think I can take another day of this”: The “Goldman aide” referenced in the Wall Street Journal is Blankfein’s chief of staff, Russell Horwitz. Susanne Craig, Jeffrey McCracken, Aaron Lucchetti, and Kate Kelly, “The Weekend That Wall Street Died,” Wall Street Journal, December 29, 2008.

342 not-so-subtle reference to John Whitehead: John C. Whitehead, A Life in Leadership: From D-Day to Ground Zero: An Autobiography, New York: Basic Books, 2005.

342 “Certain Deal Issues”: Author obtained copy of document.

343 had posed a decade earlier: “Merrill ’s Mr. Allison, reading from a handwritten sheet, spelled out the terms. ‘We think we need $4 billion to assure the fund can withstand any concerted attack by others against its positions.’ Sixteen firms were asked to pitch in $250 million.” Michael Siconolfi, Anita Raghavan, and Mitchell Pacelle, “All Bets Are Off: How the Salesmanship and Brainpower Failed at Long-Term Capital,” Wall Street Journal, November 16, 1998.

343 “What the fuck are you doing?”: Lowenstein, When Genius Failed, 203.

343 he had contributed only $100 million: Wall Street Journal, November 16, 1998.

344 Merrill ’s market capitalization: According to Standard & Poor’s, Merrill’s market capitalization for Friday, September 12, 2008, was $26.1 billion. “Five Facts About Merrill Lynch and Bank of America,” Reuters, September 14, 2008.

345 “It looks like we may have the outlines of a deal around the financing”: William D. Cohan, “Three Days,” Fortune.

345 tapped out a message on his BlackBerry to Michael Gelband: A version of this anecdote was reported by Steve Fishman, “Burning Down His House,” New York, December 8, 2008.

345 McCarthy, meanwhile, in London …: Nick Mathiason, “Three Weeks That Changed the World,” The Observer, December 28, 2008.

347 FSA’s refusal to waive shareholder-approval requirements: As reported by Bloomberg, Barclays spokesman Leigh Bruce said: “The only reason it didn’t happen is that there was no guarantee from the U.S. government, and a technical stock-exchange rule required prior shareholder approval for us to make a similar guarantee ourselves. We didn’t have that approval, so it wasn’t possible for us to do the deal. No U.K. bank could have done it. It was a technical rule that could not be overcome.” John Helyar and Yalman Onaran, “Fuld Sought Buffett Offer He Refused as Lehman Sank,” Bloomberg, November 10, 2008.

349 editorial in the Sunday Telegraph: Mark Keinman, “Barclays Should Be Wary of the Gorilla in Its Midst,” Sunday Telegraph, (London), Sep 14, 2008.

351 “We lost the patient”: James. B. Stewart, “Eight Days: The Battle to Save the Financial System,” The New Yorker, September 21, 2009.

353 “What if the system collapses?”: Paulson, On the Brink, 215. Paulson rarely publically ack nowledges his faith nor his most intimate conversations with his wife. This anecdote, as described by him in his memoir, was perhaps the most revealing he has ever been about his religion and his emotional state that weekend.

352 “Those of you who do not want to assist a Barclays deal”: Author received notes from this meeting, with Paulson’s remarks dictated, as well as Geithner’s proposal to create a $100 billion emergency fund for the three remaining investment banks.

353 Thain had had coffee with Ken Lewis that morning: Referenced by Craig, McCracken, Lucchetti, and Kelly in “The Weekend that Wall Street Died,” Wall Street Journal, December 29, 2008.

354 “Couldn’t have gone more poorly”: Diamond’s e-mail exchange read to author.

355 “We’ve got a good deal in hand ”: Greg Fleming’s words to Peter Kraus were first reported in the Wall Street Journal and differ slightly from the author’s subsequent reporting. According to the WSJ, Fleming said: “We have a great deal in hand, and need to finish doing this deal.” Susanne Craig, Jeffrey McCracken, Aaron Lucchetti, and Kate Kelly, “The Weekend That Wall Street Died,” Wall Street Journal, December 29, 2008.

356 together they had prepared an offer for the company: Zachary R. Mider and Erik Holm, “Allianz, Flowers Said to Have Bid for AIG Before Fed Takeover,” Bloomberg, September 17, 2008.

356 The company’s actual market value on Friday had been about $31 billion: “With a market value of $31 billion on Friday, based on an intraday low of $11.49, it now trails some other insurers, including AXA SA. The shares slipped further after the closing bell, following a warning from Standard & Poor’s that it may cut AIG’s ratings.” Lilla Zuill, “AIG Could Hold Investor Call as Soon as Mon,” Reuters, September 12, 2008.

357 “I don’t approve of ”: Dr. Paul Achleitner of Allianz denies having made these comments. However, several eyewitnesses confirmed that these were the words he used.

358 Dannhauser grabbed three senior partners: Ben Hallman, “A Moment’s Notice for Lehman,” American Lawyer, December 16, 2008.

359 Roberts took a call from a partner: Ibid.

359 “You don’t understand the consequences”: Ibid.

362 “All trades conducted will be done”: Author obtained copy of Fed memo.

362 “The extraordinary trading session held today”: Jennifer Ablan, “Pimco’s Gross Sees Tsunami of Risk if Lehman Fails,” Reuters, September 14, 2008.

363 “a group of global commercial and investment banks”: From Morgan Stanley press release, issued September 14, 2008.

364 He had received bids for it on Friday from two separate private-equity firms, Bain Capital and TPG: Christine Williamson, “Walker Rises from Ashes of Lehman Brothers Firestorm,” Pensions & Investments, October 13, 2008.

365 Diamond ’s cell phone rang: First reported by Aleksandrs Rozens, “Who Dares Wins; Barclays’ Diamond Leads Team to Snare One of Wall Street’s Most Storied Investment Banks,” Investment Dealers Digest, January 19, 2009.

369 Thomas Cruikshank, who had led the oil services company Halliburton: Cruikshank served as the chairman and CEO of Houston-based Halliburton from 1989 to 1995, after which Dick Cheney assumed his position. He had been on Lehman’s board of directors for twelve years when the company filed for bankruptcy. Hillary Durgin, “Halliburton—On the Offensive,” Houston Chronicle, October 5, 1997.

370 Known as “Dr. Doom”: Karen Pennar, “Dr. Doom and Dr. Gloom Are Still Prescribing Caution,” BusinessWeek, October 17, 1988.

370 “providing only tepid oversight”: From a speech Kaufman gave at a conference in Philadelphia in April 2008. “Credit Crisis a ‘Global Calamity’—Kaufman,” Reuters, April 18, 2008.

