Sunday, September 7.
A terrible day. In the morning Bernanke and I decided to nationalize Fannie and Freddie, and just a few days ago I said I'd never use taxpayer money to save them. Well, nobody will remember.
Yesterday I saw the latest analysis of Fannie and Freddie's financials. Yuck, it was like wading through radioactive sludge. We had no choice - there was $5.5 trillion worth of debt, half owed to the Chinese. I know the Chinese from my days at Goldman Sachs. Ah, those were the days. People had respect for investment bankers. I visited China 70 times during the 1990s and one thing I know, you don't mess with them, mainly when they're buying the stuff we're issuing. No China, no issues, no bonds, no U.S. Treasury, no Hank Paulson.
That afternoon I ordered a precise estimate of how much seizing the two banks would cost the taxpayer. Two hours later they told me, $10 billion to $50 billion.
What the hell am I supposed to tell the press? That would never have happened at Goldman. There I'd have been given precise figures. I told those treasury morons to do their homework. An hour later they told me, $10 billion to $100 billion.
Best to say we just don't know. The press will make up figures anyway.
Monday, September 8.
Great - no investment banks have collapsed this week. There are rumors of trouble at Washington Mutual, but one of my aides says it doesn't matter, WaMu isn't connected enough to do much harm. It's just a mortgage bank and those jerks never learned to leverage properly. Anyway, plenty of potential buyers are out there. Capitalism works.
Tuesday, September 9.
The day started badly. Ben called and said Lehman looks bad. I admit that my first reaction was to chortle - over at Goldman we never could stand those guys at Lehman. If they can't take it, let them founder.
Suddenly I remembered I wasn't at Goldman any more, I was the treasury secretary and Lehman had $600 billion debt and just $28 billion in equity. Then Lehman CEO Dick Fuld called, that nervy bastard. Four months ago when I rescued Bear Stearns I warned Fuld to dump everything he could, and he scoffed that it was all short sellers puffing smoke. Howya, Dick? I asked him.
Terrible, he said, you gotta intervene.
Dick, I said, you know we never intervene, Wall Street is based on our never intervening. It would ruin the principle of the free market. You know the market is always right.
You always were a bastard, even at Goldman, Dick hissed. You saved Fannie and Freddie, why not me?
That has nothing to do with it, I explained. I've been at the treasury for two years and you know those 32 years at Goldman are behind me now. I have no baggage.
Sure, he jeered. Why Fannie and not me?
Dick, the Chinese don't own half a trillion in Lehman bonds, I explained. He slammed down the phone.
That night I called Christopher Cox, the U.S. Securities and Exchange Commission chairman. Tomorrow Lehman's going belly-up, he said. He probably thought he was frightening me. Cox, I said, there aren't any free lunches. Lehman has to pay.
Thursday, September 11.
Lehman released its financial statement. Dreadful, it lost $3.9 billion. The president called.
Hi George, how's it going?
What's happening at Lehman?
Okay, George, they're in trouble, you know - subprime, mortgages, that sorta thing.
Is everything under control, Hank? You need help?
No, everything's fine, I said. He hung up.
Friday, September 12.
I knew I was right not to save Lehman. Bank of America going to buy it. In a week everything there'll be a deal.
But by noon I realized it was going to be another bitch of a day. AIG stock was falling by 30%.
What the hell does AIG have to do with anything? I called the department overseeing insurance companies. What's going on over there with Greenberg? I asked.
(a) Hank Greenberg, AIG's founder, hasn't been there for three years now, I was told, and (b) AIG's the biggest issuer of CDS derivatives in the world.
I hate those acronyms. Back at Goldman I hated them. I'm sure that none of those investment bank CEOs on Wall Street remember them all or know how they work. All we knew and needed to know is that the departments that deal with these
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