In Crucible of Crisis, Paulson, Bernanke, Geithner Forge a Committee of Three

Gallery

Wall Street in Turmoil

Global stocks have experienced wild fluctuations this week in the wake of the U.S. government's seizure of insurance giant American International Group, the failure of Lehman Brothers, the disappearance of Merrill Lynch as an independent company and reports the U.S. government will set up a government entity to take on bad debts from financial institutions.

» LAUNCH PHOTO GALLERY

Geithner and Bernanke balked at elements of a blueprint, engineered by Paulson, to overhaul financial regulation that was announced in March. In particular, he proposed giving the Fed new responsibility for overseeing overall financial stability but was vague about whether new authority would come with it. Paulson also proposed moving day-to-day bank supervision out of the Fed, with which Geithner strongly disagreed.

After some tense conversations, the three agreed to disagree. The debate left no scars, Paulson said, and reinforced the candid working relationship they were developing.

As they have become closer, their interaction has lacked the pomp and formality that often accompanies high government office.

As the financial crisis accelerated this summer, the three men increasingly intruded on one another's family time.

After working through most of Labor Day weekend, Paulson and Bernanke went home Monday afternoon to see their families for a few hours. Neither could stop thinking about the failing mortgage giants Fannie Mae and Freddie Mac.

Paulson was taking his bike out for a ride with his wife through Rock Creek Park near his home when he suddenly decided to call Bernanke on his cellphone. The Fed chairman had taken his family on a rare outing to a Washington Nationals game with the season tickets he splits with White House Chief of Staff Josh Bolten.

Paulson and Bernanke chatted briefly about the score -- the Nationals were cruising to victory over the Philadelphia Phillies, their seventh straight win -- and then dove right into a detailed discussion of how the takeover would be carried out. There were hundreds of technical and legal issues to work out. Had these waited for formal consultation, a resolution could have been long in coming, if at all.

So as Paulson's wife rode on ahead and the crowd cheered at National Stadium, the two men, all but oblivious to their surroundings, talked on and on, laying out exactly how they would enact what was at that point the biggest government takeover in history.