Too Big to Fail Read online

  Too Big to Fail

  TOO BIG TO FAIL

  The Inside Story of How Wall Street and Washington Fought to Save the Financial System from Crisis—and Themselves

  Andrew Ross Sorkin

  VIKING

  VIKING

  Published by the Penguin Group

  Penguin Group (USA) Inc., 375 Hudson Street, New York, New York 10014, U.S.A. • Penguin Group (Canada), 90 Eglinton Avenue East, Suite 700, Toronto, Ontario, Canada M4P 2Y3 (a division of Pearson Penguin Canada Inc.) • Penguin Books Ltd, 80 Strand, London WC2R 0RL, England • Penguin Ireland, 25 St. Stephen’s Green, Dublin 2, Ireland (a division of Penguin Books Ltd) • Penguin Books Australia Ltd, 250 Camberwell Road, Camberwell, Victoria 3124, Australia (a division of Pearson Australia Group Pty Ltd) • Penguin Books India Pvt Ltd, 11 Community Centre, Panchsheel Park, New Delhi – 110 017, India • Penguin Group (NZ), 67 Apollo Drive, Rosedale, North Shore 0632, New Zealand (a division of Pearson New Zealand Ltd) • Penguin Books (South Africa) (Pty) Ltd, 24 Sturdee Avenue, Rosebank, Johannesburg 2196, South Africa

  Penguin Books Ltd, Registered Offices: 80 Strand, London WC2R 0RL, England

  First published in 2009 by Viking Penguin, a member of Penguin Group (USA) Inc.

  Copyright © Andrew Ross Sorkin, 2009

  All rights reserved

  ISBN: 1-101-13480-1

  Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of both the copyright owner and the above publisher of this book.

  The scanning, uploading, and distribution of this book via the Internet or via any other means without the permission of the publisher is illegal and punishable by law. Please purchase only authorized electronic editions and do not participate in or encourage electronic piracy of copyrightable materials. Your support of the author’s rights is appreciated.

  While the author has made every effort to provide accurate telephone numbers and Internet addresses at the time of publication, neither the publisher nor the author assumes any responsibility for errors, or for changes that occur after publication. Further, publisher does not have any control over and does not assume any responsibility for author or third-party Web sites or their content.

  To my parents, Joan and Larry, and my loving wife, Pilar

  Size, we are told, is not a crime. But size may, at least, become noxious by reason of the means through which it was attained or the uses to which it is put.

  —Louis Brandeis, Other People’s Money: And How the Bankers Use It, 1913

  CONTENTS

  AUTHOR’S NOTE

  THE CAST OF CHARACTERS AND THE COMPANIES THEY KEPT

  PROLOGUE

  CHAPTER ONE

  CHAPTER TWO

  CHAPTER THREE

  CHAPTER FOUR

  CHAPTER FIVE

  CHAPTER SIX

  CHAPTER SEVEN

  CHAPTER EIGHT

  CHAPTER NINE

  CHAPTER TEN

  CHAPTER ELEVEN

  CHAPTER TWELVE

  CHAPTER THIRTEEN

  CHAPTER FOURTEEN

  CHAPTER FIFTEEN

  CHAPTER SIXTEEN

  CHAPTER SEVENTEEN

  CHAPTER EIGHTEEN

  CHAPTER NINETEEN

  CHAPTER TWENTY

  EPILOGUE

  ACKNOWLEDGMENTS

  NOTES AND SOURCES

  BIBLIOGRAPHY

  AUTHOR’S NOTE

  This book is the product of more than five hundred hours of interviews with more than two hundred individuals who participated directly in the events surrounding the financial crisis. These individuals include Wall Street chief executives, board members, management teams, current and former U.S. government officials, foreign government officials, bankers, lawyers, accountants, consultants, and other advisers. Many of these individuals shared documentary evidence, including contemporaneous notes, e-mails, tape recordings, internal presentations, draft filings, scripts, calendars, call logs, billing time sheets, and expense reports that provided the basis for much of the detail in this book. They also spent hours painstakingly recalling the conversations and details of various meetings, many of which were considered privileged and confidential.

