The Weekend That Changed Wall Street
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The media is often criticized for different reasons, but I have to say how proud I am of all of my colleagues in the industry. Reporters everywhere—from CNBC to Bloomberg and Fox to the Wall Street Journal, the New York Times, Financial Times, the Washington Post, the wire and online news services, and many other business networks and publications—did remarkable work covering the worst financial crisis any of us had ever seen. Overall, the media did a great job handicapping complex issues and making them understandable and accessible for the public. Their coverage provided enormous value and critical information for investors, insiders, and consumers.
On a personal level, none of this would be possible without the ongoing support of my wonderful family, who remains the foundation of all that I do. Thanks so much, Jono, for always pushing me forward.
NOTES
In the course of each year I interview hundreds of people for my two shows, Closing Bell and the Wall Street Journal Report. They represent a wide spectrum of positions and viewpoints—from corporation heads to Wall Street traders to industry leaders to academics to public officials and national and international government leaders and politicians. During the critical period surrounding the death of Lehman Brothers and the subsequent crisis in the financial industry, I called upon many of these sources to provide me with an inside view of events as they happened. Later I interviewed many others to gain insight on why the crisis occurred and how it changed Wall Street. When possible, I have put my sources on the record, although it is a fact of reporting that some people request anonymity, especially when they hold sensitive positions within government or corporations.
PROLOGUE: RIDING HIGH BEFORE THE FALL
8 Lunch at the Four Seasons with Stephen Schwarzman, January 23, 2006; interview notes.
9 Details of the sale of Equity Office Properties: Terry Priston, “Blackstone’s Bid for Equity Office Prevails,” New York Times, February 8, 2007.
9 I hosted Charlie Rose Monday, May 1, 2006; transcript at www.charlierose.com.
11 Descriptions of the two Schwarzman parties are from my personal recollections, but the events also received some media coverage, in particular: James B. Stewart, “The Birthday Party,” New Yorker, February 11, 2008.
12 “It was a great age”: Author interview with Mohamed El-Erian, March 15, 2010; transcript.
12 Schwarzman’s birthday bash and his company’s going public: On March 22, 2007, thirty days after Schwarzman’s birthday party, Blackstone registered with the SEC to take the company public.
12 At the 2007 World Economic Forum in Davos, Switzerland, I interviewed a series of leaders regarding potential crises in the future and published their comments in my BusinessWeek column “Facetime with Maria Bartiromo,” February 6, 2006. I later spoke with Josef Ackermann in Russia in June 2010, asking how he could have been so prescient.
14 “It’s hard to believe”: Author interview with David Rubenstein, January 15, 2007; transcript.
CHAPTER ONE: NIGHTMARE ON LIBERTY STREET
16 “The dominoes were falling”: John Mack’s remarks aired on my television special, One Year Later: Reflections from the Street, September 13, 2009, www.cnbc.com. I also interviewed Mack on several occasions before and after the crisis.
17 Paulson’s calls to Lewis and his frame of mind about the rescue of Lehman Brothers were described to me in a taped interview with a Treasury official.
19 “By Friday…we just wanted to get through the damn day”: Author interview with an executive close to Fuld; transcript.
20 The failed deal between Fuld and the Koreans was widely reported in the media and confirmed for me with sources inside Lehman Brothers.
21 “The world changed”: Author interview with Mohamed El-Erian, September 12, 2008; transcript.
21 “They have their hat”: Author interview with David Kelly, Closing Bell, September 12, 2008, www.cnbc.com.
21 “There is no reason”: Author interview with Martin Feldstein, Closing Bell, September 12, 2008, www.cnbc.com.
21 “This is a sea change”: Author interview with Jerry Webman, Closing Bell, September 12, 2008, www.cnbc.com.
24 “Everyone thought good ol’ Hank would be there with the money”: Told to me by a Treasury official; transcript.
25 Descriptions of what went on in the meetings at the Fed are from multiple sources, including interviews with Robert Wolf, John Mack, Vikram Pandit, Bob Diamond, Lehman executives, and Treasury officials; transcripts.
