“If you wait any longer,” I said, “there won’t be a market left to regulate.”also faced opposition from within his own agency and from his fellow commissioners. He reiterated that he needed the clear public backing of Ben Bernanke, Tim, and me. Tim had concerns that a ban might inhibit risk taking and be destabilizing—the trading strategies of many highly leveraged hedge funds depended on shorting. long after that, I spoke to the president, who had canceled a fund-raising trip to Alabama and Florida to focus on the financial emergency. He was joined by Deputy Chief of Staff Joel Kaplan. I told them that the crisis had reached the point where we were going to have to take dramatic actions, including going to Congress for sweeping fiscal authorities. The president seemed supportive but asked that I make sure to fully brief his whole team. It was essential that everyone in the executive branch work together, because we all knew it would be difficult to get Congress to act. 9:30 a.m. my staff and I got on a conference call with Tim, Ben, Chris, and their people. The Fed was working hard to ease liquidity pressures in global markets. At 3:00 a.m. New York time—8:00 a.m. in London—it had announced a dramatic $180 billion expansion of its swap lines, which made dollars available to other central banks for the needs of their commercial banks. was particularly worried about the money market funds. Treasury’s Steve Shafran and his group, who had been working with the Fed people all night, had put together a list of ideas to improve liquidity. One idea would have had the Fed provide long-term financing to the investment banks in addition to the short-term money they already had access to. Another would have let the money funds borrow directly from the Fed.
“That won’t stop a run,” I said. If anything, a money fund borrowing from the Fed would be stigmatized and suffer even more withdrawals. “What would you do if you wanted to be more decisive than that?” threw out another suggestion: “Well, we could use the Exchange Stabilization Fund to guarantee the money market funds.”slapped my desk. It was exactly what I was looking for—the strong step the situation required: something dramatic that would prevent an impending implosion of $3.5 trillion in money market funds.
“That’s what I want to do,” I told him. “Go make that happen.”the money markets was an inspired idea; the problem was how to do it. Shafran’s insight was crucial. Treasury had next to no funding power—with one exception. The Gold Reserve Act of 1934 had created the Exchange Stabilization Fund (ESF) to allow Treasury to intervene in the foreign exchange market to stabilize the dollar. The ESF had been used very selectively over the years, most controversially when President Bill Clinton tapped it in 1995 to extend up to $20 billion in loans to Mexico. Now money market funds were being hit by massive redemptions, some of them from skittish overseas investors. A collapse of the money fund industry could easily lead to a run on the dollar. If the president approved, we could use the ESF, which totaled about $50 billion, to fund the money market guarantee initially. Nason had put off his decision to leave Treasury to help us at this critical time, and I asked him to work with Steve. David had been at the SEC, and I knew that he had a long list of contacts in the money market industry as well as the technical expertise to design a temporary guarantee program. Even as they faced a rash of redemptions, money funds were choking on asset-backed commercial paper that they couldn’t sell. Fed staffers were working on ways to purchase this paper from the money funds.
“Hank, are you willing to go to the Hill and get fiscal authority?” Bernanke asked.
“Ben, Ben, Ben,” I interrupted, realizing I hadn’t had time to update him on my just-concluded call with the president. “You and I will be going to the White House.” the call, I asked my team to prepare a short presentation for the president. Joel Kaplan had wisely suggested that the most efficient way to brief the key White House staff was for them to sit in on our meetings at Treasury. By 1:30 p.m., Joel, Ed Lazear, Keith Hennessey, and Dan Meyer had come over to Treasury. They would spend many hours over the next few weeks with us, and I could tell they were taken aback by the atmosphere. There were probably 15 people in my office at all times, huddled in clusters and holding separate meetings, talking at a hundred miles an hour, as I sat at my desk in the center of the whirlwind. There was virtually a running conference call with Tim and Ben, with people getting off the line and getting back on. I’d be talking to someone else on my phone, always trying to speed things along. the White House crew crowded into my office with Treasury staff for a scheduled call with Ben, Tim, and Chris. I did much of the talking.
