Free Web NovelJamie Dimon's press conference left the Federal Reserve with a major problem.
As losses from subprime mortgages continued to grow, the situation became even more serious after JPMorgan Chase abandoned its acquisition of Bear Stearns.
The Federal Reserve Board immediately convened an emergency meeting to discuss countermeasures.
Despite the late hour, the lights inside the Fed headquarters in Washington, D.C. blazed brightly.
Chairman Ben Bernanke hurried into the conference room, where Vice Chairman Donald Kohn and the other governors were already seated.
“What is the meaning of this? JPMorgan Chase abandoning the acquisition of Bear Stearns? Wasn't that what you said, Chairman? That JPMorgan would acquire Bear Stearns no matter what, and that we should put out the immediate fire first? How exactly do you intend to explain this?”
The moment Bernanke entered, Donald launched the attack.
Not only Donald, but the other governors also wore grim expressions.
In response to the criticism, Bernanke let out a deep sigh.
“What's done is done.”
“Exactly! Shouldn't you have prepared an alternative plan beforehand? Chairman, am I wrong?”
“Vice Chairman, this isn't the time to assign blame. It's time to discuss solutions.”
Bernanke's calm response made a vein bulge on Donald's forehead.
Donald glared at him and was about to speak again when someone intervened to cool the overheated atmosphere.
“Chairman. Vice Chairman. Save the fighting for later. Let's decide what we're going to do first.”
The speaker was Randall Kroszner.
Organizing the documents on the table, he continued.
“JPMorgan Chase publicly announced that it will not proceed with the acquisition, and they're not going to reverse that decision. If they were simply negotiating terms or price, they wouldn't have done it this way.”
Mergers and acquisitions always involved negotiations.
But those negotiations normally took place behind closed doors.
If the conditions or price were unsatisfactory, adjustments could be made.
Jamie Dimon had done none of that. Without any consultation with the Fed, he had unilaterally held a press conference.
“The liquidity crisis at Bear Stearns is real. If we fail to resolve it, we'll see a domino effect. Other financial institutions may also face liquidity crises.”
Picking up from there, Elizabeth Duke spoke.
“We don't have time to waste arguing about responsibility. We need to come up with a solution immediately.”
Her words cast a heavy silence over the room.
An intense debate followed, but even when the morning sun rose, the meeting still hadn't ended.
There was nothing the Fed could decide on its own.
In the end, Bernanke requested that the Treasury Secretary and the President of the New York Fed attend the meeting.
Both men canceled all their schedules and rushed over.
With a grave expression, Bernanke explained the situation.
Treasury Secretary Henry Paulson and New York Federal Reserve President Timothy Geithner focused their eyes on the documents before them and their ears on Bernanke's words.
“...If we don't intervene, Bear Stearns will fail. But Bear Stearns itself isn't the real issue. Its collapse will trigger a chain reaction of bankruptcies.”
As soon as Bernanke finished speaking, Geithner raised his hand.
“So our options are either to liquidate all of Bear Stearns' assets and proceed with bankruptcy, or provide emergency financial assistance.”
“That's right. Bankruptcy or rescue. Those are the choices.”
Paulson furrowed his brow slightly and added,
“If we provide a bailout, under what conditions can it be carried out? We need to proceed very carefully because public and market confidence are at stake. People are already unhappy about the proposal to sell Bear Stearns to JPMorgan Chase.”
Bernanke let out another deep sigh.
As he hesitated, choosing his words, Geithner asked again,
“Chairman, are there any other financial institutions interested in Bear Stearns?”
“No.”
“That's strange. Even if it's on the brink of collapse, opportunities to acquire a firm like Bear Stearns rarely appear on the market. Why is nobody interested?”
“Well...”
“Because most financial institutions aren't much different from Bear Stearns.”
The answer came from Vice Chairman Donald.
Everyone turned toward him.
“Why do you think JPMorgan Chase backed out? Because they're also heavily invested in mortgage-related derivatives. If even JPMorgan is in that position, the other institutions are probably in even worse shape. Isn't that why nobody wants to touch the deal? Am I wrong, Chairman?”
Bernanke stared at Donald without answering.
Why is he acting like this? He's been attacking me all day. He's not usually like this.
Suppressing his anger, Bernanke gathered his thoughts.
Through David Rockefeller, he had attempted to arrange a sale of Bear Stearns.
Not only Rockefeller, but everyone connected to him had refused even to review the proposal.
“...Perhaps. But we don't know for certain.”
“Hah! You might as well try covering the sky with your palm, Chairman.”
“Vice Chairman!”
“Now, now. That's enough. Let's discuss solutions. Solutions.”
As the atmosphere between the two men turned hostile, Secretary Paulson tapped the table lightly.
“So what's the Fed's position? What exactly do you propose?”
“First, we'll provide liquidity to prevent the immediate crisis and then seek an institution willing to acquire Bear Stearns—”
Bernanke outlined the Fed's thinking.
As they listened, Geithner and Paulson organized the complicated situation in their minds.
When Bernanke finished, Geithner spoke.