27 “There was a disconnect”: Author interview with Larry McDonald, April 2008; transcript.
28 “To say Dick”: Author interview with Lehman source, defending Fuld, on background.
29 Description of Bob Diamond’s role and sentiments on September 12: Author interview with Bob Diamond, as well as remarks he made on my television special, One Year Later: Reflections from the Street; www.cnbc.com.
31 “The board is looking”: Author interview with John Thain, after he became Merrill CEO, November 26, 2007; transcript.
33 “You had this sense”: John Mack’s recollections are in an interview for my television special, One Year Later: Reflections from the Street; www.cnbc.com.
33 Robert Wolf’s recollections: Author interview February 18, 2010; transcript.
33 Vikram Pandit’s recollections of being summoned to the Fed are in an interview for my television special, One Year Later: Reflections from the Street; www.cnbc.com.
34 One observer painted a remarkable picture for me: From a conversation with a Treasury official; transcript.
CHAPTER TWO: THE BUBBLE MACHINE
38 “It’s not that events”: Author interview with Ed Lazear, February 25, 2010; transcript.
39 “It’s distressing”: Author interview with Angelo Mozilo, March 26, 2007; transcript.
40 April 17, 2006, e-mail uncovered by federal investigators in 2009: Source: SEC complaint.
41 “We had a lot of people”: Author interview with Angelo Mozilo, August 29, 2007; transcript.
42 “Every day I’d wake up”: Author interview with Angelo Mozilo, December 2007; transcript.
42 Description of Ken Lewis’s reasons for buying Countrywide: Author interview with Ken Lewis, January 16, 2008; transcript.
44 Alan Greenspan’s “froth in the markets” comment was made in a speech to the Economic Club of New York, May 20, 2005.
44 Ben Bernanke’s comments about the housing market: from his testimony at his confirmation hearing, November 15, 2005.
46 “We were only looking”: Author interview with Paolo Pellegrini, February 12, 2010; transcript.
47 Accounts of Jimmy Cayne’s behavior are from multiple sources, including Kate Kelly, “Bear CEO’s Handling of Crisis Raises Issues,” Wall Street Journal, November 1, 2007; my interview with former Bear Stearns chairman Alan Greenberg, June 11, 2010; and Alan “Ace” Greenberg, The Rise and Fall of Bear Stearns (New York: Simon & Schuster, 2010).
47 Ralph Cioffi and Everquest Financial details are from CNBC and other reporting as well as the indictment from the Eastern District of New York, June 19, 2008.
48 “His relationship with me”: Author interview with Ace Greenberg, June 11, 2010. Portions aired on Wall Street Journal Report; transcript and www.cnbc.com.
50 “I don’t get any joy out of anyone’s pain”: Author interview with Larry Fink, March 11, 2008; transcript.
50 Description of Alan Schwartz interview on CNBC defending Bear Stearns, March 12, 2008; www.cnbc.com.
53 “Jamie was incredibly smart”: Author interview with Sandy Weill, October 22, 2006, partially published in my BusinessWeek column, “Facetime with Maria Bartiromo,” titled “Sandy Weill’s Wild Ride”; transcript.
54 “The news that Bear’s”: Timothy Geithner in testimony before the Senate Banking Committee, April 3, 2008; transcript.
56 “It’s the last time”: Author interview with Jamie Dimon, April 2008; transcript.
58 “My regret was”: Author interview with Ace Greenberg, June 11,
2010; transcript.
58 “Well, you’ve had your big moment, Mr. Secretary”: From author interview with a Treasury official.
CHAPTER THREE: ZOMBIES AT LEHMAN
59 “Across the table the Lehman guys truly looked like zombies”: From a banking source inside the meetings; notes.
60 Description of phone calls between Paulson and Fuld: Author interview with Lehman executive on background; notes.
61 “When I heard people”: Author interview with Scott Friedheim, February 10, 2010; transcript.
64 Callan in Condé Nast Portfolio: Sheelah Kolhatkar, “Wall Street’s Most Powerful Woman,” Condé Nast Portfolio, March 2008. Additional background on Callan is from an author interview, October 30, 2007, after she became Lehman CFO; transcript.
