“You guys need to get a handle on the numbers,” he said. “The real numbers. You need to sit down with those numbers and figure out the size of the real hole, not the made-up hole. How big is the securities lending? You have to go contract by contract, like bottoms-up, real work. Then you need to make a list of who can help you fill it. This isn’t like, you know, you’re going to be late on your credit card bill.”
Willumstad just stared at the speakerphone in silence. He knew this routine well from their days with Sandy Weilclass="underline" This was Jamie the hot-head. Better to shrug it off, Willumstad thought. The worst part of Dimon’s tirade, he knew, was that he might be right.
As the AIG team awkwardly attempted to get the conversation back on a less hostile footing, Flowers suggested they call Warren Buffett. He didn’t know Buffett well, and the last time they had spoken, Flowers had tried to get him interested in buying Bear Stearns during that fateful weekend in March. In times of crisis—when a big check had to be written almost immediately—Buffett was the obvious man to turn to.
“Warren!” Flowers said enthusiastically, after reaching Buffett, as if they were best friends. He reminded him of their past dealing and then immediately explained the purpose of his call. He was staring at a piece of paper, he said, that showed that AIG would soon run out of money. He told Buffett that the spreadsheet was so basic, and so poorly done, that “I might have used it to track my grocery bill.”
Hearing that Buffett was amused by the comment, Flowers continued, “They’re a bunch of morons!” and paused meaningfully before saying, “but there’s a lot of value here.” He explained that he was looking for Buffett to invest $10 billion of capital in AIG; he hoped, in fact, that they could make an investment together.
Buffett, however, wasn’t especially interested in getting mixed up in such a mess. “You know, I don’t have as much money as I used to,” he said with a laugh. “I’m kind of low on cash.” He also wasn’t exactly sure he wanted to step into a battle between Hank Greenberg and Eli Broad, who were both waging war against the company. The only thing he might be willing to take a look at, he told Flowers, was AIG’s property and casualty business.
“Listen, there might be a real opportunity here,” Flowers agreed. “Let me get Willumstad to at least call you.”
Flowers returned to the room and told them Buffett was an unlikely candidate but urged Willumstad to contact him.
Willumstad, who had never met Buffett, called and began his pitch, but before he could get very far into it, Buffett stopped him.
“I’ve looked over the 10-K,” he said. “The company is too complicated. I don’t have enough confidence to do that. Look, nothing is going to work with us, so don’t waste your time. You’ve got plenty to do.”
But then he held out one glimmer of hope. “If you wanted to sell some assets that I might have some interest in … but I don’t know.”
Willumstad thanked him for his time and consideration and slammed the phone down in frustration.
By midday, rumors were now rampant at Lehman Brothers that the board might be about to fire Fuld. With the stock trading down another 9.7 percent to $3.71 a share, the possibility was being discussed openly not only throughout the office but in the media as well.
By now the anger was also becoming increasingly palpable on the trading floor among the firm’s staff. Lehman’s employees were unique on Wall Street in that they owned a quarter of the company’s shares. For all the complaints about Wall Street being short-term oriented, most Lehman employees had a five-year vesting period, which meant huge sums of their own wealth were tied up in the firm without the ability to sell their shares. And as of Friday, those shares had lost 93 percent of their value since January 31; $10 billion had disappeared. (Fuld, who owned 1.4 percent of the company—some 10.9 million shares—had lost $649.2 million.) To make matters worse, in a cruel irony, Lehman employees were sent a memorandum that morning saying that the unrestricted shares that they did own outright, they could not sell; it was the standard blackout notice they received around earnings every quarter preventing them from selling shares for several weeks.
Reports of Fuld’s possible ouster reached new heights when word spread that morning that John D. Macomber, one of Lehman’s board members and the former CEO of the chemical giant Celanese Corporation, had arrived at the building and was headed for the thirty-first floor. Almost a dozen people were milling about Fuld’s corner office when they saw Macomber, who was eighty years old, hobbling down the hallway toward them. Several began to leave as Macomber got to the door, expecting they would soon be asked to excuse themselves.
“Stay,” Macomber ordered them.
Fuld, looking haggard, greeted Macomber with a handshake. He didn’t think he was getting fired, but he could sense the nervousness in the room.
“I want to talk to you,” Macomber said, and though for a moment some of the bankers thought he indeed intended to tell Fuld that his services were no longer required, he instead launched, to everyone’s surprise, into a rousing speech to rally the troops.
“I want everyone in the room to know that I know that you guys have done a good job,” he said. “This was just bad luck. We’re one hundred percent behind all of you.”
Fuld’s board, it seemed, was still loyally Fuld’s board.
Rodgin Cohen was still over at Sullivan & Cromwell’s Midtown offices trying to coax Bank of America into buying Lehman. But he could tell something had gone wrong; Greg Curl’s body language had changed, and the BofA team seemed as if it had slowed down, as if it had already decided against bidding.
Cohen, who was one of the few lawyers in the city who had direct access to Tim Geithner, dialed his office to report his suspicions that the government’s hard line against offering any help had scared Bank of America away.
“I don’t think this deal can get done without government assistance,” Cohen stressed to Geithner. “They may be bluffing us, and they may be bluffing you. But we can’t afford to call that bluff.”
Geithner, who had expressed similar worries to Paulson the day before but had been told to stand down, was succinct in his response: “You can’t count on government assistance.”
At about 2:20 p.m., just as Lehman’s shares fell another 6 percent to $3.59, Hank Paulson, visibly frazzled, ran downstairs and out of the Treasury Building to head to the airport. Dan Jester, Jim Wilkinson, and Paulson’s assistant, Christal West, jumped in his Suburban with him. Christopher Cox was planning to meet them at the airplane.
On a call just hours earlier, he and Geithner had officially determined that something needed to be done about Lehman.
If they really were going to convene all the CEOs on Wall Street and try to urge them to come up with a private-market solution, now was the time to do it. Otherwise, by Monday, Lehman would be unsalvageable. “We have the weekend,” he reminded them.
They settled on setting up a meeting at 6:00 p.m. at the New York Fed. Geithner’s office wouldn’t start calling all the CEOs until just past 4:00 p.m., after the market had closed. The last thing they could afford was for news of the meeting to leak.
Paulson, who usually made the trip to New York on US Airways, which offered a government discount—Wendy had always given him grief about flying in a private jet—arranged to charter a plane to New York, using his NetJets account. He couldn’t afford to be delayed; the matter at hand was too important, and the weather was atrocious. If anything, he was worried the plane wouldn’t even be able to take off.