“Simply providing liquidity may not be enough. To restore confidence in the market, we'll need a much larger bailout package.”
“A larger bailout package?”
“Yes, Secretary. First, we need to sort through Bear Stearns' assets and determine the exact amount of funding required.”
Opening the documents before him, Geithner continued.
“Alongside emergency assistance, we need a plan to deal with the toxic assets they're holding.”
As Paulson reviewed the materials, he looked at Bernanke.
“How much funding do you estimate will be necessary for this, Chairman Bernanke?”
“The scale of Bear Stearns' bad assets is substantial. Initially, we'll need at least thirty billion dollars.”
At the mention of thirty billion dollars, Paulson's brow tightened.
Almost as if lamenting the figure, he repeated it.
“Thirty billion dollars...”
The amount was larger than he had expected.
Several minutes passed before he spoke again.
“Very well. The Treasury will prepare the necessary funds. However, we need political support. Securing congressional approval for the bailout package will be essential.”
The discussion continued for quite some time.
Eventually, Bernanke reached a conclusion.
“Then let's proceed this way. The Fed will immediately provide liquidity, while the Treasury focuses on stabilizing financial markets through asset purchases from Bear Stearns. At the same time, we'll work with Congress to establish a larger bailout package.”
After hours of deliberation, the Board and the government agreed to present a united front.
The Fed would provide liquidity through an emergency rescue program, while the Treasury would supply the necessary funding.
Before the meeting concluded, Paulson added one final point.
“However, we must clearly define how Bear Stearns uses those funds. Everything must be transparent and disclosed to the public.”
A few days later, the Fed and the Treasury held a press conference to announce the emergency rescue plan.
Standing before the microphones, Bernanke began calmly.
“Today, we have made an important decision for the stability of the financial system. The Federal Reserve and the Treasury Department will jointly provide emergency financial assistance to Bear Stearns. This measure is intended to restore confidence in the markets and prevent a larger financial crisis.”
Paulson followed.
“With this support, Bear Stearns will be able to resolve its troubled assets and continue normal business operations. Throughout this process, transparency will remain our highest priority as we work to regain public trust.”
The Federal Reserve and the U.S. government had decided to save Bear Stearns.
As the news spread across the country, Wall Street, which had been gripped by fear, breathed a collective sigh of relief.
However, no one could predict what impact this decision would ultimately have on the financial markets.
* * *
After watching the announcements from the Fed and the U.S. Treasury, I switched off the television.
The corners of my mouth rose on their own.
Jamie Dimon, who had been watching with me, spoke first.
“So they decided to save Bear Stearns after all.”
“They did. Out of all the available choices, the Fed picked the worst one.”
“The worst one? Why? Saving Bear Stearns seems like a good decision.”
Like Jamie, most people were probably thinking the same thing.
Sure enough, when I glanced at the monitor on the wall, the stock indices were surging.
Institutions, the public, and the market were all treating the Fed's decision as positive news.
“The bailout package isn't enough without congressional approval.”
Jamie nodded as though he already knew.
“But why would either the Republicans or the Democrats oppose it?”
“Well. Does the Democratic Party really need to support it?”
“Charlie, the Democrats are very close to Wall Street.”
The Democratic Party had deep ties to Wall Street.
The repeal of Glass-Steagall, one of Wall Street's long-cherished goals, had been achieved under a Democratic administration.
Even afterward, Wall Street investors continued donating heavily to Democratic politicians and influencing their policies.
“The Republicans will try to pass it no matter what. If they fail to stop this crisis, they'll definitely lose next year's presidential election.”
“That's true. Neither party has much reason to oppose a bailout package. Of course, the primary candidates will want to differentiate themselves from Hillary, so it won't be entirely straightforward.”
The clear frontrunner for the Democratic nomination was Hillary Clinton.
She had announced her presidential campaign first.
After her came Barack Obama.
For now, it looked like a battle between Hillary and Obama.
Hillary had the support of party insiders, while Obama was rapidly gaining momentum with the public.
But behind them, other heavyweight Democrats had also begun announcing their candidacies.
John Edwards.
Joe Biden.
Chris Dodd.
Bill Richardson.
Slowly rubbing my chin, I spoke.
“There's still plenty of time before the primaries. By then, politicians will start taking positions different from Hillary's in order to distinguish themselves.”
“Even so, Hillary still has over a ninety percent chance of winning. A lot of wealthy Wall Street figures have already lined up behind her.”
Money tends to attract votes.
I smiled and looked at Jamie Dimon.
“I’m not one of them.”
“Charlie, who are you supporting?”
Instead of answering, I checked the time and asked,
“Chairman, we're in the same boat now, aren't we?”
“Yes. Even if I wanted to get off now, I couldn't. Not for my own sake, and not for JPMorgan Chase.”
“Good. He should be arriving soon.”
“Huh? Who's coming?”
A moment later, Manager Ma entered with a guest.
The man who arrived at the penthouse alongside Manager Ma was none other than Barack Obama, who had recently declared his candidacy for President of the United States.
