Page 652 - untitled

Notes to Chapter 20 623

89. Bair, interview.
90. FDIC memo to the FDIC Board of Directors, p. 8; Corston, written testimony for the FCIC, Sep-
tember 1, 2010, p. 10.
91. Specifically, under Wachovia’s proposal, the FDIC would provide credit protection on $200 billion
of loans, while Wachovia would absorb the first $25 billion in losses and the FDIC would potentially in-
cur losses on the balance of the $200 billion. To offset that risk, Wachovia proposed that the FDIC receive
$10 billion in preferred stock and warrants on common shares (FDIC memo to the FDIC Board of Direc-
tors, p. 8).
92. The FDIC board has five members: the comptroller of the currency, the director of OTS, and three
other members appointed by the president. In Too Big to Fail: The Inside Story of How Wall Street and
Washington Fought to Save the Financial System from Crisis—and Themselves (New York: Viking, 2009),
Andrew Ross Sorkin (p. 497) wrote that before the September 29, 2008, FDIC board meeting, New York
Federal Reserve Governor Geithner and other officials had a conference call with Bair (Paulson recused
himself) during which Geithner urged Bair to help Citigroup acquire Wachovia by guaranteeing some of
its potential losses. Geithner argued that allowing the FDIC to take over Wachovia would have the effect
of wiping out shareholders and bond holders, which, he was convinced, would only spook the markets.
He was still furious with Bair for the way she had abruptly taken over Washington Mutual, which had
had a deleterious effect on investor confidence.
93. Federal Deposit Insurance Corporation Board of Directors meeting, September 29, 2008, tran-
script, pp. 21–22.
94. Minutes of telephonic meeting of the FDIC board, September 29, 2008, p. 8.
95. Ibid.; the $34.6 billion figure is as of September 30, 2008 (FDIC staff, memo to the Board of Direc-
tors, subject: “Third Quarter 2008 CFO Report to the Board,” November 21, 2008, p. 1).
96. Minutes of telephonic meeting of the FDIC board, September 29, 2008, p. 8.
97. Bair, interview.
98. Steel, written testimony for the FCIC, September 1, 2010, p. 4. On the board’s vote and the agree-
ment in principle, see Steel, interview; see also Affidavit of Robert K. Steel, dated October 5, 2008, filed in
Wachovia Corp. v. Citigroup, Inc., Case No. 08-cv-085093-SAS (S.D.N.Y.), pp. 3–4 and exhibit A.
99. Fed Chairman Ben Bernanke, letter to FCIC Chairman Phil Angelides, December 21, 2010.
100. Wachtell, Lipton, Rosen & Katz, on behalf of Wells, letter to Division of Corporation Finance,
SEC, November 17, 2008, p. 3.
101. Richard Kovacevich, interview by FCIC, August 24, 2010.
102. Bair, interview.
103. Steel, interview.
104. Bair, interview. In his interview, Treasury’s Kashkari told the FCIC that he disagreed. He felt that
the highest priority was to transfer the risk of banks’ troubled assets from the financial system to the gov-
ernment. Citigroup’s FDIC-assisted acquisition would have removed potential losses on $270 billion of
assets from the financial system by transferring those potential losses to the FDIC.
105. “Wells Fargo, Wachovia Agree to Merge: Creating Premier Coast-To-Coast Financial Services
Franchise without Government Assistance,” Wells Fargo press release, October 3, 2008.
106. Rich Delmar, Treasury Office of the Inspector General, interview by FCIC, August 25, 2010; Rich
Delmar, memorandum for Inspector General Eric M. Thorson, “Inquiry Regarding IRS Notice 2008-83,”
September 3, 2009, pp. 3, 5, 11–12.
107. Richard Levy, interview by FCIC, August 19, 2010.
108. “Statement by Secretary Henry M. Paulson, Jr. on Comprehensive Approach to Market Develop-
ments,” Treasury Department press release, September 19, 2008.
109. Senators Christopher J. Dodd and Richard C. Shelby, remarks before the Senate Committee on
Banking, Housing, and Urban Affairs, Turmoil in U.S. Credit Markets: Recent Actions Regarding Govern-
ment-Sponsored Entities, Investment Banks, and Other Financial Institutions, 110th Cong., 2nd sess., Sep-
tember 23, 2008, transcript, pp. 3, 6.
110. Secretary Henry Paulson, testimony before the Senate Banking Committee, Turmoil in the U.S.
Credit Markets, transcript, p. 37.
111. Fed Chairman Ben Bernanke, “Economic Outlook,” testimony before the Joint Economic Com-
mittee, 110th Cong., 2nd sess., September 24, 2008, transcript.