“This is the economic equivalent of war,” I said. “The market is ready to collapse.”couldn’t keep using duct tape and baling wire to try to hold the system together. This was a national crisis and both the executive and the legislative branches of government needed to be involved. Although I was determined to get new powers, I knew how hard it would be to win them and how difficult it would be to hold the system together while we were trying. We would have to choose carefully the authorities we requested, while honing our approach to Congress. It was Treasury’s most crucial legislative undertaking since the Great Depression. The stakes were incalculably high: the cost of asking for powers and failing to get them might be bigger than not asking at all. raised the issue of a short-selling ban. Tim and Ben joined me in expressing support for a ban, which gave Chris the backing he needed to go to the rest of the commissioners for approval. We went through the need to guarantee the money market funds. I admitted that we still didn’t know exactly how the program would work. The complexities were enough to make your head spin, but I was firm: “We’ve got to go with this.” everyone liked the idea, but some were concerned that we were moving too fast. But frankly we had no choice but to fly by the seat of our pants, making it up as we went along. The alternative, waiting till we had figured out every angle, was untenable. going to the White House, I called Ben and told him that the president was going to want to press him on the extent of his authorities, because the thought of being totally dependent on Congress was anathema to the administration. The president would want to know what the Fed could do if Congress didn’t grant us the powers we needed. I encouraged Ben to think expansively. “If the market thinks Congress is our last line of defense, and they turn us down, it will be fatal,” I said. my way to the White House, Nancy Pelosi called to ask about the market. She had wanted me to come up the following morning with Ben to brief the Democratic leadership. I related just how bad things were and told her we would have to go to the Hill that night to ask for emergency powers. She asked why it couldn’t wait until the morning, and I replied it might be too late by then.
“We need legislation passed quickly,” I said. “We need to send a strong signal to the market now.”Speaker immediately pushed to put stimulus spending into any bill. “Nancy, we’re racing to prevent a collapse of the financial markets,” I told her. “This isn’t the time for stimulus.” large group gathered in the Roosevelt Room at 3:30 p.m. to meet with the president. Ben, Chris, and Fed governor Kevin Warsh were there, along with a hefty contingent of White House and Treasury staff. Joel Kaplan had warned the president ahead of time that Ben and I were on edge. began by telling the president that the Fed and Treasury were preparing to take some extraordinary steps and that we were going to need to get special powers from Congress.
“Mr. President, we are witnessing a financial panic,” Ben put in. He vividly described what we were seeing in the markets, from the travails of commercial paper issuers to the difficulties in secured lending, and where this all might lead if we didn’t find a way to stop its spread now.
“Is this the worst crisis since the Great Depression?” the president asked.
“Yes,” Ben replied. “In terms of the financial system, we’ve not seen anything like this since the 1930s, and it could get worse.” and companies were in imminent danger, I told the president: “Money market funds are on the verge of breaking. Companies are taking drastic measures to preserve their finances—not just the big banks, but also companies like General Electric and Ford.” had been dealing with these crises one at a time, on an ad hoc basis. But now we needed to take a more systematic approach before we bled to death. We all knew that the root cause lay in the housing market collapse that had clogged bank balance sheets with toxic mortgage assets that made them unwilling to lend. We were going to need to buy those bad assets where necessary, actions that required new powers from Congress and a massive appropriation of funds. In asking for this, we would be bailing out Wall Street. And that would look just plain bad to everyone from free-market devotees to populist demagogues. But not doing this would be disastrous for Main Street and ordinary citizens. Bush was very concerned about the money market funds and commercial paper markets because of how deeply they affected the average American’s daily life. As he said, “You’ve got to protect the guy in Midland, Texas, who wants to take $10,000 out of his money market fund to buy something.” president listened intently as we briefed him on the actions we planned to roll out: Treasury’s money fund guarantees and the Fed’s liquidity facility for asset-backed commercial paper. Although he had a genuine contempt for Wall Street and its minions, he did not let that stand in the way of what he thought had to be done. Just as he had swallowed hard to win Fannie and Freddie reform legislation in July, he now pushed his personal feelings aside.
“If we’re in the midst of a financial meltdown, all I’m asking is whether it will work,” President Bush said. He noted that we didn’t have time to worry about politics. We had to figure out the right thing to do and let Congress know that it needed to act.
“Tell the Hill we’re fixing to have a meltdown,” he said. “We just need to tell them that this is our strategy and be firm.”then asked Ben what the Fed could do if Congress refused to grant the powers we needed. I asked this because I knew that the president needed to hear the answer. insisted that, legally, there was nothing more that the Fed could do. The central bank had already strained its resources and pushed the limits of its powers. The situation called for fiscal policy, and Congress needed to make the judgment. President Bush pushed him, but he held firm.