371 Mayor Michael Bloomberg: Azi Paybarah, “Bloomberg and Schwarzenegger (and Sheekey?) Together Again,” New York Observer, January 16, 2008.

372 “My goodness. I’ve been in the business”: Andrew Ross Sorkin, Jenny Anderson, and Eric Dash, “A Buyer for Merrill,” New York Times, September 16, 2008.

372 “Words cannot express the sadness”: Carrick Mollenkamp, Susanne Craig, Jeffrey McCracken, and Jon Hilsenrath, “The Two Faces of Lehman’s Fall,” Wall Street Journal, October 6, 2008.

372 $5.8 billion in “incentive compensation”: A complaint later filed by the SEC against Bank of America revealed that the bank had “contractually authorized ” Merrill to pay billions in discretionary bonuses—not to exceed $5.8 billion—to its employees. SEC press release, “SEC Charges Bank of America for Failing to Disclose Merrill Lynch Bonus Payments,” Washington, D.C., August 3, 2009. See http://www.sec.gov/news/press/2009/2009-177.htm.

373 “BAC Update”: http://online.wsj.com/public/resources/documents/FedbofaDocs.pdf.

374 “fairness opinion”: Zachary R. Mider, “Lewis Turns to Tomato-Growing ‘Unknown Genius’ on Merrill Deal,” Bloomberg, September 24, 2008.

374 Flowers and Fox-Pitt would earn a combined $20 million: From Bank of America’s SEC filing .

CHAPTER SIXTEEN

376 “CRISIS ON WALL STREET AS LEHMAN TOTTERS”: Carrick Mollenkamp, Susanne Craig, Serena Ng, and Aaron Lucchetti, “Crisis on Wall Street as Lehman Totters, Merrill Is Sold, AIG Seeks to Raise Cash,” Wall Street Journal, September 15, 2008.

376 Lehman formally filed for bankruptcy at exactly 1:45 that morning: Legal documents show that Lehman filed a voluntary petition under Chapter 11 with the United States Bankruptcy Court for the Southern District of New York on Monday morning at 1:45 a.m. See www.lehman-docket.com; Peg Brickley, “Lehman Makes It Official in Overnight Chapter 11 Filing,” Wall Street Journal, September 15, 2008.

376 “Everybody’s prepared this time”: Annelena Lobb, “A Chaotic Sunday Opens Wall Street’s Week,” Wall Street Journal, September 15, 2008.

377 sent out a note to his clients: “Analysts’ View 3—Lehman Files for Bankruptcy, Merrill to be Sold,” Reuters, September 15, 2008.

379 a mogul unto himself: Landon Thomas Jr., “Banker, Loan Maestro Jimmy Lee Switched Suspenders for Sweaters,” New York Observer, December 24, 2001.

379 finance some of the biggest deals in history: Ibid. Beginning in the late seventies at Chemical Bank, Lee raised hundreds of billions for companies on the brink, such as IBM, General Motors, Seagram, Nextel, and AT&T, to name a few. Robert Lenzner, “Jimmy’s List,” Forbes, April 17, 2000.

381 they were angry: Aleksandrs Rozens, “Death of an Era: Within the Span of Several Days, Wall Street Loses Two Titans,” Investment Dealers Digest, September 22, 2008.

381 Wall of Shame: Ibid.; McDonald and Robinson, A Colossal Failure of Common Sense, 317.

381 “Dumb and Dumber,” “Voting in Braille Only”: Ibid.

382 Geithner’s phone conference with Dimon, Blankfein: According to Geithner’s calendar, the call was scheduled from 10:00 to 10:15 a.m. that Monday.

383 relatively uneventful press conference of Bank of America and Merrill Lynch: A press release on Bank of America’s Web site early Monday morning announced the merger with Merrill Lynch, and also that Lewis and Thain would be hosting a press conference at 10:00 a.m. in the auditorium at Bank of America’s New York City headquarters. See http://www.bankofamerica.com/merrill/.

384 formally agreed to allow AIG to use some of its regulated insurance company assets: In a press conference at noon on Monday, September 15, New York governor Paterson said that he had given Eric Dinallo “authorization, such that AIG can access $20 billion of its assets through its subsidiaries for the purpose of posting these assets as collateral to provide liquid cash in order to run the day-to-day operations of the parent company.” States News Service, “Transcript: Governor Paterson Press Conference on AIG—September 15, 2008,” September 15, 2008.

385 Geithner called and told him he should be at this meeting instead: Paterson thanked Dinallo in his speech, acknowledging that he was presently meeting with Federal Reserve officials.

385 to discuss the fate of the insurers Ambac and MBIA: Susanne Craig and Liam Pleven, “Credit Crunch: Good Plan, but Who Will Pay?” Wall Street Journal, January 30, 2008.

388 “I hope you all had an enjoyable weekend”: Paulson’s comments to the press, and their questions, were taken from transcripts released by the White House. “White House Conducts Press Briefing, Sept. 15,” 1:42 p.m. EDT. US Fed News, September 15, 2008.

392 “It is oddly reassuring that the Treasury Department … let Lehman Brothers fail”: “Wall Street Casualties,” New York Times, September 16, 2008.

393 “Stocks Plunge as Crisis Intensifies”: Glenn Kessler and David S. Hilzenrath, “Stocks Plunge as Crisis Intensifies; AIG at Risk; $700 Billion in Shareholder Value Vanishes,” Washington Post, September 16, 2008.

393 The Dow Jones Industrial Average had slumped 504.48 points: The Dow dropped 504.5 points on Monday. Alex Berenson, “Wall St.’s Turmoil Sends Stocks Reeling,” New York Times, September 16, 2008.

396 Fed had kept Lehman’s broker-dealer in the United States open: According to Lehman’s official press release issued that Monday, the company was “exploring the sale of its broker-dealer operations” and its subsidiaries, including Neuberger Berman, LLC, and Lehman Brothers Asset Management, would “not be subject to the bankruptcy case of its parent.” See http://www.lehman.com/press/pdf_2008/091508_lbhi_Chapter11_announce.pdf.

397 as was the case with Ramius Capital: Cassell Bryan-Low, “Crisis on Wall Street: Funds Assess Lehman (Gulp!) Exposure,” Wall Street Journal, September 26, 2008.

397 he presided over the FOMC meeting at the Federal Reserve in Washington: The meeting was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday, September 16, 2008 at 8:30 a.m. See http://www.federalreserve.gov/FOMC.

