BY JULIA COLLINS When the U.S. financial system came B R A VIEW FROM THE excruciatingly close to collapse in the fall of 2008, Rodge Cohen was suddenly the man to call 20 harvard law bulletin winter 2010
H. RODGIN COHEN ’68 , in Grand Central Station, on his way to Sullivan & Cromwell, where he served as chairman from 2000, becoming senior chairman in 2010 I N K winter 2010 harvard law bulletin 21
On Sept. 5, 2008, H. Rodgin Cohen figure out what sort of trouble would one, clearly, was consolidation,” as ’68 took a telephone call that set in be next.” the banking industry shifted from motion the most intense, high-stakes Robert D. Joffe ’67, a partner at “single-city, at most single-state- chapter of an already eventful career. Cravath, Swaine & Moore, was also based” banks to national then global The nation’s leading banking lawyer there when the shock waves began. institutions. The second trend was and chairman of Sullivan & Cromwell “In late summer and early fall of 2008, the steady elimination of barriers was summoned to Washington for Rodge represented Fannie Mae and I separating banks from other financial emergency talks with then Treasury represented the independent directors services, from the Bank Holding Secretary Henry Paulson, Federal of Fannie Mae,” Joffe recalled. “In a Company Act Amendments of 1970 to Reserve Chairman Ben Bernanke and sea of waves, which was not always a the Financial Services Modernization other government regulators. Cohen’s pleasure, working with Rodge most Act of 1999 that allowed bank holding client Fannie Mae, the government- certainly was.” companies to diversify into securities controlled mortgage loan buyer, was For Cohen, the worst moment was and insurance. The third trend was in danger of failing, reeling from learning there would be no government “incredible innovation in the banking the subprime mortgage debacle and rescue for his client Lehman Brothers, industry itself,” which toppled the skyrocketing foreclosures. as he’d helped secure for his client banker’s long-standing conservative Within days, Cohen (known as Bear Stearns the previous March, motto of “3-6-3: Borrow at 3 percent, “Rodge”) and his team had helped and so a historic “icon” of American lend it out at 6 percent, on the golf broker the deal that put Fannie finance was left with no option but course at 3.” One of the great ironies, Mae and Freddie Mac under federal to file for bankruptcy. “I thought this Cohen noted, “is that a number of conservatorship. But even as Cohen was a horrible mistake,” said Cohen, products and policies were devised to helped stave off one crisis, others “although it must be placed in the diversify risk, which is good, but these erupted, with shocking speed. For the context of incredible pressure and also mask risk and make it opaque.” next five weeks he worked frantically many right decisions.” Cohen’s own confidence in the with Wall Street and Washington “ I had a meeting with government financial system’s stability was shaken leaders, counseling financial giants officials, in essence to say, ‘I assume if during 2005 and 2006, when bank Lehman Brothers, AIG, Goldman you let Lehman fail, you think you can regulators proposed new guidelines on Sachs, JP Morgan Chase, Wachovia, develop a firebreak around that failure, residential real estate lending. Working MUFG and others, as the realization so the fire won’t jump across. But the with banks to prepare their response, grew that deep and unquantifiable problem is, I don’t think you know how “I became aware of the deterioration in risk riddled the U.S. financial system. much dry tinder is on the other side, underwriting standards for residential The Dow Jones sank, credit markets and there’s a hard wind blowing.’” The real estate lending,” he said. Another froze, and by late September Paulson officials assured him the situation was warning sign came in August 2007, was calling for the $700 billion bailout under control. But, Cohen recalled, “I when the major mortgage lender known as the Troubled Asset Relief walked away from that meeting deeply Countrywide almost collapsed. “In Program. concerned the government did not have this and each subsequent crisis, two or One year after the U.S. financial it under control at all.” three people were largely responsible system’s excruciatingly close call, Many would have quailed had they for avoiding disaster,” he explained. In Cohen reflected on those “five weeks in been aware of the powerful banking this case, Treasury Secretary Timothy hell,” warning signs that preceded that lawyer’s fears. Since the early 1970s, Geithner, BNY Mellon CEO Bob Kelly time, the state of the system today and H. Rodgin Cohen has been a key and JPMorgan Chase Chief Executive dangers ahead. player in helping build the financial Jim Dimon “stepped up and did the About that frantic September, system that almost failed. Said HLS right thing to keep Countrywide afloat. what stands out most, he said, is Professor Howell Jackson ’82, “It’s But when I saw how close we’d come “the incredible, nonstop intensity” hard to think of a major transaction or to failure, it was clear how fragile the as the Fannie Mae/Freddie Mac financial crisis where he didn’t play a system had become.” rescue immediately morphed into the leading role. He’s a terrific lawyer and What ultimately triggered the 2008 realization that Lehman Brothers was an incomparable adviser.” Yet Cohen meltdown? The major culprit, Cohen on the brink, “which then occupied readily acknowledges that he too was believes, was excessive leveraging on everyone’s attention round the clock stunned by the onslaught of fall 2008. every level—individual, corporate and from Wednesday until Sunday, by The problem, he said, was that trouble government. “But even that would which time AIG had become a major came from all directions at once. not have been a problem without problem.” The ground beneath kept According to Cohen, three trends numerous contributing factors,” shifting, he said, adding, “So much was set the stage for the U.S. banking such as excessive risk at individual going on at once, it was impossible to system in the 21st century. “Number institutions and lax lending standards, 22 harvard law bulletin winter 2010 Photographs by nicole bengiveno/the new york times/redux
COHEN’S OWN PRACTICE has shifted as he helps smaller institutions work through the same array of threatening problems that his large institutional clients experienced. winter 2010 harvard law bulletin 23
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