Streetwise — Chapter 22: Don’t Get Dead

1. 1. Goldman Sachs is easier to manage in bad times because people are nervous and embarrassed to act selfishly, unlike in good times when everyone claims credit.
2. 2. Lehman CEO Dick Fuld refused to write down illiquid assets and rejected acquisition offers at prices below his unrealistic valuation, leading to the firm's collapse.
3. 3. Paulson and Geithner told bank CEOs that there would be no government money for Lehman, and it was their job to find a private-sector solution by Sunday.
4. 4. Goldman's analysis showed Lehman was not just illiquid but insolvent, with assets worth less than liabilities, making government intervention legally impossible.
5. 5. Blankfein opposed a collective bank-funded 'bad bank' for Lehman because it would drain capital from barely healthy banks and leave the system more vulnerable.
6. 6. The Barclays deal to buy Lehman's 'good' bank fell through when UK financial authorities blocked it after Bank of America withdrew.
7. 7. Lehman's bankruptcy triggered a money-market fund to 'break the buck,' causing a run and freezing withdrawals, showing that even cash-like assets became unsafe.
8. 8. AIG was far larger than Lehman with a trillion-dollar balance sheet, and its collapse would have spread contagion to the entire financial system and real economy.
9. 9. Blankfein ordered 'Fortress Goldman' stress tests to determine how long the firm could survive if no one paid what they owed and no new funding came.
10. 10. Geithner pushed for Goldman to merge with Citigroup, but Blankfein found Citi's net worth was negative by hundreds of billions due to mortgage exposure.
11. 11. A potential merger with Wachovia was called off because Treasury would not provide government support due to poor optics of aiding Paulson's former firm.
12. 12. Blankfein assessed the chance of Goldman's catastrophic failure at 15%, comparable to a turn at Russian roulette, though the firm never faced probable collapse.