397 Federal Reserve Act, Section 13, point 3: www.federalreserve.gov/aboutthefed/section13.htm.

398 “regulatory capital relief ”: From AIG’s 10-Q filing, August 6, 2008: “Approximately $307 billion of the $441 billion in notional exposure on AIGFP’s super senior credit default swap portfolio as of June 30, 2008, was written to facilitate regulatory capital relief for financial institutions primarily in Europe.”

398 AIG’s vast insurance empire: A “strictly confidential ” AIG presentation draft, dated February 26, 2009, entitled, “AIG: Is the Risk Systemic?” states that “AIG has written more than 81 million life insurance policies to individuals worldwide” at a face value of $1.9 trillion, with more than $12 billion in claims paid in 2008.

400 he knew the top people in the industry: Susanne Craig, “In Ken Wilson, Paulson Gets Direction From the Go-To Banker of Wall Street,” Wall Street Journal, July 22, 2008.

400 telling the press that he planned to mount a proxy contest: “Hank Greenberg: Plans Fight for Control or Buyout of AIG,” Dow Jones Newswires, September 16, 2008.

400 Dear Bob: The full text of Hank Greenberg’s letter to Robert Willumstad, dated September 16, 2008, can be viewed online at http://online.wsj.com/public/resources/documents/AIG09162008.pdf.

403 He and Ben Bernanke had scheduled a meeting with President Bush: According to the Wall Street Journal, this meeting took place at 3:30 p.m. See Monica Langley, Deborah Solomon, and Matthew Karnitschnig, “Bad Bets and Cash Crunch Pushed Ailing AIG to Brink,” Wall Street Journal, September 18, 2008.

404 “Well, you finally get your chance”: Richard Beattie’s remarks to Robert Willumstad, as first reported in Fortune magazine. James Bandler, “Hank ’s Last Stand,” Fortune, October 7, 2008.

404 the government was taking a large ownership stake—79.9 percent: Matthew Karnitschnig, Deborah Solomon, Liam Pleven, and Jon E. Hilsenrath, “U.S. to Take Over AIG in $85 Billion Bailout,” Wall Street Journal, September 16, 2008.

404 “Paulson is handling this the same way he did Fannie, Freddie, and Bear”: Monica Langley, Deborah Solomon and Matthew Karnitschnig, “Bad Bets and Cash Crunch,” Wall Street Journal, September 18, 2008.

404 the London Interbank offered rate: Known as LIBOR, this is the average interest rate charged when banks borrow unsecured funds from one another, whether it’s an overnight or a long-term loan. In the United States, LIBOR maturities used in pricing loans most commonly include one, three, six, and twelve months. On Wednesday, September 17, 2008, the three-month LIBOR jumped 19 basis points, to 3.0625 percent, its biggest jump since September 1999. Lisa Twaronite, “Three-Month Libor Marks Biggest Jump in Nine Years,” MarketWatch. com, September 17, 2008.

406 “I won’t be working for the federal government”: Willumstad, as quoted in Bandler, “Hank’s Last Stand,” Fortune.

407 a Maine insurer that had fought off an effort by Allstate: Laura Jereski, “We Understand Risk ” (UNUM Corp.), Forbes, March 20, 1989.

407 AIG had invested $1.35 billion in Blackstone: Peter Truell, “AIG Will Put $1.35 Billion into Blackstone,” New York Times, July 31, 1998.

407 Greenberg’s office on Park Avenue: A year after his ouster from AIG in 2005, Greenberg relocated his office to the seventeenth floor of Citigroup’s headquarters, at 399 Park Avenue. See Diane Brady, “Hank at War,” BusinessWeek, March 27, 2006.

407 “He’s going on Charlie Rose to talk about AIG”: During that week, Hank Greenberg appeared on two consecutive episodes of Charlie Rose. The first was simply to discuss AIG’s crisis, and the second to speak about the federal bailout. See The Charlie Rose Show, “More Crises on Wall Street,” September 16, 2008, and “Former AIG Chair Discusses Bail Out,” September 17, 2008.

409 The gathering had been hastily organized: Langley, Solomon, and Karnitschnig, “Bad Bets and Cash Crunch,” Wall Street Journal.

410 had sent him an e-mail: A facsimile of Herzog’s e-mail appeared in Fortune, where this was first reported. Carol J. Loomis, “AIG’s Rescue Has a Long Way to Go,” Fortune, December 29, 2008.

CHAPTER SEVENTEEN

412 “Reserve Primary Fund, had broken the buck ”: It was the first time in fourteen years that a fund’s net asset value had fallen below $1, or “broken the buck.” Particularly unsettling was the fact that the Primary Fund ’s owner, the Reserve Management Corporation, invented the money fund in 1970. See Christopher Condon, “Reserve Primary Money Fund Falls Below $1 a Share,” Bloomberg, September 16, 2008.

413 4.04 percent annual return: According to Morningstar Inc., the Reserve Primary Fund posted a return of 4.04 percent over a twelve-month period, versus a 2.75 percent average among more than twenty-one hundred money market funds it tracks. See Binyamin Appelbaum, “Beyond Wall St., Losses Spill Over,” Washington Post, September 18, 2008; Eleanor Laise, “Market Rescue: Money Funds Offer More Detail,” Wall Street Journal, September 20, 2008.

413 $785 million in Lehman paper: Steve Stecklow and Diya Gullapalli, “A Money-Fund Manager’s Fateful Shift: Bruce Bent Shunned Corporate Debt for Years—Then Bought Some of Lehman’s,” Wall Street Journal, December 8, 2008.

413 “Goldman, Morgan Now Stand Alone”: Aaron Lucchetti and Robin Sidel, “Dow Industrials Take a 504.48-Point Dive—Goldman, Morgan Now Stand Alone; Fight On or Fold?,” Wall Street Journal, September 16, 2008.

415 “For seven years, I’ve said”: Lewis, during a conference call that Monday to discuss the Merrill merger. Joseph A. Giannone, “Goldman, Morgan Stanley Face Biggest Market Test,” Reuters, September 16, 2008.

415 had been given a big promotion by Mack: Pandit joined Morgan Stanley as an associate in 1983. Seventeen years later, with Mack at the helm, he became president of investment banking. Joe Hagan, “The Most Powerless Powerful Man on Wall Street,” New York, March 9, 2009.

415 With $62.6 billion in assets: On Friday, September 12, 2008, the Primary Fund’s assets had been about $62 billion. Diya Gullapalli, Shefali Anand, and Daisy Maxey, “Money Fund, Hurt by Debt Tied to Lehman, Breaks the Buck,” Wall Street Journal, September 17, 2008.

416 “They pretended they were drawing a line in the sand ”: Nouriel Roubini, quoted in Emily Kaiser, “After AIG Rescue, Fed May Find More at Its Door,” Reuters, September 17, 2008.

