Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

The new package was worked out between the Treasury, the Fed and the FDIC over the weekend of October 11–12, in the shadow of the G7/G20 meetings. It was presented to the stunned CEOs of America’s nine largest banks on the afternoon of Monday, October 13, just as the Europeans were rolling out their guarantees.101 It was a take it or leave it offer. In rations fixed by Tim Geithner as president of the New York Fed, all nine major banks would be required to take slices of government capital. The shares would be preferred shares. The guaranteed dividends that the federal government would require were low, but would escalate after five years to give the banks an incentive to repay early. In exchange for accepting the capital injection, the banks would receive an FDIC guarantee on all business checking accounts and a guarantee on any new debt issued by the summer of 2009, up to a total of 125 percent of the debt maturing by the end of that year. The two were linked. No FDIC guarantee without government capital injection. Characteristically, Ben Bernanke sought to calm the fraying nerves in the room by appealing to everyone to consider their common interests. They were all in it together. “I don’t really understand why this needs to be confrontational,” he said soothingly.102 The bankers stared at him in disbelief. The core of American financial capitalism was about to be partially nationalized.