Soon after the AIG deal was reached, Geithner faced a new challenge: A major money market fund, Reserve Primary Fund, had fallen below $1/share: “Money market funds were never supposed to do that” (412). It had made “risky bets, including $785 million in Lehman paper” (412). The writing was on the wall that Morgan Stanley and Goldman could be next. Indeed, the “panic was already palpable” (413) in John Mack’s office at Morgan Stanley. His “attempt to show strength and vitality had largely failed to impress” (413), and Morgan Stanley’s stock had fallen 28% in a matter of hours. Mack had wanted to “cut off the flow of funds,” but he had been warned that would be a “sign of weakness” (414). He also believed that the firm could not “display even the slightest sign of panic, or the entire franchise would be lost” (414).

As Mack was coming “unwound” (415), he was approached by Steven Volk, vice chairman of Citigroup, about a potential merger. He decided to pursue the possibility. At the same time, Kevin Warsh, a Federal Reserve governor, was noticing that Morgan Stanley was “losing confidence in the marketplace” (416). He felt that it should buy a “large bank with deposits” (416), like Wachovia.