417 Wachovia’s 2006 acquisition of Golden West: On May 7, 2006, Wachovia announced plans to purchase Golden West Financial Corp., based in Oakland, California, for $25.5 billion. Investors, however, failed to embrace the merger, and Wachovia’s shares took a dive. Jonathan Stempel, “Wachovia CEO—No More Big Mergers After Golden West,” Reuters, June 14, 2006.

417 “The past several months have been”: Serena Saitto and Yalman Onaran, “Fuld Tells Lehman Employees He Feels ‘Horrible’ for Their Pain,” Bloomberg, September 17, 2008.

418 “the war situation has developed ”: Broadcast at noon on August 15, 1945, Hirohito continued with, “while the general trends of the world have turned against her interest.’ ” Andrew Roberts, “The Debt Japan Owes These Men,” Daily Mail (London), September 17, 1993.

418 graduates of Duke and members of the university board: Steel retired from the board in May 2009. See http://trustees.duke.edu/.

419 “One Firm, One Team, Bribe a Leader”: See http://www.dealbreaker.com/robert_kindler/.

420 portrait of Alexander Hamilton: Andy Serwer, “Mr. Paulson Goes to Washington,” Fortune, November 27, 2006.

420 Duer could not cover his debts, setting off a panic: Chernow, Alexander Hamilton, 293.

421 “Nothing is breaking our way”: James. B. Stewart, “Eight Days: The Battle to Save the Financial System,” The New Yorker, September 21, 2009.

421 “Free Market Day”: Frank quipped at a hearing held on Wednesday, two days after Lehman filed for bankruptcy. “Barney Frank Celebrates Free Market Day,” Wall Street Journal, September 17, 2008.

421 Senator Jim Bunning, a Republican from Kentucky: Ted Barrett, Deirdre Walsh, and Brianna Keilar, “AIG Bailout upsets Republican lawmakers,” CNN.com, September 17, 2008.

421 Richard Shelby, Republican from Alabama: Ibid.

421 The Gold Reserve Act of 1934: See http://www.treas.gov/offices/international-affairs/esf/.

423 “DB: A Solid Counterparty”: Aaron Lucchetti, Randall Smith, and Jenny Strasburg, “Morgan Stanley in Talks with Wachovia, Others,” Wall Street Journal, September 18, 2008.

425 set up a series of phone calls for Mack, who also contacted Chuck Schumer and Hillary Clinton: First reported by Emily Thornton, “Morgan Stanley’s John Mack Swings into Action,” BusinessWeek.com, September 17, 2008.

426 “I know all of you are watching our stock price today”: “Morgan Stanley Memo: ‘There Is No Rational Basis for the Movements in Our Stock,’ ” WSJ Blog/Deal Journal, September 17, 2008.

427 “This memorandum provides a waiver… .”: Author obtained copy of memo from a FOIA request. Paulson disclosed receiving a waiver for the first time during a congressional hearing on July 16, 2009. “Paulson’s Calls to Goldman Tested Ethics,” New York Times, August 9, 2009.

428 “Stop the insanity—we need a time out”: Author obtained copy of Schorr’s e-mail.

430 “It’s one thing to complain”: Susan Pulliam, Liz Rappaport, Aaron Lucchetti, Jenny Strasburg, and Tom McGinty, “Anatomy of the Morgan Stanley Panic,” Wall Street Journal, November 24, 2008.

431 “Morgan Stanley applauds Attorney General Cuomo”: Press release, September 18, 2008. Find full text in Press section of Morgan Stanley’s company Web site, http://www.morganstanley.com.

432 “There are no atheists in foxholes”: Peter Baker, “A Professor and a Wall Street Deal Maker Bury Old Dogma on Free Markets,” New York Times, September 21, 2008.

432 Resolution Trust Corporation: Lee Davidson, “The Resolution Trust Corporation and Congress, 1989-1993,” 18, no. 2, FDIC Banking Review, 2006.

432 L. William Seidman: Greenspan, The Age of Turbulence, 116.

432 “This new governmental body”: Excerpt of an editorial written by Nicholas F. Brady, Eugene A. Ludwig, and Paul A. Volcker, “Resurrect the Resolution Trust Corp.,” Wall Street Journal, September 17, 2008.

433 “As Fears Grow, Wall St. Titans”: Ben White and Eric Dash, “As Fears Grow, Wall St. Titans See Shares Fall,” New York Times, September 17, 2008.

433 “We need a merger or we’re not going to make it”: An appended editors’ note in the New York Times on September 17, 2008, said that both Morgan Stanley and Citigroup “vigorously” denied that Mack had ever made this comment.

433 Sulzberger family pulled its money from Morgan Stanley: Sarah Ellison, “New York Times Controlling Family Moves Assets from Morgan Stanley,” Wall Street Journal, February 3, 2007.

435 Morgan Stanley’s unfailingly bearish economist: Sarah McBride, “Bearish Economist Roach Says U.S. Caused Global Recession,” Wall Street Journal Asia, July 13, 2001.

436 George Soros acolyte worth more than $3.5 billion: That week, Stanley Druckenmiller had been ranked 105 on Forbes’s annual list of the four hundred richest Americans, with a net worth of $3.5 billion. “The Forbes 400 List,” Forbes, September 17, 2008.

438 send out a companywide e-mail: Author obtained copy of e-mail.

439 Congress to increase the debt ceiling: The “debt ceiling” was a political hot potato that would require Congress to vote to increase the amount of debt the country could take on, and Congress had just increased the amount to $10.615 trillion in July.

441 “The market is trading under the assumption”: “European Shares Rise after Central Bank Plan, Asia Losses,” Agence France-Presse, September 18, 2008.

441 FSA announcing temporary ban on short selling: David Prosser, “Hedge Funds’ Misery as FSA Bans Short-selling on 32 Firms,” Independent, September 20, 2008.

442 “The Star-Spangled Banner”: New York Times, October 2, 2008.

442 “Treasury, Fed Weighing Wider Plan”: Alison Vekshin, “Treasury, Fed Weighing Wider Plan to Ease Crisis, Schumer Says,” Bloomberg, September 18, 2008.

442 Charlie Gasparino of CNBC reported what he was hearing from his sources on Wall Street: “Treasury Secretary Hank Paulson is working on an RTC-type solution to the financial crisis, reports CNBC’s Charlie Gasparino,” CNBC, September 18, 2008.

443 “Mr. Secretary, … we would like to meet with you”: On September 28, Pelosi relayed her phone conversation with Paulson to CBS’s 60 Minutes anchor Scott Pelley. Pelley also interviewed Paulson on the show. “Secretary Paulson Details the Federal Bailout,” 60 Minutes, CBS, September 28, 2008.

