MICHELE NORRIS, host:
The top executives of America's nine biggest banks weren't told much. There was to be a meeting at 3 o'clock this past Monday. When the head of Morgan Stanley asked why he had to go to Washington to attend that meeting, the man on the other end of the phone wouldn't explain. That man was Treasury Secretary Henry Paulson. And so begins the story of one of the most important financial meetings in modern American history, a meeting when the country's top lenders met for one hour and agreed to accept government money in return for an ownership stake in their banks. Deborah Solomon is a staff writer for The Wall Street Journal, and she pieced together what actually happened behind closed doors this past Monday. And she joins us now. Welcome to the program.
Ms. DEBORAH SOLOMON (Staff Writer, The Wall Street Journal): Thank you.
NORRIS: Now, could you set the scene for us, Ms. Solomon. What were these executives told to actually get them down to Washington?
Ms. SOLOMON: Well, they weren't told much. But I guess when you have the Treasury secretary asking you to come to Washington, it may not take much to get you on a plane. Some of them were actually in town for the IMF-World Bank meeting. Some weren't. They were told just basically to be at Treasury at 3 o'clock. And Mr. Paulson said, we'll explain why we want to tell you all at the same time. Some he told, you know, we think you'll like what we have to say. And others, he just said, we'll tell you when you get here.
NORRIS: How interesting. So they all arrived. They sit in this big meeting room. And I understand they're seated around the table in alphabetical order.
Ms. SOLOMON: Yes, they're in alphabetical order with the regulators on the other side. So you had the Treasury secretary, Fed Chairman Ben Bernanke, New York Fed Chairman Tim Geithner, Sheila Bair, the head of the FDIC, facing all of these bankers. And at this very large conference room in Treasury - it's known as the Large Conference Room - they thought the meeting would go for several hours because nobody thought it would be easy to get these guys to sign on, but it went just for an hour. Mr. Paulson was very persuasive.
NORRIS: What kind of case did he make?
Ms. SOLOMON: Well, essentially he told them, and Chairman Bernanke did too, the economy is in pretty dire straights, and we need you guys to sign up for this program. We need banks to start lending again. And the only way they're going to do that is that if they have enough capital and they feel like they're comfortable enough to lend money. So we need you guys to step up and take money even if you think you don't need it, because other banks will see what you're doing, the stigma won't be there, and we will be able to restart the financial sector which has sort of been crippled by a credit crunch.
NORRIS: The health of the banks varies so much. Some of them really needed this injection of cash. Others didn't really depend on that.
Ms. SOLOMON: Right.
NORRIS: So how did Paulson make the case to a bank like Wells Fargo?
Ms. SOLOMON: Well, I mean, he basically said it's the collective good, but he drove a hard bargain. He sort of - we've been joking it was sort of his mafia moment. He made them an offer they couldn't refuse. Dick Kovacevich, who is the head of Wells Fargo, basically was arguing - and probably rightly so - we don't need more capital. You know, we are basically going to raise capital because we're taking over Wachovia. We don't want to have too much capital. We don't think we need to be a part of this program.
And Mr. Paulson put it in pretty blunt terms. He said, look, you can turn us down now, but if it turns out that you need to go out and raise more money - you know, we don't know what's going to happen. You may at some point need more capital. If that happens and you go out and you can't find a private investor to give you money, God help you if you come back to me, because you're not going to get as good terms and conditions the second time around. This is your shot.
NORRIS: Take it or leave it.
Ms. SOLOMON: Exactly.
NORRIS: The meeting, as you report, ended at 4 p.m. - around 4 p.m. And by 6:30 p.m., all the sheets and the paperwork had been turned in and signed by all of these CEOs. It's unusual for government to move that swiftly.
Ms. SOLOMON: Yeah. I mean, maybe this is because it's Mr. Paulson, and he's used to getting things done quickly. When he was at Goldman Sachs, you know, he was sort of known for wanting everything done yesterday. But there's just no time to waste. I mean, I've never seen people at Treasury so nervous as they have been in the last few weeks. They really have no idea where the bottom is, and they don't know what's going to turn it around.
This program, they think it's what's going to do it. And they knew they needed to act fast. So, you know, these guys, they're big guys. They can make decisions for their companies. And I think most of them talked to their boards, but at the end of the day they knew they were going to sign. And so they did.
NORRIS: Deborah Solomon, good to talk to you. Thanks so much.
Ms. SOLOMON: Thank you.
NORRIS: Deborah Solomon is a staff writer for The Wall Street Journal. Transcript provided by NPR, Copyright NPR.