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In Crucible of Crisis, Paulson, Bernanke, Geithner Forge a Committee of Three
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The men's influence and their different roles were on full display Saturday, a night that remade modern Wall Street.
Storied investment house Lehman was on the brink of insolvency.
Paulson, trusted in the tight network of Wall Street executives and long experienced in reading between the lines of their comments, emerged from a private meeting with Merrill Lynch chief executive John A. Thain, and concluded that a proposed emergency sale of Lehman to Bank of America would not take place. Lehman's collapse, he realized, was all but certain.
He broke the news to the other two men and their senior staff members in a large conference room down the hall from Geithner's office on the 13th floor of the New York Fed. Plates of lasagna and papers littered the table.
It was gut-check time: Were they willing to let the firm fail even if it caused unpredictable ripples across the financial system?
On the speaker phone from Washington, Bernanke drew on his deep knowledge of past financial crises to be sure the group had considered every other option, and he shared the views he had gathered that afternoon of fellow central bankers in Europe and beyond.
Geithner's staff over previous weeks had studied the probable fallout of a potential Lehman bankruptcy and advised that the coming days, though difficult, would probably not be disastrous. He was ready to launch an effort to contain the damage in the financial markets.
In the end, the group agreed a government rescue of Lehman posed long-term dangers, possibly inviting other firms to take unnecessary risks in the belief they too would be bailed out if they stumbled. They had been discussing the prospect of a Lehman failure for weeks and determined that Wall Street could absorb the blow.
The meeting broke up.
High above the narrow streets of lower Manhattan, the committee of three had just decided that the 158-year-old Lehman would be allowed to fail.
* * *
This partnership was born of an intellectual kinship that has brought the men closer than most of their predecessors and has been forged by the mounting financial crisis.
