Too Big to Fail

Henry Paulson:
[TIREDLY] The Fed can lend to non banks under unusual and exigent circumstances, we're thinking of taking over 80% of the company.

Jim Wilkinson:
[INSISTENTLY] Hank we can't! This morning we were lecturing the entire country on moral hazard.

Henry Paulson:
[INCREASINGLY ANGRILY] AIG has collateral, they have assets, Lehman didn't, we couldn't lend into a hole, its not the same story!

Jim Wilkinson:
[PLEADINGLY] Nobody is going to care, its another bailout, with no legislation, the Hill is gonna go crazy, the country is gonna go crazy.

Henry Paulson:
[ANGRILY LECTURING] The plane we flew in on this morning leased from AIG, construction downtown AIG, life insurance 81 million policies with a face value of $1.9 trillion. Billions of dollars in teachers' pensions. You want "too big to fail" here it is! You got a better idea -the suggestion box is wide open!

Mack's Assistant:
Tim Geithner's calling again.

John Mack:
Cover your ears. You tell Tim Geithner to f***ing blow me. I'm trying to save my company.

Michele Davis:
They almost bring down the US economy as we know but we can't put restrictions on how they spend the $125 billion we're giving them because... they might not take it! [the Assistant Secretary of the Treasury for Public Affairs upon hearing that the 9 bank CEOs may refuse to take free money from the federal government if they had to be held accountable for how they spent it]

Richard Fuld:
[on the phone with Neel Kashkari] Last February, we were at 66 a share. Lehman Brothers is *not* Bear Stearns. We have a great business. Real estate will come back. I am not *f***ing* giving this company away!

Ben Bernanke:
I spent my entire academic career studying the Great Depression. The depression may have started because of a stock market crash, but what hit the general economy was a disruption of credit. Average citizens unable to borrow money, to do anything. To buy a home, start a business, stock their shelves. Credit has the ability to build a modern economy, but lack of credit has the ability to destroy it, swiftly and absolutely. If we do not act, boldly and immediately, we will replay the depression of the 1930s, only this time it will be far, far worse. We don't do this now, we won't have an economy on Monday.

Ben Bernanke:
I don't really understand why there needs to be so much tension about this. The country is facing the worst economy since the Great Depression. If the financial system collapses, it will take every one of you down.

Michele Davis:
I hate to do this right now, but I'm going to have to have a press call first thing, and I don't know what I'm going to tell them.

Jim Wilkinson:
Okay, here's how you explain it. Wall Street started bundling home loans together - mortgage-backed securities - and selling slices of those bundles to investors, and they were making big money. So they started pushing the lenders saying, come on, we need more loans.

Henry Paulson:
The lenders had already given loans to borrowers with good credit, so they go bottom feeding, they lower their criteria.

Neel Kashkari:
Before, you needed a credit score of 620 and a down payment of 20%; now they'll settle for 500, no money down.

Jim Wilkinson:
And the buyer, the regular guy on the street assumes that the experts know what they're doing. He's saying to himself, if the bank's willing to loan me money, I must be able to afford it. So he reaches for the American Dream, he buys that house.

Neel Kashkari:
The banks knew securities based on shitbag mortgages were risky...

Henry Paulson:
- you'll work on 'shitbag'...

Neel Kashkari:
- so to control their downside, the banks started buying a kind of insurance. If mortgages default, insurance company pays. Default swap. The banks insure their potential losses to move the risk off their books, so they can invest more, make more money.

Henry Paulson:
And while a lot of companies insured their stuff, one was dumb enough to take on an almost unbelievable amount of risk.

Michele Davis:
AIG.

Jim Wilkinson:
And you'll work on 'dumb.'

Michele Davis:
And when they ask me why they did that?

Jim Wilkinson:
Fees!

Neel Kashkari:
Hundreds of millions in fees.

Henry Paulson:
AIG figures the housing market would just keep going up. But then the unexpected happens.

Jim Wilkinson:
Housing prices go down.

Neel Kashkari:
Poor bastard who bought his dream house? The teaser rate on his mortgage runs out, his payments go up, he defaults.

Henry Paulson:
Mortgage-backed securities tank. AIG has to pay off the swaps. All of them. All over the world. At the same time.

Neel Kashkari:
AIG can't pay. AIG goes under. Every bank they insure books massive losses on the same day. And then they all go under. It all comes down.

Michele Davis:
[horrified] The *whole* financial system? And what do I say when they ask me why it wasn't regulated?

Henry Paulson:
No one wanted to. We were making too much money.

Richard Fuld:
[on the housing crisis] You know, people act like we're crack dealers. Nobody put a gun to anybody's head and said, "Hey, nimrod, buy a house you can't afford, and you know what? While you're at it, put a line of credit on that baby and buy yourself a boat."

Joe Gregory:
[chuckles] You heard anything from Buffett?

Erin Callan:
He's asking for preferred shares at 40, with a dividend of nine percent.

Richard Fuld:
[annoyed] We were just at 66. What the f***?

Joe Gregory:
Maybe it's just an opening gambit, Dick.

Richard Fuld:
Sounds more like a goddamn insult!

Erin Callan:
Dick, we're at 36 right now. We haven't been anywhere near 66 in months. The markets like Buffett. His name will push the price up overnight.

Richard Fuld:
You know, I don't care who he is. I am not spending $360 million a year for the pleasure of doing business with him. Real estate will come back.

Joe Gregory:
Koreans have been sniffing around.

Richard Fuld:
There you go. And they won't steal us blind. I've seen this before: CEOs panic and they sell out cheap. Right now, the Street's running around with its hair on fire, but the storm always passes. We stand strong, and on the other side, we'll eat Goldman's lunch.

Erin Callan:
So what do we do about Buffett?

Richard Fuld:
Screw Warren Buffett.

Ben Bernanke:
[Having breakfast with Henry Paulson] Lehman's down another 10%.

Henry Paulson:
You are not gonna let me get down a single bite, are you?

Ben Bernanke:
This is why I have oatmeal.

Chris Flowers:
Make sure Fuld's not keeping any bad news out of the mix.

Rodgin Cohen:
It's "open kimono", to quote Dick.

Chris Flowers:
There's a revolting image.

Phone caller:
Why didn't you guys head off this situation six months ago?

Michele Davis:
Because the requisite magic wand wasn't available, Doug. But if we do find one, you will be among the very first to know.

Lloyd Blankfein's Assistant:
I don't think I can take another day of this.

Lloyd Blankfein:
You're getting' out of a Mercedes to go to the New York Federal Reserve. It's not a Higgins boat on Omaha beach.