“We are past the point of what the Fed and Treasury can do on their own,” Ben said.Bush had never wavered in backing us, but that day he was exceptionally reassuring. He promised that his entire team would work with us to get congressional action as quickly as possible. After the meeting began to break up, he walked around the Roosevelt Room patting people on their shoulders.
“We’re going to get through this,” he told us. “We have to get through this.”later learned that he took Michele Davis aside and said, “Tell Hank to calm down and get some sleep, because he’s got to be well rested.” the meeting, I was more convinced than ever that we had to move fast on the money market guarantee. It was a step that we could take unilaterally. As soon as I returned to Treasury, I stopped by David Nason’s office and told him I wanted the guarantee announced in the morning, even if it couldn’t be finalized for weeks: we had to make clear right away what we were doing. I instructed David to work closely with Steve Shafran and make this his top priority. markets had gotten a badly needed shot of good news just before we went into the White House, when CNBC reported that Treasury was considering taking action to buy illiquid assets from the banks. The report also said that New York senator Chuck Schumer indicated that we would be announcing our plan later in the day. Stocks soared. In the last hour of trading, while we were in the White House, the Dow, down more than 200 points, surged 617 points to gain 410 points, or 3.9 percent, on the day. Stanley’s shares were particularly volatile, closing at $22.55, up 80 cents, after having fallen by as much as 46 percent during the day. But credit markets continued to weaken. Morgan Stanley’s CDS were trading at 866 basis points, while its excess liquidity continued to drain away. Merrill Lynch seemingly secure in the arms of Bank of America, all eyes were on Morgan Stanley and Goldman Sachs. If either remaining investment bank failed, it would almost certainly bring down the other and touch off a worldwide run that would be catastrophic for the American people. And a failure was a very real possibility. had set a meeting with congressional leaders for 7:00 p.m., and as I rode up to the Hill, Ben called to review our strategy. I thought we were as well prepared as we could be. Ben would lay out the economic picture of what would happen if there were a systemic collapse. I would describe the powers we needed and provide some details. Kevin Fromer and I had agreed that we would need the authority to buy at least $500 billion of bad assets, but we didn’t want to commit to a number yet. were to meet in Nancy Pelosi’s conference room, adjacent to her office in the Capitol. Always smartly turned out, the Speaker of the House maintained an elegant, almost formal atmosphere, with fresh flowers and bowls of chocolates, that was quite removed from the rough-and-tumble of the floor. Once, when I walked in with a cup of Diet Coke, she’d said, “Oh, we don’t use plastic cups,” and an aide promptly handed me a very nice glass for my drink. and I conferred as we waited for the leaders to arrive. Chris Cox joined us. He was under heavy fire—at a campaign event earlier in the day, John McCain had said that if he were president, he would fire him. Soon the Hill’s most powerful leadership figures came in, including Nancy Pelosi, John Boehner, Barney Frank, House Majority Leader Steny Hoyer, ranking Financial Services Committee member Spencer Bachus, and Democratic Caucus chairman Rahm Emanuel from the House; and the Senate’s Harry Reid, Minority Leader Mitch McConnell, Majority Whip Dick Durbin, Chris Dodd, Richard Shelby, Chuck Schumer, and Democratic Conference secretary Senator Patty Murray. squeezed around the long table. I sat across from Nancy and Harry Reid, flanked by Ben and Chris. It was a long, tough meeting. Congress was about to break for recess in eight days, and no one was happy to be there. Ben described the severity of the crisis we faced, and I said that Treasury needed the money and powers to recapitalize the banks by buying toxic assets from their balance sheets. emphasized how the financial crisis could spill into the real economy. As stocks dropped perhaps a further 20 percent, General Motors would go bankrupt, and unemployment would rise—to 8 or 9 percent from the prevailing 6.1 percent—if we did nothing. It turned out to be a rather mild assessment of what would hit us (as I write, unemployment is now in double digits), but it was enough at the time to leave the members of Congress ashen-faced.