  Given the continuing controversy surrounding many of these events—several criminal investigations are still ongoing as of this writing, and countless civil lawsuits have been filed—most of the subjects interviewed took part only on the condition that they not be identified as a source. As a result, and because of the number of sources used to confirm every scene, readers should not assume that the individual whose dialogue or specific feeling is recorded was necessarily the person who provided that information. In many cases the account came from him or her directly, but it may also have come from other eyewitnesses in the room or on the opposite side of a phone call (often via speakerphone), or from someone briefed directly on the conversation immediately afterward, or, as often as possible, from contemporaneous notes or other written evidence.

  Much has already been written about the financial crisis, and this book has tried to build upon the extraordinary record created by my esteemed colleagues in financial journalism, whose work I cite at the end of this volume. But what I hope I have provided here is the first detailed, moment-by-moment account of one of the most calamitous times in our history. The individuals who propel this narrative genuinely believed they were—and may in fact have been—staring into the economic abyss.

  Galileo Galilei said, “All truths are easy to understand once they are discovered; the point is to discover them.” I hope I have discovered at least some of them, and that in doing so I have made the often bewildering financial events of the past few years a little easier to understand.

  THE CAST OF CHARACTERS AND THE COMPANIES THEY KEPT

  FINANCIAL INSTITUTIONS

  American International Group (AIG)

  Steven J. Bensinger, chief financial officer and executive vice president

  Joseph J. Cassano, head, London-based AIG Financial Products; former chief operating officer

  David Herzog, controller

  Brian T. Schreiber, senior vice president, strategic planning

  Martin J. Sullivan, former president and chief executive officer

  Robert B. Willumstad, chief executive; former chairman

  Bank of America

  Gregory L. Curl, director of corporate planning

  Kenneth D. Lewis, president, chairman, and chief executive officer

  Brian T. Moynihan, president, global corporate and investment banking

  Joe L. Price, chief financial officer

  Barclays

  Archibald Cox Jr., chairman, Barclays Americas

  Jerry del Missier, president, Barclays Capital

  Robert E. Diamond Jr., president, Barclays PLC; chief executive officer, Barclays Capital

  Michael Klein, independent adviser

  John S. Varley, chief executive officer

  Berkshire Hathaway

  Warren E. Buffett, chairman, chief executive officer

  Ajit Jain, president, reinsurance unit

  BlackRock

  Larry Fink, chief executive officer

  Blackstone Group

  Peter G. Peterson, co-founder

  Stephen A. Schwarzman, chairman, chief executive officer, and co-founder

  John Studzinski, senior managing director

  China Investment Corporation

  Gao Xiqing, president

  Citigroup

  Edward “Ned” Kelly, head, global banking for the institutional clients group
r />   Vikram S. Pandit, chief executive

  Stephen R. Volk, vice chairman

  Evercore Partners

  Roger C. Altman, founder and chairman

  Fannie Mae

  Daniel H. Mudd, president and chief executive officer

  Freddie Mac

  Richard F. Syron, chief executive officer

  Goldman Sachs

  Lloyd C. Blankfein, chairman and chief executive officer

  Gary D. Cohn, co-president and co-chief operating officer

  Christopher A. Cole, chairman, investment banking

  John F. W. Rogers, secretary to the board

  Harvey M. Schwartz, head, global securities division sales

  David Solomon, managing director and co-head, investment banking

  Byron Trott, vice chairman, investment banking

  David A. Viniar, chief financial officer

  Jon Winkelried, co-president and co-chief operating officer

  Greenlight Capital

  David M. Einhorn, chairman and co-founder

  J.C. Flowers & Company

  J. Christopher Flowers, chairman and founder

  JP Morgan Chase

  Steven D. Black, co-head, Investment Bank

  Douglas J. Braunstein, head, investment banking

  Michael J. Cavanagh, chief financial officer

  Stephen M. Cutler, general counsel

  Jamie Dimon, chairman and chief executive officer

  Mark Feldman, managing director

  John Hogan, chief risk officer

  James B. Lee Jr., vice chairman

  Timothy Main, head, financial institutions, investment banking

  William T. Winters, co-head, Investment Bank

  Barry L. Zubrow, chief risk officer

  Korea Development Bank

  Min Euoo Sung, chief executive officer

  Lazard Frères

  Gary Parr, deputy chairman

  Lehman Brothers

  Steven L. Berkenfeld, managing director

  Jasjit S. (“Jesse”) Bhattal, chief executive officer, Lehman Brothers Asia-Pacific

