Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the FinancialSyst

Returning to his office, McGee called his wife, Susie, in Houston, and told her bluntly, “I may be out of here by the end of the week.”

That afternoon the thirty-first floor had become a gossip mill, a collection of various cliques assembling and reassembling to try to divine what might happen next. Even though Erin Callan had missed the executive meeting, she had certainly heard about what had transpired there. She was convinced that it was she, not Gregory, who might be on the firing line, and if she had to step down as CFO, she hoped to be able to keep a job of some sort at the firm. So she sent Fuld a two-sentence e-mail without a subject line: “Just to be clear I am very willing to be part of the accountability of management. Think I have become so closely tied with the performance and the public face of the firm that it may be helpful to put someone else in my role.”

He didn’t reply.

By the time Fuld met with the investment bankers for lunch on Wednesday, June 11, in the wood-paneled private dining room on the thirty-second floor, Lehman’s stock price had fallen another 21 percent. This was McGee’s show, Fuld knew, and that meant he was going to get tested.

He was right. It was five on one. McGee, Ros Stephenson, Mark Shafir, Jeffrey Weiss, and Paul Parker. They jumped at the chance to tell their boss why he needed to make management changes. The real estate investments were killing the firm. Good people had been let go, while novices, like Erin Callan, had been promoted to positions out of their depth. Joe Gregory had become distracted and knew nothing about risk. If there was a single problem, he was it.

“Look, the answer is, somebody’s gotta pay,” Mark Shafir said.

“Joe’s been with me for thirty years,” Fuld shot back. “He’s great at what he does, he has a great career, he’s done so much for this place. You’re asking me to throw him over the side just because we have one bad quarter?”

“It’s not just a bad quarter,” McGee replied. “It’s more deep-seated than that.”

Fuld paused and looked down at the food that he had not touched. “Are you telling me that you want me to —”

“No, no!” the bankers cried out. They certainly did not want his resignation; his departure would be a death knell for the firm. But the status quo could not continue; Fuld had to break out of the inner circle that was buffering him from the firm and get more involved with its operations.

Fuld was willing to accept that criticism. “I get that, that’s the feedback I’ve been getting,” he said. “I’m going to do it. I will do the right thing.” Still, he would not commit to firing Gregory.

“What are you going to say when you leave this meeting?” he asked the bankers.

“That the guy doesn’t get it,” said Weiss, laying it right out on the table.

“I got it,” Fuld replied.

As the bankers rose from the table and headed back to the elevator bank, no one was quite certain what Fuld intended to do. It seemed unlikely that he was going to fire Gregory; nothing he’d said indicated that he was ready to take that drastic a step. Still, McGee and the bankers were relieved to have finally had an audience with Fuld and said their piece.

While that lunch had been going on, Gregory was stirring downstairs in his office. He knew the rumors—he could see the sentiment quickly building up against him. Fuld had made enough comments about the morale problem inside the building for him to understand that he was under fire. He wasn’t blind to the snippy comments and office rumor mill about him. Indeed, if there was one thing Gregory focused on—what he called “culture”—he could now see it fraying.

His own power, he knew, had started eroding months earlier. Fuld had increasingly leaned on Bart McDade, the firm’s head of equities and one of the most popular guys at the firm—honest, disciplined, and bright, maybe too much for his own good. Indeed, following Bear Stearns’ near-failure, Fuld had made McDade his de facto “risk guy.”

McDade had long been a fixed-income man, successfully running that division, only to be shunted over to the less profitable equities desk in 2005 in what many in the firm viewed as a classic Joe Gregory disposal of a potential rival. Or maybe, as others saw it, that decision had just been Joe being Joe, playing a hunch that a talent like McDade could be utilized wherever the need was greatest.

Though McDade was too polite to have ever said anything in front of the executive committee, he had spoken privately to Gregory about Gregory’s role at Lehman, making some not so subtle comments about “doing the right thing for the firm.” And while not as forceful as McGee, McDade had made it clear to Fuld that Gregory had lost his credibility, but by now that had become obvious to almost all the employees.

Minutes after Fuld returned to his office, Gregory came by.

“I think I should step down,” he said uncertainly.

“What’s going on here?” Fuld said, waving him away. “Go back in your office. I get 51 percent of the vote, and that’s not happening.”

Five minutes later, Fuld came to speak with Gregory, who was now talking to Russo, discussing what he had just told Fuld.

Gregory said that he was convinced the market wanted the firm to take action. “They want heads,” he insisted. “Heads have to roll. And it can’t be you,” Gregory told Fuld. “I have to do it.”

“It’s not your call,” Fuld told him. “This is a disease, every firm has it. It’s not your fault.”

Russo, who hadn’t said anything up until now, chimed in. “Dick, I think Joe’s right.” Under the circumstances, this was best for the firm.

As Fuld began to resign himself to what everyone had come to regard as inevitable, he fought back tears, muttering, “I don’t like it, I don’t like it, I don’t like it.”

Erin Callan was in her office when Gregory came in to break the news. He was leaving, he said, out of loyalty to the firm. And as her mentor, he had one last request: He asked her to step down as well, arguing that while his