“It is a matter of days,” Ben said, “before there is a meltdown in the global financial system.”room erupted into questions. Everybody had an agenda to push or an opinion to voice. Spencer Bachus asked why we didn’t recapitalize banks by buying shares rather than assets. It was a good question, and I was glad he asked it, because it allowed me to emphasize my main point: the program wasn’t meant as a sop for failing banks. We wanted financial institutions to sell illiquid assets so we could develop a market for them. This would encourage the free flow of capital for healthy banks, help them clean up their balance sheets, and break the logjam of credit. for the Democrats, Barney Frank laid out provisions that he wanted to see in the bill, including pay restrictions for executives at the companies receiving government money. “If they sell, you’re presumably doing them a service,” he said. “They should be willing to have restrictions.” it didn’t surprise me that Barney made this point, I pushed back hard. To my mind, restricting compensation meant putting a preemptive stigma on the program. And that is exactly what I didn’t want to do. My priority was to get it off the ground fast so the system didn’t collapse while we were still negotiating. Tim, Ben, and I wanted a program that encouraged maximum participation. Hundreds of perfectly sound banks across the country had toxic assets they’d be better off unloading—if only they could. We didn’t want to discourage them from doing so, either by forcing their executives to take cuts in pay or by making it appear that participants, ipso facto, were all weak. They couldn’t afford that perception in the marketplace. would continue to resist pressure on compensation restrictions for several days. I was as appalled as anyone at Wall Street’s pay practices, particularly the flawed incentive structures, which we had tried to avoid at Goldman Sachs. When I was CEO, I did my best to align incentives with long-term performance. I knew compensation was too high industry-wide, but I couldn’t change that. We needed to be competitive if we were going to have the best people. removing the CEOs at Fannie, Freddie, and AIG, the government had already demonstrated that we weren’t going to reward failure, but in retrospect I was wrong not to have been more sensitive to the public outrage., the lawmakers pushed me to provide a dollar figure. But I was purposefully vague. “We don’t have the number yet, and we want to work with you on this,” I said. “It’s got to be big enough to make a difference.” big was “big,” they wanted to know.
“We need to buy hundreds of billions of dollars of assets,” I said. I knew better than to utter the word trillion. That would have caused cardiac arrest. “We need an announcement tonight to calm the market, and legislation next week,” I said. would happen if we didn’t get the authorities we sought, I was asked.
“May God help us all,” I replied.the end of the meeting, everyone, with the notable exception of Shelby, was supportive to some degree. The tumult in the market had forced a rare bipartisan consensus. The leaders appeared to understand that something had to be done and that the only way to do this was to present a united front.
“This is a worldwide problem,” Barney Frank said. “But we own it.”Dodd told me that he wanted the administration to cooperate in drafting the legislation; he didn’t want to be handed a fait accompli. The House and Senate needed to be able to sell any legislation we came up with, and the political calculus was tricky just weeks before an election. Averse to bailouts, voters would never grasp the pain of a meltdown unless they experienced it. As Barney put it: “No one will ever get reelected for avoiding a crisis.” Nancy Pelosi noted: “We have to position this as a stimulus and relief for the American homeowner.” we got ready to leave the nearly two-hour meeting, I was relieved at what soon became a public show of support and rather naïvely thought that legislation was going to be easier than I had first expected. But Harry Reid offered a more realistic assessment: “We can’t act immediately,” he said, noting that it usually took Congress weeks to get anything done. had been in my office for 15 minutes Friday morning when I received a call from an upset Sheila Bair, just after 7:00 a.m. We were scheduled to announce the money market fund guarantee in less than an hour, and in the rush we had not consulted with the FDIC chairman—or even notified her. She’d learned of our plans from press reports and was calling to complain. She said she knew I was under a lot of pressure, but it was outrageous that we had not checked with her first. the time I came to Treasury, in July 2006, I’d had a constructive relationship with Sheila, working closely with her on housing issues, about which she had many ideas. She had exceptionally good political instincts. We usually agreed on policy, but she tended to view the world through the prism of the FDIC—an understandable but at times narrow focus. Now she told me that our money market guarantee would hurt the banks.
