Decision Points

would not only fail, it would bring down major financial institutions and international investors with it.
    The New York Fed had tried to line up a private-sector solution. Butno bank could raise the kind of money AIG needed in such little time. There was only one way to keep the firm alive: The federal government would have to step in. Ben Bernanke reported that AIG, unlike Lehman, held enough collateral from its stable insurance businesses to qualify for an emergency Fed loan. He laid out the terms: The New York Fed would lend AIG $85 billion secured by AIG’s stable and valuable insurance subsidiaries. In return, the government would receive a warrant for 79.9 percent of AIG’s shares.
    There was nothing appealing about the deal. It was basically a nationalization of America’s largest insurance company. Less than forty-eight hours after Lehman filed for bankruptcy, saving AIG would look like a glaring contradiction. But that was a hell of a lot better than a financial collapse.

    With the AIG rescue , we had endured three weeks of financial agony. Day after day, the news kept getting worse. I’d go into a meeting with the Dow up two hundred points and come out thirty minutes later with it down three hundred. The markets were anxious, and so was I. I felt like the captain of a sinking ship. The Treasury, the Fed, and my White House team were working around the clock, but all we were doing was bailing water. I decided that we couldn’t keep going like this. We had to patch the boat.
    On Thursday, September 18—three days after Lehman declared bankruptcy—the economic team convened in the Roosevelt Room. Ben raised the possibility of another Great Depression. Then Hank and SEC Chairman Chris Cox laid out the plan: guarantee all money market deposits, launch a new lending vehicle to restart the commercial paper market, temporarily ban the short sale of leading financial stocks, and purchase hundreds of billions of dollars in mortgage-backed securities—the initiative that would become known as the Troubled Asset Relief Program , or TARP.
    The strategy was a breathtaking intervention in the free market. It flew against all my instincts. But it was necessary to pull the country outof the panic. I decided that the only way to preserve the free market in the long run was to intervene in the short run.
    “You’ve got my backing, one hundred percent,” I told the team. “This is no longer a case-by-case deal. We tried to stem the tide, but the problem is deeper than we thought. This is systemic.”
    The conversation moved to a discussion of all the difficulties we would face on Capitol Hill. “We don’t have time to worry about politics,” I said. “Let’s figure out the right thing to do and do it.”
    I had made up my mind: The U.S. government was going all in.
    I reflected on everything we were facing. Over the past few weeks we had seen the failure of America’s two largest mortgage entities, the bankruptcy of a major investment bank, the sale of another, the nationalization of the world’s largest insurance company, and now the most drastic intervention in the free market since the presidency of Franklin Roosevelt. At the same time, Russia had invaded and occupied Georgia, Hurricane Ike had hit Texas, and America was fighting a two-front war in Iraq and Afghanistan. This was one ugly way to end the presidency.
    I didn’t feel sorry for myself. I knew there would be tough days. Self-pity is a pathetic quality in a leader. It sends such demoralizing signals to the team and the country. As well, I was comforted by my conviction that the Good Lord wouldn’t give a believer a burden he couldn’t handle.
    After the meeting, I walked around the Roosevelt Room and thanked everyone. I told them how grateful I was for their hard work, and how fortunate America was that they had chosen to serve. In the presidency, as in life, you have to play the hand you’re dealt. This wasn’t the hand any of us had hoped for, but we were damn sure going to play it as best we could.

    Hank and his team at Treasury pitched Congress hard on the financial rescue package. We proposed an appropriation of $700 billion—about 5 percent of the mortgage market, which we thought would be big enough to make a difference. Many legislators recognized the need for a large and decisive measure, but that didn’t diminish their shock or anger. Democrats complained that the executive branch was seizing too muchauthority. One Republican