  Erin M. Callan, chief financial officer

  Kunho Cho, vice chairman

  Gerald A. Donini, global head, equities

  Scott J. Freidheim, chief administrative officer

  Richard S. Fuld Jr., chief executive officer

  Michael Gelband, global head, capital

  Andrew Gowers, head, corporate communications

  Joseph M. Gregory, president and chief operating officer

  Alex Kirk, global head, principal investing

  Ian T. Lowitt, chief financial officer and co-chief administrative officer

  Herbert H. (“Bart”) McDade, president and chief operating officer

  Hugh E. (“Skip”) McGee, global head, investment banking

  Thomas A. Russo, vice chairman and chief legal officer

  Mark Shafir, global co-head, mergers and acquisitions

  Paolo Tonucci, treasurer

  Jeffrey Weiss, head, global financial institutions group

  Bradley Whitman, global co-head, financial institutions, mergers and acquisitions

  Larry Wieseneck, co-head, global finance

  Merrill Lynch

  John Finnegan, board member

  Gregory J. Fleming, president and chief operating officer

  Peter Kelly, lawyer

  Peter S. Kraus, executive vice president and member of management committee

  Thomas K. Montag, executive vice president, head, global sales and trading

  E. Stanley O’Neal, former chairman and chief executive officer

  John A. Thain, chairman and chief executive officer

  Mitsubishi UFJ Financial Group

  Nobuo Kuroyanagi, president, chief executive officer

  Morgan Stanley

  Walid A. Chammah, co-president

  Kenneth M. deRegt, chief risk officer

  James P. Gorman, co-president

  Colm Kelleher, executive vice president, chief financial officer, and co-head, strategic planning

  Robert A. Kindler, vice chairman, investment banking

  Jonathan Kindred, president, Morgan Stanley Japan Securities

  Gary G. Lynch, chief legal officer

  John J. Mack, chairman and chief executive officer

  Thomas R. Nides, chief administrative officer and secretary

  Ruth Porat, head of the financial institutions group

  Robert W. Scully, member of the office of the chairman

  Daniel A. Simkowitz, vice chairman, global capital markets

  Paul J. Taubman, head, investment banking

  Perella Weinberg Partners

  Gary Barancik, partner

  Joseph R. Perella, chairman, chief executive officer

  Peter A. Weinberg, partner

  Wachovia

  David M. Carroll, president, capital management

  Jane Sherburne, general counsel

  Robert K. Steel, president and chief executive

  Wells Fargo

  Richard Kovacevich, chairman, president, chief executive officer

  THE LAWYERS

  Cleary Gottlieb Steen & Hamilton

  Alan Beller, partner

  Victor I. Lewkow, partner

  Cravath, Swaine & Moore

  Robert D. Joffe, partner

  Faiza J. Saeed, partner

  Davis, Polk and Wardwell

  Marshall S. Huebner, partner

  Simspon Thacher & Bartlett

  Richard I. Beattie, chairman

  James G. Gamble, partner

  Sullivan & Cromwell

  Jay Clayton, partner

  H. Rodgin Cohen, chairman

  Michael M. Wiseman, partner

  Wachtell, Lipton, Rosen & Katz

  Edward D. Herlihy, partner

  Weil, Gotshal & Manges

  Lori R. Fife, partner, business finance and restructuring

  Harvey R. Miller, partner, business finance and restructuring

  Thomas A. Roberts, corporate partner

  NEW YORK CITY

  Michael Bloomberg, mayor

  NEW YORK STATE INSURANCE DEPARTMENT

  Eric R. Dinallo, superintendent

  UNITED KINGDOM

  Financial Services Authority

  Callum McCarthy, chairman

  Hector Sants, chief executive

  Government

  James Gordon Brown, prime minister

  Alistair M. Darling, chancellor of the Exchequer

  U.S. GOVERNMENT

  Congress

  Hillary Clinton, Senator (D-New York)

  Christopher J. Dodd, Senator (D-Connecticut), chairman of the Banking Committee

  Barnett “Barney” Frank, Representative (D-Massachusetts), chairman of the Committee on Financial Services

  Mitch McConnell, Senator (R-Kentucky), Republican leader of the Senate

  Nancy Pelosi, Representative (D-California), Speaker of the House

  Department of the Treasury

  Michele A. Davis, assistant secretary, public affairs; director, policy planning