“There are a lot of bank deposits that aren’t insured,” she said. “And they can now go to the money market funds.”had a good solution to prevent this from happening: insure only the customer balances that were in the money market funds on or before that day, September 19. I said that I liked her idea and that I would ask David Nason to work closely with her and her staff to implement it. truth is, we had to move quickly as the crisis mounted, and occasionally we stumbled. We grappled with this hard fact every time we worked on a new idea: often our fixes led to unattractive consequences. Whenever government came in—as with the guarantee program—we risked causing massive distortions in the markets. The risk of a misstep was greater the faster we had to move and the less time we had to think through every possible outcome. As a result, we had to be nimble, and flexible, enough to make midcourse corrections as needed. money market guarantee was an extraordinary improvisation on the part of Nason and Shafran. They had raced through the night to sketch its outlines and make the plan work. In time, funds participating in the guarantee would pay fees into a reserve that supplemented the ESF, which would not expend a single dollar on the program. was operating so much on the fly that Nason drafted staff from the Terrorism Risk Insurance Program, which he oversaw, to help formulate the agreements and pricing schemes of the guarantee. It was announced on September 19, opened ten days later, and was, I believe, the single most powerful and important action taken to hold the system together before Congress acted. (The guarantee was intended to be a temporary program, and Congress has since ended it.) we worried about industry acceptance of the plan. Nason and Shafran had canvassed everyone from executives at Charles Schwab and Vanguard Group to the Investment Company Institute, the industry’s trade association, and found that many were concerned about having to pay to insure what was already a low-margin product. But in the end we had virtually 100 percent market participation and collected over $1 billion in premiums. morning, the U.S. government unveiled a package of new programs to boost liquidity and calm the markets. The SEC issued an order prohibiting the short selling of 799 financial stocks for 10 business days (the order could be extended to 30 days). My efforts to round up Tim’s and Ben’s support had given Chris Cox the backing he needed, and after our meeting with Hill leaders the previous night, SEC commissioners had approved the ban in an emergency session. The announcement did not go off without a hitch, however. A number of major companies, including GE and Credit Suisse, had been omitted from the list, which Chris later had to expand. 8:30 a.m., the Federal Reserve unveiled its Asset-Backed Commercial Paper Money Market Fund Liquidity Facility, better known as AMLF. Under this program, the Fed would extend nonrecourse loans to U.S. depository institutions and bank holding companies to finance their purchases of high-quality asset-backed commercial paper from money market mutual funds. In a separate action to boost liquidity, the Fed said it would buy short-term debt from Fannie Mae and Freddie Mac. raft of programs, coupled with news reports that we had gone up to the Hill to get new legislation, acted like a tonic to the markets. Led by financial shares, stocks rallied right from the opening. By 9:42 a.m., the Dow was already up 275 points, on its way to a full-day gain of 369 points. Morgan Stanley’s shares jumped 33 percent in the first few minutes of trading. my staff labored on upcoming White House and congressional presentations, my phone pulled me every which way. Goldman CEO Lloyd Blankfein called to express his concern for Morgan Stanley and what its troubles might mean—for the market and for his firm. The market was losing confidence in investment banks, he said, and although Goldman had a strong balance sheet, counterparties and funding sources were scared.
“I’ve never rooted so hard for a competitor,” he said. “If they go, we’re next.”Fuld also called, and although I didn’t really have time to talk, I stayed on the line with him for 20 minutes. Like our conversation a few days earlier, I found it very sad. He was afraid he would spend years in court. He asked if I could please tell others how hard he had tried and what he’d done. I told him I knew that he’d made a big effort to save Lehman, but the crisis we faced was unprecedented. It was the last time I spoke with him. Treasury press office stayed busy that day. At 10:00 a.m., I issued a statement that explained our reasons for going to Congress—how illiquid assets were clogging the financial system and threatening Americans’ personal savings and the entire economy. I said I would work with Congress over the weekend to get the legislation in place for the next week. And I took the opportunity to push for the regulatory reforms I had long advocated. five minutes later Ben, Chris, and I stood in the White House Rose Garden with President Bush, who outlined the actions we were taking and announced that we had briefed Congress on the need for swift legislation granting the government authority to step in and buy troubled assets. “These measures will act as grease for the gears of our financial system, which were at risk of grinding to a halt,” he said. was much still to be done. Treasury staff took the lead, representing the administration, in working with the House and Senate financial services committees to outline what would become the Troubled Assets Relief Program. I pushed our team to ask for the most expansive authorities, with as few limitations as possible, because I knew we had only one chance to get this from Congress. the afternoon, Kevin Fromer took me aside and said, “If you believe there is a possibility $500 billion won’t be enough, we should request more.”
“You’re absolutely right,” I said. I did want a bigger number, and I knew the market would, too. But I didn’t want to run the risk of asking for too much, then getting turned down. “What’s the most you think we can get?”