445 The notion of becoming a bank holding company: Jon Hilsenrath, Damian Paletta, and Aaron Lucchetti, “Goldman, Morgan Scrap Wall Street Model, Become Banks in Bid to Ride Out Crisis,” Wall Street Journal, September 22, 2008.

445 to meet with the congressional leadership at Nancy Pelosi’s office: The meeting took place on the second floor of the Capitol, in a conference room beside Pelosi’s personal suite. Carl Hulse and David M. Herszenhorn, “Behind Closed Doors, Warnings of Calamity,” New York Times, September 20, 2008.

446 “I spent my career as an academic studying great depressions”: Bernanke, as quoted by Wessel, In FED We Trust, 203.

446 noticeably gulped: As Schumer himself told the New York Times, “When you listened to him describe it, you gulped.” David M. Herszenhorn, “Congressional Leaders Stunned by Warnings,” New York Times, September 19, 2008.

446 “What about the home owner?”: Wessel, In FED We Trust.

446 Richard Shelby disapprovingly characterized: “If we say ‘whatever it takes,’ that means there’s a blank check of the treasury, future generations, to pay for the mistakes of a lot of people.”

446 “If it doesn’t pass, then heaven help us all”: Deborah Solomon, Liz Rappaport, Damian Paletta, and Jon Hilsenrath, “Shock Forced Paulson’s Hand,” Wall Street Journal, September 20, 2008.

446 “Do you know what you are asking me to do?”: New York Times, September 20, 2008.

447 “I think we need to do this”: McConnell, a Republican senator from Kentucky and Republican leader of the Senate, who often spars with Reid on the Senate floor, “reached over to assure his colleague they could work it out.” New York Times, September 20, 2008.

447 put in place a ban on shorting financial stocks: The SEC issued a press release on the morning of Friday, September 19, that read: “Given the importance of confidence in financial markets, the SEC’s action halts short selling in 799 financial institutions. The SEC’s emergency order … will be immediately effective and will terminate at 11:59 p.m. ET on Oct. 2, 2008. The Commission may extend the order beyond 10 business days if it deems an extension necessary in the public interest and for the protection of investors, but will not extend the order for more than 30 calendar days in total duration.” See http://www.sec.gov/news/press/2008/2008-211.htm.

447 “While this is all politically pleasing”: Chanos, as reported by Kara Scannell, Deborah Solomon, Craig Karmin, and Gregory Zuckerman, “SEC Is Set to Issue Temporary Ban Against Short Selling,” Wall Street Journal, September 19, 2008.

447 Merrill Lynch had bought insurance covering $150 million: On September 17, Merrill bought insurance to cover $106.2 million in Morgan Stanley debt and returned the following day, September 18, to buy protection on another $43 million of debt, according to trading documents obtained by the Wall Street Journal. Susan Pulliam, Liz Rappaport, Aaron Lucchetti, Jenny Strasburg, and Tom McGinty, “Anatomy of the Morgan Stanley Panic—Trading Records Tell Tale of How Rivals’ Bearish Bets Pounded Stock in September,” Wall Street Journal, November 24, 2008.

447 Citigroup, Deutsche Bank, UBS, AllianceBernstein, and Royal Bank of Canada: Ibid.

448 Wei Sun Christianson: In December 2007, Christianson played a major role in negotiating Morgan Stanley’s $5.6 billion deal with China Investment Corp., which gave CIC a 9.9% percent stake in the company. See Jason Leow and Rick Carew, “Wei Sun Christianson and How Morgan Deal Got Boost in China—Longtime Mack Aide from Beijing Lends Stature, Ties to Region,” Wall Street Journal Asia, December 21, 2007.

448 CIC already held a 9.9 percent stake in Morgan Stanley: When Morgan Stanley announced a loss of $3.59 billion at the end of 2007, the state-owned China Investment Corp. (CIC) invested five-billion-dollars in the company, giving it a 9.9 percent stake. “China Fund Grabs Big Stake in Morgan Stanley,” AFP, December 2007.

448 he’d be interested in buying up to 49 percent of the firm: Christine Har per, “Morgan Stanley Said to Be in Talks with China’s CIC,” Bloomberg, September 18, 2008.

448 investments, in Blackstone: When Blackstone went public in June 2007, CIC invested $3 billion—giving it a 9.9 percent stake in the company. Since then shares had fallen by nearly 45 percent, to $17.13 in late August, giving CIC a paper loss of more than $1.3 billion. Allen T. Cheng, “Inside the CIC,” Institutional Investor—America, September 10, 2008.

CHAPTER EIGHTEEN

449 “the illiquid assets”: “Text of Paulson’s News Conference Friday,” Associated Press, September 19, 2008.

451 Wachovia’s $120 billion mortgage portfolio: As part of its 2006 purchase of Golden West Financial Corp., Wachovia inherited a $120 billion adjustable-rate home-loan portfolio, the bulk of which comes from California and Florida, two of the hardest-hit housing markets in the country. Dan Fitzpatrick, Alex Roth, and David Enrich, “With Wachovia Sale Looking Likely, a Makeover for Charlotte, U.S. Banking,” Wall Street Journal, September 29, 2008.

451 Bob Steel had estimated that figure at 12 percent: Speaking at the Lehman Brothers Financial Services Conference on Tuesday, September 9, Steel said Wachovia still expects losses equal to 12 percent, though he said, “it’s still early days.” See “Wachovia Keeps Mortgage Loss View,” stock downgraded, AFX Asia, September 9, 2008.

454 his firm would not be making any investments: “We won’t be investing in U.S. banks under current circumstances,” Ryosuke Tamakoshi said in Tokyo on Tuesday, September 16, 2008. Takahiko Hyuga, Shingo Kawamoto, and Komaki Ito, “Japan Banks, Insurers Have $2.4 Billion Lehman Risk,” Bloomberg, September 17, 2008.

456 Gao reiterated his interest in buying 49 percent of Morgan Stanley: Christine Harper, “Morgan Stanley Said to Be in Talks with China’s CIC,” Bloomberg, September 18, 2008.

457 the sale of Lehman Brothers to Barclays: Ben White and Eric Dash, “Barclays Reaches $1.75 Billion Deal for a Lehman Unit,” New York Times, September 18, 2008.

457 “You may approach ”: The dialogue between Judge Peck and Harvey Miller was taken from the official court transcript, dated September 19, 2008.

463 Merging the “Houses of Morgan”: Chernow, The House of Morgan, 591.

464 “URGENT and Confidential ”: Author obtained copy of e-mail.

