Hank Paulson, CEO of CEOs

WSJ reports on the meeting between the government and the CEOs of the nation's nine largest banks:

For an hour, the nine executives drank coffee and water and listened to the two men paint a dire portrait of the U.S. economy and the unfolding financial crisis. As the meeting neared a close, each banker was handed a term sheet detailing how the government would take stakes valued at a combined $125 billion in their banks, and impose new restrictions on executive pay and dividend policies.

The participants, among the nation's best deal makers, were in a peculiar position. They weren't allowed to negotiate. Mr. Paulson requested that each of them sign. It was for their own good and the good of the country, he said, according to a person in the room.

During the discussion, the most animated response came from Wells Fargo Chairman Richard Kovacevich, say people present. Why was this necessary? he asked. Why did the government need to buy stakes in these banks?

Morgan Stanley Chief Executive John Mack, whose company was among the most vulnerable in the group to the swirling financial crisis, quickly signed.

Bank of America's Kenneth Lewis acknowledged the obvious, that everyone at the table would participate. "Any one of us who doesn't have a healthy fear of the unknown isn't paying attention," he said.

* * *

After Mr. Kovacevich voiced his concerns, Mr. Paulson described the deal starkly. He told the Wells Fargo chairman he could accept the government's money or risk going without the infusion. If the company found it needed capital later and Mr. Kovacevich couldn't raise money privately, Mr. Paulson promised the government wouldn't be so generous the second time around.

Mr. Bernanke said the situation was the worst the country had endured since the Great Depression. He said action was for the collective good, an understated appeal. The room was silent as he described the economy's fragile condition.

The CEOs shot off questions, peppering officials for details about how the share purchases would be structured and how it might constrain them. At one tense moment, Mr. Bernanke jumped in to calm nerves. The meeting didn't need to be confrontational, he said, describing paralysis in the market and the threat that posed to everyone in the room.

U.S. officials argued the plan represented a good deal for the banks: The government would be buying preferred shares, and thus wouldn't dilute their common shareholders. And the banks would pay a relatively modest 5% in annual dividend payments.

As unhappy as I am about the nationalization of private concerns that ideally should stay privatized, I'm not sure that John McCain and Barack Obama can bring the caliber of leadership that we currently see in the Treasury and the Fed. To be sure, Dubya made many mistakes (e.g. Paul O'Neil as his first SecTreas), but he did have daddy's GOP rolodex. McCain may not have the smarts for talent that younger Bush & Co. have; Obama will not have the connections to get even a Bob Rubin, will he?

UPDATE: Arnold Kling calls Paulson the American Mussolini. Who will ascend to Paulson's warm chair, Arnold? Be careful what you wish for!