A closed-door meeting was underway at the Federal Reserve headquarters.
President Bush wasn't in attendance today, but that didn't diminish the weight of the meeting.
In fact, it meant he had handed over full authority to the Fed and the Treasury.
It was a clear signal: he would not interfere, and the two bodies should resolve the issue through mutual agreement.
Besides the government officials, only two outsiders were present at the meeting:
Myself and Dimon—two individuals holding the largest amounts of subprime mortgage bond insurance on Wall Street.
As we took our seats, the Deputy Secretary of the Treasury, who appeared to be moderating the meeting, greeted us with thanks. He held a slightly larger microphone, signaling his role as chair.
"I'd like to extend my deepest gratitude to both of you for coming such a long way."
"How could I refuse the call of the U.S. government? I've always been someone who wishes for America's prosperity."
"And yet that same man holds a mountain of insured subprime bonds! You must have a face made of steel."
One of the Fed governors raised his voice.
He was likely part of Chairman Bernanke's circle, trying to score points by making a show of indignation.
"My apologies. You seem quite upset with me. In that case, I'll excuse myself. When you've calmed down, please feel free to call again."
"FinTech Bank will also take its leave. We had no idea this would be the atmosphere. Calling people all the way to Washington just to insult them? How courteous."
Dimon and I stood up simultaneously.
It wasn't just for show—we actually walked out of the room.
Immediately, Treasury officials rushed out after us in a panic.
"The Fed has been under heavy fire from the press lately. Emotions are running high. We sincerely apologize and will make sure to address it."
"We mean no offense to the Treasury, but if they're going to treat us like subordinates, there's no point in continuing. They might as well issue a directive. Then we'll decide whether to agree or not."
"We truly apologize. If you return now, the Fed's board is prepared to offer an official apology."
The Deputy Secretary of the Treasury looked flustered.
Dimon and I exchanged glances and gave each other a quick wink before returning to the meeting room.
We sat back down, expressions firm, and the Fed official who had lashed out earlier offered an apology.
"…I let my emotions get the better of me. Please accept my apology."
"How can the Federal Reserve, the very institution leading not just the U.S. economy but the global one, let emotions dictate its actions? That's how we ended up with this mess…"
Dimon delivered a sharp jab.
He intentionally trailed off at the end, but the implication was clear: the Fed was at the heart of the subprime mortgage crisis.
It was a deliberate provocation meant to stir emotions, but whatever was said while we were outside must have done the trick—they didn't lash out again.
"Let's all calm down. We're all professionals here, so I'll skip the background and get straight to the point of this negotiation. Most Wall Street financial institutions are in deep trouble. If immediate action isn't taken, more than 50% of them could go bankrupt. In particular, the insurance holdings by the two of you are the biggest issue."
Now this was how it should've started.
They'd called us here because they needed something from us.
And in any negotiation, the party in need never raises their voice.
The Fed side stayed deathly quiet, while the Deputy Secretary of the Treasury continued.
"The payout from these insurance contracts alone is projected to be at least 300 to 400 billion dollars. Without a solution to this issue, no financial institution will survive."
I looked at Dimon.
As far as I knew, the total insurance payouts between our two firms amounted to about 300 billion dollars.
But if the potential liability was now up to 400 billion, it meant Dimon had written even more policies in the meantime.
Wink.
Dimon exaggeratedly blinked one eye at lightning speed.
It seemed to say, "Impressed? Give me some credit."
Suppressing a smirk, I responded to the Deputy Secretary.
"I trust you're not about to ask us to forgo the full payout. Surely not."
"The United States is a free and democratic nation. We have no intention of making any unreasonable demands. Our goal is to negotiate within the bounds of reason. For instance, if there are specific companies or assets you're interested in, we'll do our utmost to assist you."
So the shopping spree had officially begun.
All we had to do was pick the ripest, juiciest fruit from the tree—and the Treasury and Fed were promising to place it directly into our mouths.
"First, we'd like to see a complete list of failing financial institutions, along with their balance sheets and liabilities."
"We anticipated that. Please take a look at the screen—there you'll find a detailed summary of the major institutions and their current positions."
The materials had been prepared jointly by the Treasury and the Federal Reserve.
They detailed the deficits and losses of each company far more thoroughly than what we already knew.
Some entries were marked with a "V."
"I'd like to know what the 'V' marks signify."
"They indicate institutions designated for emergency capital support, as decided by both the Treasury and the Fed. Of course, that support hinges on your cooperation. Without a resolution to the insurance payout issue, even capital injections won't prevent their collapse."
Only a few companies had the "V" designation.
But as expected, the largest U.S. insurance company— AIG —was marked with a large, bold V.
"There's a slightly different symbol next to AIG. It looks unlike the others."
"That's because AIG is a non-negotiable rescue target. If AIG goes under, it will deal a severe blow to the American public. We ask for your understanding on this matter."
It was clear they were determined to save AIG.
The officials' posture made it obvious: if we could help stabilize AIG, they were ready to accept any conditions we proposed.
