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

by Andrew Ross Sorkin

Paulson held these meetings with his inner circle each morning at 8:30 a.m., except for every other Friday, when he had breakfast with Ben Bernanke, the chairman of the Federal Reserve.

As Paulson went around the room doing a postmortem on Bear, he stopped at David Nason. Nason, the thirty-eight-year-old assistant secretary for financial institutions, had joined Treasury in 2005

and other Treasury officials had come to recognize that Wall Street’s broker-dealer model—in which banks could count on ever-dependable overnight financing by other investors—was by definition a tinderbox. Bear had taught them how quickly a bank could crumble;

Lehman Brothers.

because of accusations at the time that Rubin had actually organized the international bailout in an effort to save Goldman Sachs.

Richard Grasso, a symbol of excess. Paulson had been a member of the New York Stock Exchange’s Human Resources and Compensation Committee that had approved a $190 million payday for Grasso, the NYSE chairman. Fuld

“I’d like to be able to call you from time to time,” Paulson continued, “to talk markets, deals, competition; to find out what your concerns are.”

After that conversation they talked to each other regularly. Indeed, Paulson came to rely heavily on Fuld for market intelligence, and, in turn, shared his own views about the markets, which Fuld regarded as the official

An hour later his assistant, Christal West, had Dick Fuld on line one. “Dick,” Paulson said cheerily, “how are you?” Fuld, who had been in his office waiting for the phone call, answered, “Holding up.”

Fuld had been trying to convince Paulson to have Christopher Cox, chairman of the SEC, get the short-sellers to stop trashing his firm.

“We’re thinking about reaching out to Warren Buffett,” Fuld replied. That had been a carefully considered remark;

An investment by Buffett was the financial world’s equivalent of a Good Housekeeping Seal of Approval. The

On March 28, Warren Buffett, the legendary value investor, sat in his office at Berkshire Hathaway’s Omaha headquarters,

a group that included Jeffrey Immelt of General Electric, Jamie Dimon of JP Morgan Chase, and former Treasury secretary Robert Rubin—looked

After some back and forth, Buffett made a quick proposal: He indicated he might be interested in investing in preferred shares with a dividend of 9 percent and warrants to buy shares of Lehman at $40. Lehman’s stock had closed at $37.87 that Friday.

In 1991 he had rescued Salomon Brothers when the storied New York investment house was on the brink, but he quickly realized then that he couldn’t bear the culture of Wall Street.

He always remembered how unnerved he had been after paying out $900 million in bonuses at Salomon, and was especially stunned when John Gutfreund, the firm’s chairman, had demanded $35 million merely to walk away from the mess he had created. “They took the money and ran,” he once said. “It was just so apparent that the whole thing was being run for the employees.

“Lehman hit by $355 million fraud.” Lehman had been swindled out of $355 million by two employees at Marubeni Bank in Japan, who had apparently used forged documents and

On the evening of Wednesday, April 2, 2008, an agitated Timothy F. Geithner took the escalator down to the main concourse of Washington’s Reagan National Airport.

Senate Banking Committee—and

Bear Stearns—with its high leverage, virtually daily reliance on funding from others simply to stay in business, and interlocking trades with hundreds of other institutions—was a symptom of a much larger problem confronting the nation’s financial system.

Over the course of the weekend of March 15, it had been Geithner—not his boss, Ben Bernanke, as the press had reported—who’d kept Bear from folding, constructing the $29 billion government

Even friends and colleagues, like former Fed chairman Paul Volcker, were comparing the Bear rescue unfavorably to the federal government’s infamous refusal to come to the assistance of a financially desperate New York City in the 1970s

The more knowing assessments ran along the following lines: The Federal Reserve had never before made such an enormous loan to the private sector. Why, exactly, had it been necessary to intervene in this

Had Geithner, and by extension the American people, been taken for suckers?

