Posted on 02 9th, 2010 | Hank Paulson, former master of the universe, sits in the prosy bureau in northwest Washington, D.C. He is perplexing to work upon his memoirs, yet he is struggling. He doesn't appear similar to the onetime All-Ivy plunge in to during Dartmouth, the Harvard M.B.A. who ran Goldman Sachs, the king of Wall Street who went upon to be come cabinet member of the Treasury. He comes opposite some-more similar to an contestant who has mislaid the diversion as good as can't stop articulate about the forsaken pass, the longed for shot. He is perplexing to demand the week finish final Sep when Lehman Brothers went down—and the monetary universe collapsed.
The compulsory wisdom, he admits, congealed quickly: it was the inapplicable designation for the supervision to let Lehman die, as good as the censure complacent precisely with Hank Paulson. On the day that Lehman filed for bankruptcy, Paulson had attempted to get out forward of the story. If Lehman couldn't save itself, he told reporters, afterwards he wasn't about to ask the taxpayers to step up. "I never once deliberate it suitable to put taxpayer income upon the line," he said. The summary was that the supervision would no longer bail out unwell companies—that would customarily entice some-more ridiculous risk-taking. It would emanate the "moral hazard."
But of course, in the weeks as good as months since the tumble of Lehman Brothers, the supervision has left upon to bail out banks as good as alternative monetary firms to the change of hundreds of billions of dollars. So since didn't it save Lehman? If customarily the supervision had discovered Lehman, the monetary be scared could have been averted. Or so the story goes. The account was set from the commencement by Paulson's moralizing tone, followed by the marketplace crash—and, as the once strong bankers crawled out of the wreckage, the anguished sworn statement prior to Congress of Dick Fuld, the CEO of Lehman, who portrayed Paulson as the backstabbing Judas. "Until they put me in the ground," Fuld said, disposition in to the microphone as good as baring his teeth, "I will wonder."
Paulson insists that he did not spin his during the behind of upon Lehman. "There's no association that you outlayed some-more time with as good as worked harder to save. That's arrange of the irony of the account that you longed for them to go under," he told NEWSWEEK in the single of his initial lengthened interviews since withdrawal office. He additionally dismisses the evidence that the tumble of Lehman annoyed the panic. "It is positively the novella that Lehman was anything some-more than the symptom." He says the undiluted charge of alternative nearby failures caused the monetary crisis—the troubles during Fannie as good as Freddie, the headlines that AIG faced outrageous liabilities from the monetary word gambles, the teetering of hulk debt lender Washington Mutual upon the edge.
All this is loyal enough, yet it doesn't meant that Paulson knew what he was you do when Lehman went down. The panicked scenes that played out in between bankers as good as policymakers during Leh-man's final days were recounted in the newspapers in the weeks that followed. But now, some-more than half the year later, as good as with the many strident moments of the monetary predicament during the behind of us, the pass players have been improved means to simulate upon the decisions they made. Perhaps no the single has outlayed some-more time reconstructing the events than Paulson. In retrospect, it appears that Paulson was not the cruel titan of Wall Street, yet rsther than an earnest, infrequently doubtful male held in the windstorm he could not tame or even entirely understand. He did the many appropriate he could, reaching, infrequently lurching for answers, yet in the finish he was discovered by the arrange of nerdy highbrow sort who competence have been devoured upon the traffic floors of Wall Street. To the border that there was the favourite during those weeks, it was arguably Ben Bernanke, the quiet, bashful management of the Federal Reserve, whose problem-solving as good as salesmanship prior to the doubtful Congress were vicious to avoiding monetary disaster.
Paulson was good well good well known as "the Hammer" as the 6-foot-1, 200-pound plunge in to upon the Dartmouth football group since he seemed to raze during the snap of the ball. Tenacity as good as drive, some-more than brainpower, have renowned his career. He has been the hold up arm-twister as good as intelligent enough: when he discovered Goldman's IPO in the arise of the Russian monetary pile-up in 1998 he done hundreds of millions for his partners as good as prior to long afterward became their leader. Yet Paulson can be infrequently unintelligible for such the absolute man. He is not the Wall Street smoothie: no prize mom (he stays tied together to his college sweetheart), as good as during Goldman he was good well good well known for wearing penny loafers, not handmade Italian shoes. He's an zealous bird watcher. A nonsmoking, nondrinking Christian Scientist, he did not conduct for the Hamptons upon the week finish yet visited his mom in Barrington, Ill. Yet, physically imposing, radiating the assured forcefulness, he came to mount for the winning Goldman brand. In the Wall Street hierarchy, Goldman is the smartest as good as many assured of them all: the organisation creates bets, yet customarily ones it feels certain to win.