466 chose Roger Altman: Morgan Stanley’s independent board members chose to hire Roger Altman as their adviser, but he only narrowly won the assignment over Christopher Lawrence, a banker at Rothschild.

468 “Decisions by the Secretary pursuant to the authority”: “Text of Draft Proposal for Bailout Plan,” New York Times, September 20, 2008.

472 “You know, there’s a chance I could lose the firm”: Mack later recounted this story to Bloomberg: “I said to my wife, when things were really crazy, ‘You know, there’s a chance I will lose this firm. But I would rather be doing this than sitting on a beach reading a book.’ ” See Lisa Kassenaar and Christine Harper, “Mack Tells Wife He May Lose Firm Before Brokerage Bid,” Bloomberg, January 26, 2009.

473 the headline “King Henry”: Newsweek, September 29, 2008.

473 a quote from Governor Jon Corzine: “There hasn’t been a consistent pattern… . We save Bear Stearns but not Lehman. The market is going to have a hard time sorting through what the underlying principle is.” Daniel Gross, “The Captain of the Street; Treasury Secretary Hank Paulson Has a Radical Game Plan for Beating America’s Financial Crisis,” Newsweek, September 29, 2008.

474 “If you were in your old job”: Tom Brokaw, Meet the Press, NBC, September 21, 2008.

476 “He understands Berkshire far better”: Buffett, from his 2003 chairman’s letter. See the annual report at http://www.berkshirehathaway.com/2003ar/2003ar.pdf.

477 it had used Morgan Stanley as an adviser: “MUFG’s unsolicited bid, arranged by Morgan Stanley as its financial advisor, also illustrates how conservative Japanese companies are adapting to the cut and thrust of U.S. M&A.” Yuka Hayashi and Alison Tudor, “MUFG offers to buy UnionBanCal,” Wall Street Journal Asia, August 13, 2008.

485 Mitsubishi agreeing to buy up to 20 percent: Louise Story, “Morgan Stanley Secures Japan Deal; Mitsubishi UFJ to Pay $9 billion for 21% Stake in U.S. Firm,” New York Times, October 1, 2008.

486 At 9:30 p.m., the news hit the wires: On September 21, 2008, the Federal Reserve released the following: “The Federal Reserve Board on Sunday approved, pending a statutory five-day antitrust waiting period, the applications of Goldman Sachs and Morgan Stanley to become bank holding companies.” See http://www.federalreserve.gov/newsevents/press/bcreg/20080921a.htm.

CHAPTER NINETEEN

488 “It would be a grave mistake”: Representative Barney Frank, appearing on Face the Nation, CBS, September 21, 2008.

488 Trott called Buffett again: Chris Blackhurst, “Billionaire Buffett and the Only Banker He Trusts,” Evening Standard (London), September 25, 2008.

489 Buffett buying $5 billion in Goldman Stock: Susanne Craig, Matthew Karnitschnig, and Aaron Lucchetti, “Buffett to Invest $5 Billion in Goldman,” Wall Street Journal, September 24, 2008.

490 Winkelried’s salary: Joseph McCafferty, “Goldman Execs Earn $70M Plus,” Directorship .com; Joseph A. Giannone, “Goldman Buys $58 mln Winkelried, Palm Fund Stakes,” Reuters, March 30, 2009.

490 Winkelried selling Nantucket property: According to the Town of Nantucket’s tax assessor’s office, Winkelried purchased 4.18 acres for $5 million in January 1999 and another 1.7 acres for $1.95 million later that September. Peter B. Brace, “Goldman Sachs Executive Selling 5.9 Acres on Nantucket for $55 million,” Daily News Tribune, October 10, 2008; Christine Harper and Sharon L. Lynch, “Goldman’s Winkelried Lists Nantucket Estate for $55 Million,” Bloomberg, October 10, 2008.

491 “Total Abdication of Responsibility to the Public”: Andrew Ross Sorkin, “DealBook: Power Grab and a Roll of the Dice,” New York Times, September 24, 2008.

491 “What they have sent us is not acceptable”: “U.S. Lawmaker Dodd Says Treasury Plan ‘Unacceptable,’” Reuters, September 23, 2008.

491 “a terrible communicator”: Charles Babington and Julie Hirschfeld Davis, “Simmering GOP Upset They Were Kept in the Dark; Political Meltdown Came on the Heels of Financial One,” Associated Press, September 27, 2008.

492 “All of us around the table”: Press releases and documents, “Bush Pushes Financial Plan with Congressional Leaders, Candidates,” Voice of America, September 26, 2008.

492 “If money isn’t loosened up”: David M. Herszenhorn, Carl Hulse, and Sheryl Gay Stolberg, “Talks Implode During a Day of Chaos; Fate of Bailout Plan Remains Unresolved,” New York Times, September 25, 2008.

493 “Well, do we need to start from scratch”: Nedra Pick ler, “Obama Says More Work Needed for Deal,” Associated Press, September 25, 2008.

493 “I didn’t know you were Catholic”: David M. Herszenhorn, Carl Hulse, and Sheryl Gay Stolberg, “Crunch Time as Washington Battles Impasse,” New York Times, September 27, 2008.

493 “You have been great at picking”: “‘In the Eye of the Storm’: Citi CEO Vikram Pandit Sees a Difficult Recovery Ahead,” Knowledge@Wharton, October 2, 2008. See: http://knowledge.wharton.upenn.edu/article.cfm?articleid=2068.

494 WaMu … paying $1.9 billion: FDIC Press Release, “JPMorgan Chase Acquires Banking Operations of Washington Mutual,” September 25, 2008. http://www.fdic.gov/news/news/press/2008/pr08085.html.

495 “You saw what happened earlier”: Deborah Solomon, Damian Paletta, and Greg Hitt, “US Seals Bailout Deal,” Wall Street Journal, September 29, 2008.

495 “Damn it… . If you think you need ”: Ibid.

496 “Let’s not get emotional ”: Ibid.

496 “All we’re talking about is having Groucho”: Ibid.

498 Wachovia threatened to downgrade the firm’s debt: David Enrich and Matthew Karnitschnig, “Citi, U.S. Rescue Wachovia—Latest Shotgun Deal Creates Nation’s Third-Largest Bank,” Wall Street Journal, September 30, 2008.

499 Citigroup acquiring Wachovia, Fed help: Ibid. See also Eric Dash and Andrew Ross Sorkin, “Citigroup to Acquire Banking Operations of Wachovia; Crisis on Wall Street,” New York Times, September 30, 2008.

501 “They claim to be free market advocates”: Pelosi delivered this speech from the House floor on September 29, 2008. “Speaker Pelosi Speaks in Support of Emergency Economic Stabilization Act of 2008,” US Fed News, September 30, 2008.

