“Oh, Joe!” Mervyn King, governor of the Bank of England, said to the Nobel laureate Joseph Stiglitz. It was Monday afternoon in an emptying auditorium across from the Empire State Building.
“Are you going?” Mr. Stiglitz asked.
Mr. King, a man who looks like his name should be Stamp Brooksbank or Delillers Carbonnel, apologetically nodded his silver head. He said that Mr. Stiglitz, whose work he’s been keeping up with, should let him know when he’s in Britain. Mr. Stiglitz, wearing a scratchy beard and a blazer with dandruff on the shoulders, turned. “Laura?”
“Nice to see you!” said Laura D. Tyson.
“You, too,” said Mr. Stiglitz, who succeeded her as chair of Bill Clinton’s Council of Economic Advisers when she left to become director of the National Economic Council.
“How’ve you been?” she said. A dreamy song by Beach House, the Baltimore duo, played outside, in the reception with Caribbean empanadas and assorted arepas.
“I’ve been fine!” said Mr. Stiglitz. “How are you? This is kind of a fun thing!”
“Oh,” said Ms. Tyson, holding a Naked juice, “even better than I thought it was going to be.”
It was the end of the first day of The Economist‘s Buttonwood Gathering. This was only its second year, and it had another day to go, but the auditorium already had that brawny and lacquered feeling certain spaces in New York City get when very important people are talking about very important things.
THE CONFERENCE BEGAN filling up Monday around noon, as a Fox News van idled outside, a few feet from a small group of protestors rallying against credit card rates. Justin Hendrix, The Economist‘s events chief, came onstage for an introductory pep talk. “I would like,” he said, “everyone to stand up, if you will, and introduce yourself to someone you don’t know.” An executive in a suit with a name tag that said he was Arvind Rajan of Prudential was not in the mood to talk to a reporter. Mr. Rajan was previously at Citigroup, where he was the global head of structured credit research, and where he quite literally wrote the book on CDOs, The Structured Credit Handbook.
Economist editor John Micklethwait came on next. Quoting Alfred Marshall’s 19th-century line about the dull heavy calm after panic and failure, he described himself as a paranoid optimist. His thick hair swooped down from left to right over his brow, above what will one day be stately English jowls. He introduced his U.S. economics editor, Greg Ip, who asked if states here could suffer crises in the not distant future. “There will be a terrible problem,” Warren Buffett said to the U.S. Financial Crisis Inquiry Commission this summer about municipal bonds, “and then the question becomes will the federal government help.”
It’s February 2013, Mr. Ip said, setting the scene, and a state called New Jefferson, a version of California with chunks of New York thrown in, is two days away from defaulting on a $1.5 billion debt. “Ladies and gentleman, the Buttonwood Gathering is pleased to present the fiscal crisis simulation scenario.”
“Alrighty!” Robert E. Rubin, the former Treasury secretary and Citi chairman, said, walking onstage to the big seat in between three on each side. “Good! Ha,” he said, looking to no one in particular at his right and smiling, excited. Mr. Rubin was the simulation’s director of the National Economic Council. “Well, let me start by thanking all of you for getting together so quickly. We have an immediate issue.” Mr. Rubin was really into it. “Today, as you know, is Monday. On Wednesday, they have a $1.5 billion debt come due,” he said. “The president asked us to get together to discuss what to do.”
A day earlier, The Times‘ Frank Rich had called Mr. Rubin one of the great villains of the financial crisis, a man who made $115 million encouraging Citi to ramp up high-risk investments after years of leading deregulation that made the risk possible. Mr. Rubin really had been the council’s chief under Mr. Clinton; when he left to lead the Treasury, Mr. Clinton replaced him with Ms. Tyson, who was onstage playing secretary.
His deputy was played by Jay Powell, George H. W. Bush’s undersecretary of the Treasury for finance, and then a partner at the Carlyle Group. As he talked, Mr. Rubin pushed his glasses up onto his brow and started to take notes. He checked something off with a big whoosh of the arm and then looked at Mr. Powell, looked at the audience and tore out a page from his pad. He wrote on it, tightened his mouth, finished writing and put it under his stack of papers. Then he leaned back to look offstage, took a sip from his mug, looked at his deputy, looked away and jotted down another note. He crossed his arm and scratched his bottom lip with his top row of teeth. He folded his hands below his nose, thoughtfully.
Everyone else was basically still. Ms. Tyson sat between Mr. Rubin and George W. Bush’s chief of staff, Josh Bolten, who was playing the chief of staff. He was next to the Columbia Business School dean Glenn Hubbard, who was playing the chair of the Council of Economic Advisers, which he’d also been under the younger Bush. (That was Ms. Tyson’s and then Mr. Stiglitz’s post, too.) It was like watching popes do a nativity play.
There were pieces of faux-news delivered onstage by an aide in a yellow tie. The governor had gone public with the crisis, trying to force the federal government to help. If we don’t provide support, Mr. Rubin explained, we risk a “Lehman-plus.” If we do, we risk moral hazard. “This is a big deal, you’ve got a horrendous dilemma,” he said. “I don’t know if we should blink.”
“I don’t know if we have to blink, “said Mr. Hubbard.
Blinking was nearly a foregone conclusion: People like these would never let something important fail, even when playing make-believe. Eventually, a 30-day loan was decided on, but with heavy strings attached. At the finale, breaking character, Mr. Rubin told the audience that the exercise should make them appreciate the crisis’ decision makers. “Seriously,” he said, deadpan, pursing his lips so that his tongue pushed out slightly between them.
Afterward, Mr. Powell, who helped write the simulation’s scripted sections, said that the point of the whole thing was to get people thinking about what we can do to avoid getting ourselves in another situation where the choice is between evils. “Because when it happens, when the system is really collapsing, policy makers don’t have a choice.”
Mr. Ip walked onstage and asked why management and creditors emerged mostly unscathed from the real-life bailouts. “It’s not entirely true that all of the bond holders and all the Wall Street fat cats escaped,” said Mr. Bolten. “That’s just the political impression.” He said that that very question had its own chapter in President Bush’s new memoir. “Available November 9,” he said, “from Crown Books.”
“I can’t tell you how ridiculous I find this to be,” a redheaded woman in the audience said. “Why not give us the clear message that there will not be a bailout?”
“That would be another way to go,” Ms. Tyson said. “No money ever.” Mr. Rubin picked at his lip.
MR. KING, THE ENGLISH governor, came on next, which, as it turned out, was amazing timing. “Banks should be financed much more heavily by equity rather than short-term debt, much, much more equity; much, much less short-term debt. Risky investments cannot be financed in any other way,” he said. “Of all the many ways of organizing banking, the worst is the one we have today.”
Buttonwood’s keynote speech is called the Bagehot Lecture, after the 19th-century English businessman. “The present crisis dwarfs anything Bagehot witnessed,” he said. “Bank of America today accounts for the same proportion of the U.S. banking system as all of the top 10 banks put together in 1960.”