Inside The Meeting That Led To Partial Nationalization Of America's Largest Banks

The Wall Street Journal has a fascinating look inside the meeting, between Treasury Secretary Paulson, Fed Chief Bernanke, and the heads of America's major banks, which led to the partial nationalization of the nine largest US banks:

The participants, among the nation's best deal makers, were in a peculiar position. They weren't allowed to negotiate. Mr. Paulson requested that each of them sign. It was for their own good and the good of the country, he said, according to a person in the room.

During the discussion, the most animated response came from Wells Fargo Chairman Richard Kovacevich, say people present. Why was this necessary, he asked. Why did the government need to buy stakes in these banks?

Morgan Stanley Chief Executive John Mack, whose company was among the most vulnerable in the group to the swirling financial crisis, quickly signed.

Toward the end of the meeting, Bank of America's Kenneth Lewis said the debate had lasted long enough, and everyone needed to sign...

...U.S. officials argued the plan represented a good deal for the banks: The government would be buying preferred shares, and thus wouldn't dilute their common shareholders. And the banks would pay a relatively modest 5% in annual dividend payments.

The meeting ended at about 4 p.m. By 6:30 p.m., all of the sheets had been turned in and signed by the CEOs. No second meeting was held.

Read the full story here. (Subscription required)

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Read more at HuffPost's Financial Crisis BigNews Page.

Comments

[geobushono]

so am I to believe paulson walks in a room with 250 bn$ in gifts and he needs to cajole??
These criminals should all be hanged....­.there might be a couple of innocents, but that's the nature of capital punishment.

[PT6]

This is a CRISIS of CONFIDENCE in the BUSH-CHENE­Y-REPUBLIC­AN ADMINISTRATION!

We need a CHANGE immediately following the election!

Tonight will McCain "Fake concern" about the Middle-Class?

In 2000 Bush "Faked out the Middle Class" in his speeches and debates leading up to the election!

In 2004 Bush again "Faked concern for the Middle Class” in the debates and speeches!

The TRACK RECORD of Republicans following through on PROMISES to the MIDDLE CLASS can only be RATED ZERO!

They have attacked and nearly disabled the Middle Class in Favor of the 1% Richest people in the World!

[KillTheMessenger]

This whole "story" is completely meaningless unless we get to see the document. Anybody got a link?

It makes for a great show, though. Mr. Barnum would be proud. I think we have just witnessed the birth of 300 million suckers, everybody in that room included. That must be a record.

[freshnotbitter]

What a wonderful theater.

The little orphan banks pretend that Daddy Warbucks forced them to sign so later when they want out they go to a republican supreme court and get a reversal, just at the most propitious moment, just as the steel companies were able to do against Truman ( justifiably in the latter case).

"We signed under duress". Yeah, sure.

[nezumi]

Actually, I fail to see why an injection of funds into banks with no voting rights is a 'nationalization'.

So far as I read the news, no binding strings were attached on how the banks are supposed to use the funds entrusted to them. Or how they could be prevented to return to their bad old ways, and pack golden parachutes.

As it is, it is rather a chrismas gift to banks.

[funkalicious]

This isn't the nationalization of the banks this is allowing the banks to take over the Treasury.
It is a straight stock deal where the banks p[ut up nothing and can force the populace to prop up their salaries and profligate wild west derivative shadow banking unregulated markets.

Bush Assures us this morning that the new enterprise will not be run by our electorate but by the private bankers themselves.
Next they will hire their own armies and just charge the people directly. No vote no worries.

What has happened is fascism, where private interests take control of government and redirect the government's income stream into their own coffers.

All that's left is for the private interests to align themselves with the military and jointly name a CEO to run the whole enterprise.

Welcome to the Fascist State of America.

[Chavez08]

"Mmmmmmm!! I can't believe it's not Marx!"

[Rachel36]

I see Ben is sleeping on the job again! And Harry, keep looking over shoulder dude! You never know who or what is coming up behind you.

[jmpfjoy]

What's really going on here? There have been times during this crisis that I don't feel like I live in a democracy. I'm not a big fan of conspiracy theories, but it seems to me that we have given an enormous amount of power to just a few individuals without a whole lot of explanation as to why this is necessary. Socialism? Sounds more like communism to me.

Where is our leadership?? Why aren't these perpetrators in jail? They have done more to destroy our country than any terrorist group ever could.

[Erdgeist]

The problem with the bailout plan is that it still doesn't address the fundamental problem. It still lets the foxes stay in control who made the original risky decisions. The government by taking an equity stake in these fox dens with non-voting shares has taken a half-ass approach. It should have also insisted on control and rigid oversight. Odds are, the bailout will probably not work.

History also says it won't work. In 1932 Hoover Administration's own ineffective bailout under the Reconstruction Finance Corporation (RFC) only helped his friends and cronies, letting them do as they pleased. In 1933, the banks failed again.

Treasury Secretary Paulson's plan is far too Hooverian. There is noting in it to prevent the government from being gamed by the clever foxes at Goldman Sachs, for example.

I will be happy to be proven wrong -- but I don't think that I will. Treasury Secretary Paulson and Fed Chief Bernanke need to read their history books and act from the lessons of history -- not from their arrogance. As Hegel wisely remarked long ago, "...govern­ments never have learned anything from history, or acted on principles deduced from it."

[tyrdofwaitin]

The Chickens have come home to roost and the barnyard Roosters know they'd better sign on to the new management or else....th­ey might wind up on someone's dinner plate.

[Chavez08]

Can anyone tell me why Washington is doing this?:

"The 3rd Infantry Division's 1st Brigade Combat Team has spent 35 of the last 60 months in Iraq patrolling in full battle rattle, helping restore essential services and escorting supply convoys.

Now they're training for the same mission — with a twist — at home.

http://www.militarytimes.com/forum/showthread.php?t=1568518

[Maschine]

Whats the difference between Republicans and Democrats.

When a Democrat fails, he usually impales himself...­.When a Republican fails, he makes sure everyone fails.

[drec1500Madrid]

Seems like they all had to put on a tough guy act before they signed on the dotted line.

[ATruthBeKnown]

This needed to be done. I read in another article that Jamie at JP Morgan Chase was upset about the intervention. He was also miffed about Main Street thinking Wall Street is full of crooks.

Well here's the truth. I have personal experience with both Ken Lewis and Jamie Dimon. They both have HUGE egos (be #1) to the point of supporting business expansion at the customer expense. Both support "leverage, leverage, leverage" to any legal extent. Ask anyone in the industry and they will tell you away from these two.

To: Barack Obama,

Rumor has it that you are considering one of these men for Secretary of Treasury. FORGET IT !!!!! NO, NADA, NEIN, NO WAY !!!!. They are as effective as Paulson.He has been marginally effective. This has been due to his remaining ties to Sachs. Both of these guys would be worst. I recommend you consider some one with financial experience unaligned with any of the existing banks in this debacle.

Remember Treasury Secretary Paulson, Fed Chief Bernanke, have meet with the heads of the big banks. We have the problem with the industry and the problem(s) was in the room. It is these guys who control credit in the US. We are being held hostage by their egos and reckless behavior. I think they all need to be fired as they are the root cause. Each one of them need to on AC360 "Top Ten" contributors to this mess.

Have a nice day.