65 Author interview with Erin Callan, March 20, 2008; on Closing Bell, and partially published in my BusinessWeek column “Facetime with Maria Bartiromo”; www.cnbc.com; magazine and transcript.
65 “Good to see you”: Author interview with Erin Callan, Closing Bell, April 1, 2008; www.cnbc.com.
66 Einhorn made the Lehman speech at the Ira W. Sohn Investment Research Conference, which coincided with the publication of his book, Fooling Some of the People All of the Time (Hoboken, NJ: John Wiley & Sons, 2008; www.greenlightcapital.com).
68 “If you’re asking me”: Author interview with Brad Hintz, June 4, 2008; transcript.
68 Paulson’s calls to Fuld were described to me by a Treasury official close to the secretary; notes.
68 “It really became apparent over the summer that no one had the same view as Dick of what Lehman was worth”: Background interview with a Treasury source; notes.
69 “Every weekend we were at the office, busted up into teams, discussing options”: Description by Lehman executive on background; transcript.
69 Wednesday, June 4, 2008, Wall Street Journal article: Susanne Craig, “Lehman Is Seeking Overseas Capital: As Its Stock Declines, Wall Street Firm Expands Search For Cash, May Tap Korea.”
70 Descriptions of the upset inside Lehman after the article was published are from interviews with former executives, including Friedheim; transcript.
71 “I’ve been crying”: Author’s personal conversation with Erin Callan.
72 “the marketplace”: Larry Fink’s recollections shared on my television special, One Year Later: Recollections from the Street; www.cnbc.com.
72 Optimistic sports analogies in mid-2008 are from Morgan Stanley CEO John Mack to shareholders: “The subprime crisis is in the eighth or ninth inning”; Goldman Sachs CEO Lloyd Blankfein: “We’re probably in the third or fourth quarter of a four quarter game.”
73 “A lot of the managements”: Author interview with Brad Hintz, June 2008; transcript.
73 Description of Daniel Mudd’s experience at Fannie Mae: Author interview with Daniel Mudd, March 8, 2010; transcript.
77 “Some people thought Fannie was a bit stronger than Freddie”: From a conversation with a Treasury official; notes.
78 “The problem was”: Author interview with Mohamed El-Erian, March 15, 2010; transcript.
79 “Are there plans afoot”: Author interview with Hank Paulson on Closing Bell, September 10, 2008; transcript.
80 Details of the Friday evening call between Dick Fuld and Ken Lewis were recounted by a Lehman executive who was present.
CHAPTER FOUR: DOWN TO THE WIRE
83 “We finished around midnight”: Early Saturday conversations with executive sources at Lehman Brothers; notes.
84 Saturday conversation with a trader at Lehman Brothers; notes.
85 Details of Paulson and Lewis’s phone call were recounted by a Treasury official; transcript.
86 Details of Fuld’s trying to get Lewis on the phone were recounted by an executive source at Lehman; notes.
87 Reports from the working groups were described by many sources inside the meetings, including Robert Wolf, Vikram Pandit, and John Mack; transcript.
88 “I was pissed off because they were pounding us”: Recounted by a Treasury official; notes.
89 “You have the thundering herd”: Recounted by a Treasury official; transcript.
92 Description of Hank Greenberg’s role and sentiments: Multiple author interviews with Hank Greenberg; transcripts.
94 He’d called Lehman “a great franchise”: Author interview with Hank Greenberg, June 17, 2008; transcript.
96 “Dick is amazing”: Conversation with a Lehman executive on background; notes.
96 “It looked like”: Author interview with Robert Wolf, February 18, 2010; transcript.
CHAPTER FIVE: DEATH SENTENCE AND CHAMPAGNE
99 Background on weekend events from September 14, 2008, are from the CNBC report “Lehman CEO sees star fade as firm faces bankruptcy”; www.cnbc.com.
100 Description of Bob Diamond’s actions the morning of September 13: Author interview with Bob Diamond, September 17, 2008; transcript.
101 “They kind of strung us along”: Recollection of a Paulson aide; notes.
