Baron's time in New York was quite busy, personally communicating with numerous people.
For example, after the previous meeting, he met with the "bailout trio."
"We will inject capital into certain companies, gentlemen, but these injections require prior evaluation. We need to ensure the risk level of the assets held by the parties involved to ensure their continued soundness."
After hearing Baron's words, Paulson said,
"Thank you very much for your contribution to maintaining our financial security, Your Highness. I believe that with our coordination, we can develop the most feasible capital injection plan."
The so-called "bailout trio" refers to Paulson, Bergen, and Gaynor.
Paulson was currently the U.S. Secretary of the Treasury. Prior to that, he had served as President of Goldman Sachs—a testament to Goldman Sachs' influence in the United States. A significant number of their former executives have held positions as finance ministers and regional chairmen.
Bergen is the Chairman of the Federal Reserve, while Geithner is currently the President of the New York Fed. In Barron's previous life, and soon in the Obama administration, he would take over as Treasury Secretary.
These three individuals held significant influence and played a leading role in the current government bailout, earning them the nickname "the bailout trio."
Due to the controversy surrounding their previous bailouts, the trio preferred to use private companies and financial institutions like DS Group and Standard Chartered Bank to rescue and recapitalize some banks.
They welcomed Barron's statement and pledged to engage in "communication" on certain policy issues.
On
Monday, July 28, the Dow Jones Industrial Average fell 7% and the S&P 500 fell 8.8%, their largest single-day declines since the October 1987 stock market crash.
The plunge was caused by the House of Representatives' rejection of the $700 billion Troubled Asset Relief Plan by a vote of 228 to 205.
Two-thirds of the Republican Party and two-fifths of the Democratic Party voted against the bill.
The main disagreement over the $700 billion asset rescue plan proposed by Bush was that Democrats wanted to include taxes on the financial industry and limits on Wall Street executive pay. Paulson argued that the market wouldn't accept such a plan, arguing it would be like trying to save someone while simultaneously punishing them.
Another thorny issue was the timing of disbursement. Democrats were confident of an Obama victory and, therefore, didn't want the Bush administration's Treasury to use all the funds. They wanted to provide an initial $250 billion or $300 billion, leaving the rest to the incoming administration.
"Without that, wouldn't we be left with nothing?"
Deputy Governor Dick Cheney asked after the announcement.
"Doesn't the Federal Reserve have the power? Don't we have the power?"
"No, we don't,"
Paulson replied.
After the collapse of Lehman Brothers, Paulson realized he needed greater authority to carry out the bailout, and that authority required congressional authorization.
Paulson needed to ask Congress for funding to purchase distressed mortgages.
As early as July 17th, he submitted his plan to Bush for the acquisition of distressed assets.
Paulson spent considerable time deciding on the final figure of $700 billion.
Politically, $500 billion would upset Congress, $700 billion would be even more unpleasant, and anything closer to $1 trillion might be problematic.
On the other hand, with approximately $11 trillion in mortgages outstanding in the United States at the time, his professional judgment determined that $700 billion would be sufficient to stimulate market activity. On July 31st, during a lunch meeting between Paulson, Bernanke, and Bush, Paulson suggested that the asset purchase plan might also include a plan to acquire direct equity stakes in financial institutions.
This was Bernanke's long-held view: to inject capital directly into financial institutions when necessary.
However, this "nationalization"-like approach was difficult for the Democratic Party to accept.
That same day, the Troubled Asset Relief Program, supplemented with tax expansion, energy provisions, and a mental health parity bill, passed the Senate by a vote of 74 to 25.
On August 2nd, the $700 billion asset rescue plan returned to the House of Representatives for a vote, ultimately passing it by a vote of 263 to 171.
The plan provided for the Treasury to immediately deploy $250 billion, with an additional $100 billion available if the President certified it as necessary.
To disburse the remaining $350 billion, the Treasury had to submit a detailed report to Congress on its capital injection plan.
At 2:30 PM that day, Bush signed the bill, enacting it.
However, for then-Federal Reserve Chairman Ben Bernanke, this also meant that the Fed no longer had to shoulder the sole responsibility of restoring financial stability.
But the crisis continued.
…
At almost the same time, as the "bailout trio" struggled to gain congressional approval for the $700 billion asset rescue plan, Baron took action again.
After IC Capital invested $5 billion to acquire a 9% stake in Goldman Sachs, Morgan Stanley, one of the remaining five major Wall Street investment banks and, like Goldman Sachs, having completed its transformation into a bank holding company, also received a capital injection.
On July 30th, the British Fortune (BFT) fund reached an agreement with Morgan Stanley, the second-largest brokerage firm in the United States. BFT will acquire 20% of Morgan Stanley's common stock, becoming the bank's largest shareholder.
The acquisition price will be based on the average stock price of the previous 30 trading days. BFT will use approximately $8.5 billion to purchase newly issued Morgan Stanley shares.
According to the agreement reached between the two parties, after the acquisition of Morgan Stanley's shares is completed, BFT Fund will appoint one or more directors to Morgan Stanley's board of directors to participate in its management.
It can be said that at a time when Morgan Stanley most needed capital from strategic investors to stabilize market confidence, BFT Fund's $8.5 billion injection significantly alleviated its critical situation.
In fact, Morgan Stanley's initial request for help was from Huaxia.
To this end, Paulson specifically contacted Huaxia's senior management to persuade them to inject capital into Morgan Stanley, but the request was ultimately declined.
At the end of last year, Huaxia's sovereign wealth fund, China Investment Corporation, invested $5.6 billion in Morgan Stanley in the form of mandatory convertible bonds. This investment has now suffered significant losses.
CIC was considering increasing its stake in Morgan Stanley to 9.99%, but Huaxia's concerns about the security of the funds ultimately led to the suspension of negotiations.
At this time, BFT Fund's $8.5 billion in capital is of great significance to Morgan Stanley.
It's not just this one investment that significantly increases Morgan Stanley's chances of surviving the crisis; Baron's BFT Fund's willingness to invest heavily in Morgan Stanley demonstrates this globally renowned investor's confidence in the company—verbal praise may be false, but real investment never deceives.
At this moment, investor confidence is paramount.
Morgan Stanley CEO John Mack has even mentioned the BFT Fund's investment in nearly every public appearance. This investment, while truly significant, serves to bolster market confidence in Morgan Stanley.