Geithner had for years warned that the explosive growth in credit derivatives—various forms of insurance that investors could buy to protect themselves against the default of a trading partner—could actually make them ultimately more vulnerable, not less, because of the potential for a domino effect of defaults.

He finally placed a call to his old pal Robert Rubin, the former Treasury secretary and Citigroup’s lead director, to make sure he hadn’t made a mistake. Rubin, a longtime Geithner mentor, politely told him that he was backing Vikram Pandit for the position and encouraged him to stay in his current

For much of his time at the Fed, he had detected a certain lack of respect from Wall Street. Part of the problem was that he was not out of the central banker mold with which financial types traditionally felt comfortable.

Geithner, in contrast, had been a career Treasury technocrat, a protégé of former secretaries Lawrence Summers and Robert Rubin. His authority was also somewhat compromised by the fact that, at forty-six, he still looked like a teenager and was known to enjoy an occasional day of snowboarding—and that he was given to punctuating his sentences with “fuck.”

Although he often appeared distracted and inattentive during meetings, he would, after everyone had said his piece, give a penetrating analysis of the entire discussion, in coherent, flowing paragraphs.

Every month the New York Fed would host a lunch for Wall Street chieftains, the very people his office oversaw, and every month Geithner would slouch in his seat, shuffling his feet, sipping a Diet Coke, and saying precisely nothing. He was as Delphic as Greenspan, one of his heroes, but he didn’t have the gravitas to pull it off,

“He’s twelve years old!” Such was the reaction of a nonplussed Peter G. Peterson, the former Lehman Brothers chief executive and co-founder of the private-equity firm Blackstone Group,

McDonough, a prepossessing former banker with First National Bank of Chicago, had become best known for summoning the chief executives of fourteen investment and commercial banks in September 1998

Making his way down the candidates list, he came upon the unfamiliar name of Timothy Geithner and arranged to see him. At the interview, however, he was put off by Geithner’s soft-spokenness, which can border on mumbling, as well as by his slight, youthful appearance. Larry Summers, who had recommended Geithner, tried to assuage Peterson’s concerns.

Geithner had had an army brat childhood, moving from country to country as his father, Peter Geithner, a specialist in international development, took on a series of wide-ranging assignments, first for the United States Agency for International Development and then for the Ford Foundation.

By the time Tim was in high school, he had lived in Rhodesia (now Zimbabwe), India, and Thailand. The Geithner family was steeped in public service. His mother’s father, Charles Moore, was a speechwriter and adviser to President Eisenhower, while his uncle, Jonathan Moore, worked in the State Department.

Tim Geithner went to Dartmouth College, where he majored in government and Asian studies. In the early 1980s, the Dartmouth campus was a major battleground of the culture wars, which were inflamed by the emergenc...

Taking the bait, liberal Dartmouth students waged protests against the paper. Geithner

played conciliator, persuading the protesters to channel their outrage by starting a rival publication.

Geithner attended the Johns Hopkins School of Advanced International Studies, where he graduated wi...

With the help of a recommendation from the dean at Johns Hopkins, Geithner landed a job at Henry Kissinger’s consulting firm, researching a book for Kissinger and making a very favorable impression

he intuitively understood how to reflect back to them an acknowledgment of their own importance.

he then joined the Treasury Department and became an assistant financial attaché at the U.S. Embassy in Tokyo,

During his tour in Japan, Geithner witnessed firsthand the spectacular inflation and crushing deflation of his host’s great bubble economy.

It was through his work there that he came to the attention of Larry Summers,

then the Treasury under secretary, who began promoting him to bigger and b...

During the Asian financial and Russian ruble crises of 1997 and 1998, Geithner played a behind-the-scenes role as part of what Time magazine called “The Committee to Save the World,” helping to arrange more...

He had also honed the diplomatic skills he had first displayed at Dartmouth, often mediating disputes between Summers, who tended to advocate aggressive intervention, and Rubin, who was more cautious.

When the South Korean economy almost collapsed in the fall of 1997,

International Monetary Fund