Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

Beyond the general sense of shock, the reactions came down to business logic. For the weakest in the group it was evidently a great deal, and Vikram Pandit of Citigroup said so. Given the state of his balance sheet, he couldn’t afford to be fussy. As he blurted out: “This is cheap capital.” Indeed, it was. The yield on Citigroup bonds that day was 22 percent. Paulson was asking for 5 percent.103 A better-placed bank, like J.P. Morgan, could have got by without the TARP money. But Dimon understood the systemic logic and was among the first to sign, though he made his signature conditional on the rest of the group agreeing. It was California’s Wells Fargo that forced the government side to show its hand. When Wells objected to bailing out New York banks, Paulson coolly pointed out that Wells Fargo was sitting opposite its regulator. If they did not take the capital on offer that afternoon, they would be notified the following morning that they were undercapitalized. They would find themselves locked out of capital markets. When they came back to Paulson for help, the terms would be less attractive than those available that afternoon. The CEOs were then dismissed to call their boards. Within a matter of hours they had all agreed. Under the Capital Purchase Program facility, America’s nine largest banks took $125 billion in preferred stock from the government.