“The public and Congress will hate $500 billion,” he said. “It’s already unthinkable. But I’m not sure they will hate $700 billion any more. If you get any higher, closer to a trillion, we will have a problem.” choice of the $700 billion figure wasn’t just a political judgment. There was a market calculation as well: back of the envelope, we knew there were roughly $11 trillion of residential mortgages in the country, most of them good. We would need to buy only a small amount of them to provide transparency and energize the markets. And we believed that $700 billion was enough to make a difference., the $700 billion figure shocked many Americans—and Congress. Maybe my failure to anticipate this reaction showed how inured I was becoming to the extraordinary numbers associated with the prospect of an all-out financial meltdown. I was constantly being confronted by shocking figures. Friday, as the equity markets rallied, the credit markets remained tight, and investors’ flight- to-quality kept demand unbelievably high for Treasuries. Fails to deliver rose to $285 billion that day, a jaw-dropping increase from $20 billion one week before. had raced the clock on Bear Stearns, then again on Fannie and Freddie, Lehman, and AIG. Now we were rushing to develop the outline of TARP, even as I feared we could lose four giant financial institutions—Washington Mutual, Wachovia, Morgan Stanley, and Goldman Sachs—in the next few days. leaders had advised us not to present them with a finished document but to work with them, so we prepared a short, bare-bones proposal with open-ended language, knowing that members would add provisions that would make the legislation their own. At about 9:00 p.m. on Friday, Chris Dodd called to ask where our proposal was. “My staff’s been waiting since 5:00 p.m.,” he said, reminding us to be cooperative. the end, we cut the proposal down to three pages, and it turned out to be a three-page political mistake.asked for broad power to spend up to $700 billion to buy troubled assets, including both mortgages and mortgage-backed securities, under whatever terms and conditions we saw fit. assets would be priced using market mechanisms such as reverse auctions, in which sellers put out bids—not buyers, as is normally the case. Once purchased, they would be managed by private asset managers. The returns would go into Treasury’s general fund, for the benefit of U.S. taxpayers. the urgency of the situation, our draft asked for Treasury to have the maximum discretion to retain agents to carry out the asset purchases, and for protection from lawsuits by private parties who might attempt to derail or delay the program. This freedom from judicial review we modeled in many respects after the Gold Reserve Act of 1934. were pilloried for the proposal—not least because it was so short, and hence appeared to some critics as if it had been done offhandedly. In fact, we’d kept it short to give Congress plenty of room to operate; April’s “Break the Glass” review of policy options on which this outline was based was itself ten pages long. Making no provision for judicial review came across as overreaching, and that provision eventually went out the door. But nearly all of what we would ask for, and what would eventually form the basis of the legislation, was in those three pages., we could have managed our introduction of the TARP legislation more adroitly. At a minimum, we ought to have sent up the three pages as bullet points, rather than as draft legislation. We might have sent it up sooner: it went to the Hill at midnight, and waiting all day had put lawmakers, their staffs, and the media on pins and needles. And as Michele Davis later pointed out to me, we should have held a press conference that night to explain the language more clearly. We would have saved ourselves a lot of trouble had we emphasized that our proposal was an outline. But the entire staff was crunching to get the language right, and there was no time to consider niceties like news conferences. Later, of course, we would hold many such late-night press briefings. with TARP sketched out, a temporary money market guarantee in place, and a short-selling ban in operation, I still couldn’t breathe easily, because of the intense pressure on Morgan Stanley and Goldman Sachs. They were the top two investment banks in the world—not only for their prestige but also for the sheer size of their balance sheets, their trading books, and their exposures. Their counterparty risk was enormous, much bigger than Lehman’s. And we unequivocally knew that the market could not tolerate another failure like that of Lehman. Stanley was particularly beset. Friday’s government actions had done wonders for its shares, which rose 21 percent to $27.21, and its credit default rates had fallen by more than a third. But its clients and counterparties had lost confidence; since Monday, hedge funds had been pulling their prime brokerage accounts, and other institutions were shying away from the firm. In one week the reserves available to the Morgan Stanley parent company had plunged from about $81 billion to $31 billion. We knew that if Morgan Stanley fell, the focus would turn to Goldman Sachs. Friday evening, around 6:30 p.m., John Mack called to update me. He was scrambling for a solution. He desperately needed a merger or a show of support from a strategic investor, but he had not gotten far with China Investment Corporation (CIC), Beijing’s sovereign wealth fund, which he had thought might consider an additional equity investment in his firm.
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