The Lords of Goldman, who lend towards to come from Ivy League schools, looked down upon the hustlers during lower-ranked firms similar to Lehman, who came out of state schools as good as the traffic pits. Lehman was an aged firm, yet the complicated incarnation was built in the picture of the scrappy CEO, Fuld, who came from the traffic bureau building as good as favourite to have big, unsure bets. Fuld was called "the Gorilla," the nickname the little competence have resented. Fuld kept the fondle chimpanzee in his office. His ethos was us (the public-school guys—Fuld went to the University of Colorado) opposite them (the Harvard know-it-alls similar to Paulson of Goldman Sachs). Paulson as good as Fuld have good well good well known any alternative for years. For the record, as good as in private, Paulson describes Fuld as the "good guy" as good as even as the "friend." (Fuld declined to verbalise to NEWSWEEK). But associating Wall Streeters as good as supervision officials who asked to sojourn unknown in sequence to verbalise some-more openly contend that Paulson regarded Fuld as the layer of odds who mislaid steer of reality.
Paulson began carrying his doubts about Fuld—and the destiny of Lehman—as early as Oct 2007, when Lehman done the large gamble upon blurb genuine estate even yet there were signs the understanding was unwise. Paulson remained indeterminate about Leh-man's flushed gain reports for the initial half of 2008, as good as when the red ink began to uncover in June, he began propelling Fuld to scale during the behind of Lehman's precedence as good as find the customer or the uninformed distillate of capital. He was frustrated, contend these associating sources, when Fuld stubbornly demanded conditions that were as well auspicious to Lehman to capture any buyers or investors.
Fuld's 31st-floor midtown bureau had unconditional views of the Hudson River as good as the New York City skyscrapers. In early September, the senior manager unit of Lehman Brothers became the kind of fight room; day as good as night, Fuld's lieutenants padded about, munching M&M's as good as chugging Diet Cokes, as they searched, with flourishing desperation, for the solution. A South Korean bank had seemed meddlesome in investing, afterwards corroborated off. Fuld as good as his group attempted to stay hopeful. Six months earlier, in March, JPMorgan had discovered the unwell investment bank Bear Stearns—with the assistance of the loan from the sovereign government. In early September, the Feds seized lift out of Fannie Mae as good as Freddie Mac, the dual debt giants sucked down by the collapsing real-estate market. Surely, the Lehman group believed, the Feds would step in to help—if Lehman could customarily find the buyer.
Paulson does not appear to have grasped the coercion of the appearing disaster. Although tip monetary experts were notice about the housing burble during the behind of in 2006, Paulson—by his own admission—was not profitable most courtesy to the approach banks were rupturing as good as dicing mortgages as good as charity them as formidable securities. "I didn't assimilate the sell market; you customarily wasn't tighten to it," he told NEWSWEEK. But whilst he was during Goldman, he had lobbied Congress—successfully—for brand new manners permitting investment houses to during slightest stand in the volume of precedence they could carry.
In September, Lehman reported outrageous third-quarter losses, totaling scarcely $4 billion. Two days later, the Feds stepped in. On Friday, Sept. 12, the heads of the Wall Street investment banks were summoned to an puncture assembly during the New York Federal Reserve. The black Town Cars began pulling up to the fortresslike Fed, that sits atop most of the nation's bullion reserve, around 6 p.m. Paulson was there, along with Tim Geithner, boss of the New York Fed. The century-old bureau building was starting by asbestos removal, so Paulson had to set up his management core in the temporary discussion room. "The furnishings were similar to the Ramada Inn in Toledo," removed the single of the participants, who, similar to the others who were there during the time, would not verbalise for the jot down since of the attraction of the negotiations. Paulson told the fabricated Wall Street chieftains that it was up to them—not the taxpayers—to find the resolution to the Lehman mess.
Back during Lehman, no the single unequivocally believed that the Feds would stay upon the sidelines. They suspicion Paulson was bluffing. But he wasn't. Paulson would after contend that he was powerless—that underneath the laws ruling the Federal Reserve, the supervision could not have the loan to an investment bank that lacked the compulsory collateral. Paulson believed that Lehman had the multibillion-dollar hole in the change sheet. There was not scarcely sufficient collateral. Federal Reserve management Bernanke took the same view. To this day, former Lehman officials demand to NEWSWEEK that Paulson as good as Bernanke never told them that the Fed was compulsory by law to stay out of the game. Speaking not for detrimental (because of tentative lawsuits from discontented former shareholders), these Lehmanites stop the lot of verbalise from Paulson about dignified hazard, that they regarded as posturing from the Goldman pressed shirt.
Fuld did not attend the limit assembly during the Fed; the Lehman house instead sent his No. 2, Bart McDade. Fuld refused to accept the signs that the finish was near. He stayed in his bureau during what he called "the Mother Ship," operative the phones, acid for the white knight. On that same weekend, he was reaching out to Ken Lewis, management of Bank of America. B of A was large sufficient to buy Lehman, as good as Lehman charity the hulk bank the probability to get in the Wall Street diversion with the maestro player. But as Friday night dragged in to Saturday, Lewis was not job back. "Dick didn't understand," recalls the co-worker who was there. According to this person, Fuld kept asking, "What's the story? Why is he not job me? What's function here? you don't assimilate it." Even in the cutthroat universe of dealmaking, calls have been customarily returned, if customarily to contend no. Fuld suspicion Lewis was being rude. Unknown to the Lehman team, Lewis had been shopping the Wall Street organisation that day—just not Lehman Brothers. The management of the Bank of America had been personally closeted with John Thain, the management of Merrill Lynch, during B of A's corporate unit in the Time Warner Center. Merrill, similar to Lehman, was in low monetary trouble. But Merrill in make use of the immeasurable network of sell stockbrokers that done it an tasteful aim for B of A.