502 “They wouldn’t have brought this bill ”: Michele Davis, appearing on PBS’s Frontline, April 9, 2009.

502 bailout was rejected 228 to 205: “US Bailout Plan Rejected,” Nation, September 29, 2008.

504 “Citibank is honored to enter into a partnership”: From an ad that ran in USA Today that Friday, according to David Enrich and Dan Fitzpatrick, “Wachovia Chooses Wells Fargo, Spurns Citi,” Wall Street Journal, October 4, 2008.

507 Increasing FDIC insurance on new bailout bill: Meena Thiruvengadam, “Some Ex-FDIC Officials See No Reason to Hike Insurance Limit,” Dow Jones Newswires, October 3, 2008.

507 “We have shown the world that the United States”: David M. Herszenhorn, “Bailout Plan Wins Approval; Democrats Vow Tighter Rules,” New York Times, October 3, 2008.

509 “If you haven’t discovered your role”: “The Guilty Men of Wall Street,” Economist, October 14, 2008.

509 “I want to be very clear”: From transcripts of Fuld’s testimony on the causes and effects of the Lehman Brothers bankruptcy, Hearing of the House Oversight and Government Reform Committee, chaired by Representative Henry Waxman, Monday, October 6, 2008.

509 “Your company is now bankrupt”: Ibid.

509 “the majority of my compensation”: Ibid.

510 “Not that anybody on this committee cares about this”: Ibid.

511 “Some critics have worried that Treasury”: Author obtained Buffett’s letter to Paulson from a confidential source.

513 “We have been made aware of rumors”: “MUFG Issues Statement Regarding Transaction with Morgan Stanley,” Business Wire, October 8, 2008.

513 “We can buy these preferred shares”: Representative Barney Frank said to taxpayers in Providence, Rhode Island, on October 8, 2008. Glenn Somerville, “Treasury Says Has Power to Inject Bank Capital,” Reuters, October 9, 2008.

513 UK to invest $87 billion in Barclays: Banks eligible to participate included Abbey, Barclays Plc, HSBC Holdings Plc, Lloyds TSB Group Plc, Royal Bank of Scotland (RBS, HBOS), Nationwide Building Society, and Standard Chartered Plc. Ben Livesey and Jon Menon, “U.K. to Inject About $87 Billion in Country’s Banks,” Bloomberg News, October 8, 2008.

514 “The Brown government has shown itself ”: Paul Krugman, “Gordon Does Good,” October 12, 2008.

521 “We Have The Check!!!” Author obtained copy of Kindler’s e-mail to Morgan Stanley staffers from a confidential source.

CHAPTER TWENTY

522 “Nick Calio just called me”: This and all following e-mails cited were obtained by Judicial Watch, a public interest group, in response to Freedom of Information Act requests it filed on October 16, 2008. For the first batch of e-mails see http://www.judicialwatch.org/files/documents/2009/Treasur yDocsPart1.pdf.

524 A little after 2:00 p.m.: Confirmed by Christal West’s e-mail, sent at 10:55 a.m. on Monday, October 13, 2008: “There will be a principals only Meeting today prior to the 3:00 pm meeting with CEOs… . Principals Meeting 2:15 pm-3:00 pm Hank’s Office (Room 3330).”

524 “To encourage wide participation”: From “Talking Points” documents, also obtained by Judicial Watch.

524 Meeting background: Nina Easton, “How the Bailout Bashed the Banks,” Fortune, June 22, 2009.

526 “They’re all in”: This and all succeeding e-mails to the end of this chapter come from the second batch of FOIA-requested e-mails, courtesy of Judicial Watch. See http://www.judicialwatch.org/files/documents/2009/TreasuryDocsPart2.pdf

527 Geithner now read off the amounts: In its FOIA request, Judicial Watch also obtained signed contracts from the banks, with accepted allotments written in ink by the CEOs. See http://www.judicialwatch.org/files/documents/2009/Treasury-ParticipationCommitment.pdf.

EPILOGUE

533 “animal spirits”: In his 1936 book, The General Theory of Employment, Interest and Money, John Maynard Keynes wrote: “Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits—a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities,” p. 161.

534 “pay czar”: On June 10, in lieu of his much contested pay caps, Obama appointed Kenneth Feinberg to oversee and modify executive salaries and bonuses. Deborah Solomon, “Pay Czar Gets Broad Authority over Executive Compensation,” Wall Street Journal, June 11, 2009.

534 “The government intervention is not a government takeover”: President George W. Bush, “Remarks to the United States Chamber of Commerce,” Weekly Compilation of Presidential Documents, October 17, 2008.

534 Government increasing Citigroup stake/funds: Eric Dash, “U.S. Agrees to Raise Its Stake in Citigroup,” New York Times, February 28, 2009.

535 “the turd in the punchbowl”: According to an undisclosed official’s handwritten notes taken during a conference call in January 2009. Michael R. Crittenden and Jon Hilsenrath, “Bernanke Blasted in House—Political Heat Mounts on Fed as Grilling over BofA Shows Ire at Its Interventions,” Wall Street Journal, June 26, 2009.

535 Shareholders voting for BofA-Merrill deal: Ieva M. Augstums and Stephen Bernard, “Merrill Lynch, Bank of America Shareholders Approve BofA’s Purchase of the Investment Bank,” Associated Press, December 5, 2008.

536 “How do they justify this outrage?”: Michael D. Shear and Paul Kane, “Anger Over Firm Depletes Obama’s Political Capital,” Washington Post, March 17, 2009.

536 “We should hound them in the supermarket”: A few days after Cramer’s rant, AIG’s new chief, Edward Liddy, sent him a letter demanding a retraction and an apology to AIG employees. “It is one thing to criticize the executive leadership of AIG—that’s fair commentary,” he wrote. “But it is way out of bounds to incite people to confront and harass other AIG employees.” Shortly after, Cramer apologized on his show: “Sorry, regular AIG guys. I did not mean you.” Heidi N. Moore, “AIG CEO Demands Apology from Mad Money’s Jim Cramer,” WSJ/ Deal Journal, October 20, 2008.

537 “Is Goldman Sachs Evil?” Joe Hagen, “Is Goldman Sachs Evil? Or Just Too Good?” New York, July 26, 2009.

537 “great vampire squid wrapped ”: Matt Taibbi, “The Great American Bubble Machine,” Rolling Stone, July 13, 2009.

537 Goldman reported a profit of $5.2 billion: On April 13, Goldman reported net earnings of $1.81 billion for its first quarter. Three months later, its second-quarter earnings soared to $3.44 billion. See http://www2.goldmansachs.com.