"I have a proposal. If SAVE Investment is allowed to acquire AIG, I'll agree to cancel my insurance claims."
"…You're proposing to acquire AIG?"
It was the first time they bared their teeth—figuratively.
If SAVE Investment could acquire AIG, the largest insurance company in America, it would instantly be transformed into a financial giant.
"Are you confident you can handle it? With SAVE's current scale, managing AIG properly may be impossible. It could create an even larger ticking time bomb."
"We're fully capable. I'll explain our strategy in detail later. For now, let's start by discussing the acquisition price."
We had no intention of paying top dollar.
AIG's stock was hovering around $20, but once its real losses were disclosed, it would inevitably crash to around $3.
"If you're willing to acquire it at the current price, we won't stop you. The Treasury and Fed will provide full support and even consider partial debt relief."
"I won't be buying at the current price. I'll purchase AIG after all of its toxic assets and losses have been publicly disclosed—and at the price that reflects that reality."
"How low do you think AIG's stock is going to fall?"
"I expect the price will fall to at least four dollars."
"You're saying you want to acquire the largest insurance company in the U.S. for just four dollars a share? That's outrageous…"
A member of the Fed's board raised his voice again.
He trailed off mid-sentence—likely due to having been reprimanded earlier—but the words he wanted to say were obvious.
'Outright robbery!'
"I only want to acquire it at a fair price. To be perfectly honest, I'd make far more money by simply collecting the insurance payouts. But I'm willing to take a major financial hit and acquire AIG—for the good of the U.S. government and the American people."
"Do you seriously expect us to believe that? Four dollars is absurd!"
"Let's all calm down. I'll add my thoughts as well. Four dollars is far too low. Sure, once the full scope of the losses is disclosed, the stock price will drop further, but AIG should still be valued at half its current price at the very least."
Half? So, ten dollars a share?
That was more than double the price I had proposed.
Roughly $150 billion. It could be done, if SAVE Investment poured in nearly all its available capital.
But I wasn't about to give up my insurance payout and pay $150 billion on top of that.
"When you factor in the acquisition cost and the insurance payout I'm forfeiting, we're talking over $200 billion. Don't you think that's a bit excessive? Can the U.S. government even justify supporting a single firm to that extent?"
"…"
"Still, four dollars is too much of a lowball! Frankly, it's starting to feel like you orchestrated this whole crisis just to snatch up AIG on the cheap."
The Treasury Undersecretary said nothing.
But someone from the Fed stepped in and hurled the accusation in his place.
It implied that I had intentionally caused the subprime mortgage crisis—an obvious attempt to shift blame away from the Fed and onto me.
"I didn't realize I had such immense power."
"Even the biggest forest fires begin with a tiny spark. Who's to say it wasn't your spark that started this inferno?"
So that's how they want to play it?
Up until now, I'd been doing my best to keep calm.
But if I just sat there and took this kind of abuse, I'd be nothing more than a pushover.
"This whole crisis is essentially a massive fraud perpetrated by Wall Street. And what did the Fed —which is supposed to monitor fraud—do during all this? Were you so incompetent that you didn't know? Or did you pretend not to know? If it's the latter, then you're an accomplice to the fraud."
"Are you saying the Federal Reserve took part in a fraud?! What is this nonsense?!"
"You accused me of being the fraudster, so I'm just returning the favor. Besides, I've been sounding the alarm about this crisis for years . Here—please display this file on the screen."
I handed a USB drive to the Treasury Undersecretary.
He glanced through the contents on his laptop and sighed deeply, then projected the materials onto the screen.
"As you can see, we regularly submitted reports to the Fed. We clearly outlined the risks and fallout of the current crisis, complete with detailed figures. Did you even read them?"
"Ahem. The Fed receives too many reports to respond to each and every one in detail."
"So, you ignored my warnings, and still have the nerve to accuse me of being the cause of all this? I did everything I could to prevent this disaster. Taking out insurance on subprime mortgage securities was a last resort. And what exactly did the Fed do in that time?"
"…"
The Fed had gone completely silent.
Compared to us—just a Wall Street investment firm—they'd done almost nothing.
No wonder they had nothing to say.
"I get it. No one wants to take the blame. But don't try to shift it onto me. Let me ask you this: If someone saves a drowning man, is it fair for that man to demand the rescuer hand over his bag? Where's your conscience?"
"Everyone's getting a little heated. Let's all calm down and resume the AIG acquisition price negotiations, shall we?"
Finally, Chairman Bernanke spoke up.
He had remained on the sidelines until now, but with things spiraling, he was stepping in.
"Four dollars! Frankly, even that's a loss for me."
"Come on, help us out a little. How about seven dollars? The Fed and U.S. government will give you their full backing."
"Four dollars! That's as far as I go."
I'd been waiting to say that line.
That iconic line from Korean dramas: "Four dollars!"
I wasn't the one in need here. They'd accept my offer in the end.
TL/n -
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