Another critical management was not returning Fuld's calls that day: Hank Paulson was unexpected nowhere to be found. (Fuld was job "every 10 minutes," according to the former Treasury central who was present.) Later, the Lehmanites suspected that Paulson had sensitively speedy Thain of Merrill to encounter with Lewis of Bank of America, as good as they saw the plot. Thain, similar to Paulson, is the Goldman Sachs alumnus. Some upon the Lehman group after groused that the Goldman group had gotten together to gash Lehman in the back—to hurt Lehman's wooing of Bank of America by personally arranging the matrimony of Merrill as good as B of A. To NEWSWEEK, Paulson deserted this notion, yet he concurred that he did inspire Thain to verbalise to Lewis—simply since Merrill was in trouble, too.
Never good well good well known for giving up, Fuld had the single some-more label to play—with Barclays, the obvious British bank. Indeed, as late as Sunday morning, the little of Fuld's lieutenants believed they had the deal. But complications arose: the British supervision was balking, as good as Barclays shareholders had not been since the probability to meet. Time was using out. Sunday evening, Lehman's McDade returned from all-day meetings with alternative Wall Street barons as good as tip supervision officials during the Fed with the little really bad news: the supervision longed for Lehman to acknowledgement bankruptcy—that night, prior to the markets in Europe as good as Middle East opened. "I can't hold it," Fuld pronounced when he schooled the Barclays understanding had depressed through, according to someone who spoke with him about Lehman's upon all sides late Sunday. A call came from Christopher Cox, the conduct of the Securities as good as Exchange Commission. Over the speakerphone, Cox sensitive the Lehman bosses, "You have the grave responsibility." The Lehman management team were aghast. They knew that the consequences of the failure would be severe—that Lehman would default upon debts due to large Wall Street players. Paulson additionally knew the consequences would be serious. But nothing of the tip sovereign officials foresaw customarily how bad it would get—money markets so exceedingly strike that, for the time, it seemed that massive, tellurian bank runs were the genuine possibility.
They were saved by the discerning meditative of the management of the Federal Reserve. Ben Bernanke is so mild, his voice is peaceful as good as infrequently quavery. He grew up in the tiny South Carolina locale as good as outlayed his hold up as an academic. But Bernanke's educational featured item was the Great Depression, as good as the doctrine he learned, upon top of all, was that the sovereign supervision could not means to wait for to step in. In the days after the tumble of Lehman, Bernanke fundamentally threw open the promissory note window of the Fed as good as poured out $1 trillion in loans. "People have been referring to you as 'The Loan Arranger,' with your true messenger Hank," Barney Frank, the enthusiastic management of the House Financial Services Committee, told Bernanke.
The frontman remained Paulson, who seemed to event about by late Sep as good as early October. It was Bernanke who swayed Paulson to go to Capitol Hill for large bailout money, yet it was the really difficult sell, as good as Paulson scarcely blew it. Congress creatively deserted the bailout as good as authorized it customarily with last-minute revisions—and after the batch marketplace had plummeted. Bernanke's low-key yet satirical demeanour worked improved with lawmakers than Paulson's bluster. With the House facing Paulson's offer to give him probably total management to sunder supports to banks, House Speaker Nancy Pelosi voiced that she was removing ready to leave locale the week finish after Lehman's tumble as good as would be during the behind of Monday. Bernanke sensitively yet forcefully piped up, "We might not have an manage to buy upon Monday." Paulson is unapproachable that he as good as Bernanke were means to forestall the complete tellurian monetary complement from collapsing, by their puncture make use of of the Treasury's Exchange Stabilization Fund as good as Fed guarantees that kept money-market supports afloat. "If you hadn't come up with that, whoa," says Paulson.
At Lehman, the story is over—but not quite. Many of the Lehman traders found jobs during Barclays, where they traffic today. The ambience is not utterly the same. No the single wears neckties, as good as there have been no longer Brazilian shoeshine boys on foot the rows of traffic consoles, charity the gleam for $10. But when the traders answer the phones, they infrequently still defiantly shout, "Lehman!"
Paulson's book, that will be published in Oct by Business Plus, will fool around down Lehman's tumble as good as fool around up the stairs taken by the supervision to save the economy. And in the little ways, he's right. Though Lehman's tumble aggrieved policymakers as good as banks for months—no the single talks about dignified jeopardy any more— it was especially the sideshow to the incomparable crisis. Off the football field, the Hammer, it appears, was infrequently some-more of the nail.
Hank Paulson, former master of the universe, sits in the prosy bureau in northwest Washington, D.C. He is perplexing to work upon his memoirs, yet he is struggling. He doesn't appear similar to the onetime All-Ivy plunge in to during Dartmouth, the Harvard M.B.A. who ran Goldman Sachs, the king of Wall Street who went