104 “People have said, ‘But why couldn’t you have done something to facilitate a purchase?’”: Conversation with a Treasury official; transcript.
105 “there was still a big elephant in the room”: Author interview with Robert Wolf, February 18, 2010; transcript.
CHAPTER SIX: FALLOUT
108 Win Smith’s bitterness about O’Neal and the plight of Merrill: Author interviews plus Smith’s document to a special December 2008 shareholders meeting, “A Proper Eulogy,” which Smith made available to me.
110 Descriptions of Lewis-Thain press conference. Eyewitness impressions and tape; www.cnbc.com.
112 After the press conference I sat down to tape a one-on-one interview with Ken Lewis, September 15, 2008; transcript.
113 “What are your thoughts?”: Author interview with Win Smith on Closing Bell, September 15, 2008; www.cnbc.com.
114 Description of author interview with Meredith Whitney of Oppenheimer on Closing Bell, September 15, 2008; www.cnbc.com.
115 “Our days had been starting”: Author interview with Mohamed El-Erian, March 15, 2010; transcript.
119 “I’m trying to figure out”: Author interview with Bob Diamond, September 17, 2008; transcript.
120 Description of David Boies’s advocacy on behalf of Hank Greenberg: Author interview with David Boies on Closing Bell, September 17, 2008; www.cnbc.com.
121 Text of the letter from Hank Greenberg to Bob Willumstad, supplied to me by David Boies.
122 “I would ask for less”: Author interview with Hank Greenberg, September 16, 2008; transcript.
123 “I feel energized”: Author interview with Ed Liddy, September 17, 2008; transcript.
124 “Dick and I had this conversation”: Recollections of a friend and former colleague of Fuld; notes.
124 Description of Fuld’s testimony before the House Committee on Oversight and Government Reform, October 7, 2008.
CHAPTER SEVEN: POPCORN AND DOMINOES
127 Details of John Mack’s efforts are described in an interview for my television special, One Year Later: Recollections from the Street; www.cnbc.com. Mack also described these events in a leadership lecture at the Wharton School in September 2009.
131 Meetings at the White House described by two sources in the meetings; notes.
132 “There was no average day”: Interview with Ed Lazear, who shared his recollections of the weeks following the Lehman bankruptcy, February 25, 2010; transcript.
136 the “intent was to get at the root”: Author interview with Keith Hennessey on Closing Bell, September 19, 2008; www.cnbc.com.
136 Hank Paulson’s testimony before the House Committee on Financial Services, November 18, 2008.
137 “Unless the Treasury decides”: Interview with Ken Rogoff, Charles Schumer, and Andrew Cuomo, September 18, 2008; www.cnbc.com.
137 “I have enormous confidence”: Interview with Amar Bhidé, January 7, 2009; transcript.
139
“We still have heavy regulations”: Author interview with Bill Clinton, September 21, 2008; partially published in my BusinessWeek column “Facetime with Maria Bartiromo”; transcript.
141 “Yes, I found a flaw”: Alan Greenspan’s testimony October 2008, before the House Committee on Oversight and Government Reform.
142 “We obviously knew”: White House official on the auto industry; notes.
142 “Whatever the reasons”: Treasury official on the auto industry; notes.
143 “These are people”: Author interview with Barney Frank.
144 “I’d like to see them”: Author interview with Jim Rogers on TARP, February 2009.
145 “Do you worry”: Author interview with Andrew Cuomo, March 17, 2009; on Closing Bell, transcript.
146 “In the last twelve months”: This story was told to me by a former executive of Lehman Brothers.
CHAPTER EIGHT: THE AFTERSHOCKS
148 “It was getting”: Author interview with Robert Steel, February 24, 2010; transcript.
150 “We just didn’t make”: Author interview with Dick Kovacevich on Closing Bell, October 3, 2008; www.cnbc.com.
150 “I know it’s a better deal”: Warren Buffett on CNBC, October 3, 2008; www.cnbc.com.
151 “Where are we”: Author interview with Hank Paulson, on Closing Bell, January 12, 2009; transcript.
154 “The losses began”: Author interview with Ken Lewis, February 10, 2009; transcript.