537 Goldman’s VaR rising to record high: Christine Harper, “Goldman Sachs VaR Reaches Record on Risks Led by Equity Trading,” Bloomberg, July 15, 2009.

539 “emergency actions meant to provide confidence”: Department of the Treasury press release, “Secretary Geithner Introduces Financial Stability Plan,” February 10, 2009. See http://www.treasury.gov/press/releases/tg18.htm.

539 Alan Blinder: “After the fact, it is extremely clear that everything fell apart on the day Lehman went under.”

540 “policy by deal ”: Simon Johnson, “Systemic Risk: Are Some Institutions Too Big to Fail and If So, What Should We Do About It?” Testimony before the U.S. House of Representatives Committee on Financial Services during hearing held July 21, 2009. The phrase was originally coined as “regulation by deal” by Steven Davidoff and David Zaring in their paper Regulation by Deal: The Government’s Response to the Financial Crisis. 61 Admin, L. Rev. 463, 2009.

540 “At first, the Treasury”: Michael Lewis and David Einhorn, “The End of the Financial World as We Know It,” New York Times, January 4, 2009.

542 “The problem in politics is this”: From a Barney Frank interview on CBS’s 60 Minutes that first aired on December 11, 2008.

543 It is not the critic: Theodore Roosevelt, “Citizenship in a Republic: ‘Man in the Arena.’” Speech at the Sorbonne, Paris, April 23, 1920.

AFTERWORD

545 “The people on Wall Street still don’t get it”: 60 Minutes, CBS News transcripts, December 7, 2009.

545 unemployment in the United States hovered at almost 10 percent for much of 2009: U.S. Bureau of Labor Statistics.

545 Goldman Sachs announced a record profit: Goldman Sachs earnings report, January 21, 1010.

546 Wall Street swarmed Washington with some 1,400 lobbyists: Not only were they lobbyists for the financial industry, but they formerly worked for lawmakers and federal agencies. Public Citizen and the Center for Responsive Politics, June 4, 2010.

546 paying the top ten lobbying firms $30 million: The Center for Public Integrity, June 8, 2010.

546 “I did not run for office to be helping out a bunch of fat-cat bankers on Wall Street”: 60 Minutes, CBS News transcripts, December 7, 2009.

546 “President Obama’s favorite banker”: Jackie Calmes and Lousie Story, “Washington, One Bank Chief Still Holds Sway,” New York Times, July 18, 2009.

546 “I’m proposing a simple and common-sense reform, which we’re calling the ‘Volcker Rule’ ”: President Obama, the White House, Office of the Press Secretary, January 21, 2010.

546 “For a lot of Wall Street people, it was like, ‘Okay, first you slap us in the face’ ”: John Heilemann, “Obama Is from Mars, Wall Street Is from Venus,” New York Magazine, May 22, 2010.

547 “I wish that somebody would give me some shred of neutral evidence about the relationship between financial innovation recently and the growth of the economy”: Paul Volcker: “Think More Boldly,” Wall Street Journal, December 14, 2009.

547 “When there’s a delusion, a mass delusion, you can say everybody is to blame”: Warren Buffett, CNBC transcript, May 3, 2010.

548 Anton R. Valukas, issued a report that, at over 2,200 pages and a cost of more than $36 million, was the closest thing to an autopsy of Lehman: The report is available online: http://lehmanreport.jenner.com/.

549 “I have absolutely no recollection whatsoever of hearing anything about or seeing documents related to Repo 105 transactions while I was the CEO of Lehman”: Richard S. Fuld Jr., prepared statement before the U. S. House of Representatives Committee on Financial Services, April 20, 2010.

549 “You know what, people are saying all sorts of crap”: Clare Baldwin, “On Dick Fuld ’s Trail, No Dinner but I Got Hugged,” Reuters, September 7, 2009.

550 “doing God’s work”: John Arlidge, “I’m Doing ‘God’s Work.’ Meet Mr. Goldman Sachs,” Sunday Times, November 8, 2009.

550 “I mean, they’re going to rewrite Genesis and have Goldman Sachs offering the apple”: Warren Buffett, CNBC transcripts, April 16, 2010.

550 In April 2010 the Securities and Exchange Commission brought its only major case against Wall Street since the crisis: SEC v. Goldman Sachs & Co. and Fabrice Tourre.

550 legal experts described the case as “thin”: Kian Abouhossein, a banks analyst at JPMorgan told the Financial Times on April 21, 2010, “The SEC has a very weak case, but for the business, for shareholders, the best thing is probably to settle. If they settle, they can start silencing the debate about reputational damage and share price damage.”

551 “Boy that timeberwof [sic] was one shitty deal ”: The Goldman e-mail had been subpoenaed by the U.S. Senate Permanent Subcommittee on Investigations. It is available, along with other internal Goldman e-mails: http://levin.senate.gov/newsroom/supporting/2010/PSI.Exhibits.pdf.

551 “I think that’s very unfortunate to have on e-mail”: David Viniar, CSPAN, April 27, 2010.

551 “I don’t trust Goldy on this”: The e-mail had been subpoenaed by the U.S. Senate Permanent Subcommittee on Investigations. It is available: http://levin.senate.gov/newsroom/supporting/2010/PSI.Exhibits.pdf.

552 “People need to tone down the rhetoric around financial services and stop the populism and be adults”: Transcript, 92nd St. Y Captains of Industry Event, May 6, 2010. 552 “I don’t have a problem with the Abacus transaction at all”: Andrew Ross Sorkin, “From Buffett, Thought-out Support for Goldman,” New York Times, May 3, 2010.

552 “I didn’t think a lot about theory. I just understood how bad it could be”: Henry M. Paulson, promoting his book on CBS Sunday Morning, January 31, 2010.

553 “must be looking forward to going back to that nice spot you have waiting for you at Goldman”: John Heilemann, “Obama Is from Mars, Wall Street Is from Venus,” New York Magazine, May 22, 2010.

554 “The fact is that some businesses require size”: Jamie Dimon’s letter to investors in JPMorgan Chase’s annual report from 2010.

554 “We cannot control ourselves”: John Mack made this comment at a Vanity Fair/Bloomberg News panel discussion on media coverage of the financial crisis on November 18, 2009. Michael J. Moore, “Morgan Stanley’s Mack Welcomes Regulation by Fed,” Bloomberg News, November 19, 2009.

555 “This generation of Wall Street CEOs could be the ones to forfeit America’s trust”: Elizabeth Warren, “Wall Street’s Race to the Bottom,” Wall Street Journal, February 9, 2010.