“Here’s an analogy. I live in California, and we have the most efficient fast-food drive-through system in the country. You put your order in, you go to the first window to pay, and then to the second window to collect your food, and you’re out of there in thirty seconds. It works very well. Now, imagine what would happen if you went up to your McDonald’s drive-though, put in your order, and went to the first window. What if when they asked for your five dollars, you said, ‘Where’s my Big Mac?’ And they said, ‘Your Big Mac is down at the second window.’ But you weren’t sure if you believed them, because that day you’d heard that the system broke down at a nearby Burger King, and a lot of people paid for their food but found that the second window was closed. So you didn’t trust that you’d find your Big Mac at the second window. You pulled out of line and went away hungry. You had the money, and you were willing to transact, but you didn’t have the confidence that allowed a transaction to happen. Eventually, even though McDonald’s was able to feed people, and even though customers were willing and able to make transactions, the whole system collapsed. And that’s what started to happen in the financial system. It started slowly on Monday, and then really accelerated on Wednesday. The system seized up very quickly.”
It would be late in the evening before I finally arrived home, exhausted but buzzed. The day had been dubbed “Black Monday,” but it felt like black-and-blue Monday to me. I had hours of study ahead of me, another early morning report for the Today show, and my own show at the NYSE later that day. I felt the need to bring clarity to a situation that was messy and unstable. I had learned that while the press was focused on the fates of Lehman Brothers and Merrill Lynch that day, behind the scenes the Feds were scrambling to prevent a major catastrophe brewing at AIG. And unbeknownst to most people, Bob Diamond was still studying Lehman.
The canniness of Bob Diamond was never more evident than on Tuesday, September 16. Diamond had gone into the weekend wanting Lehman, and now he was on a scavenger hunt. Even as pictures of stockbrokers forming a funeral procession out the building doors filled the television screens, Diamond and his Barclays team were at Lehman looking at what they could buy postbankruptcy. Although this was an incredibly sad day for many people, it also represented a great opportunity for Diamond, and he was not going to let it pass him by.
On Wednesday, Barclays announced a $1.75 billion purchase of Lehman’s North American investment banking business, which would potentially save the jobs of up to ten thousand Lehman workers. Included in the price was Lehman’s Time Square building, a dazzling thirty-two-floor structure whose flashing LED screens often stopped passersby in their tracks. The facility had trading floors and technology ready to open for business immediately. Prior to purchasing the Times Square building, Lehman was housed in the World Financial Center, a complex across from the World Trade Center that suffered substantial damage on 9/11. Lehman’s data center and trading floor were destroyed. Rather than waiting to see what would happen with the location, Lehman moved quickly to purchase the building at 745 Seventh Avenue in October 2001. Originally built by Morgan Stanley, it had the advantage of being prefitted with state-of-the-art technology and architecture for the trading business. Now it would belong to Barclays, and it was ready for a seamless transaction—just turn on the lights and go. Like it or not, it was an amazing coup for Diamond and for Barclays.
Diamond and Lehman president Bart McDade (who was offered a job with Barclays) visited the trading floors and met personally with the staff, calming jangled nerves and urging everyone to put emotions behind them.
On Wednesday I sat down with Diamond to ask him some questions about the surprising Barclays deal. “I’m trying to figure out how this all plays out,” I said to him. “Let me ask you this: Do you feel any guilt at not rescuing all of Lehman?” It was an uncomfortable question, and Diamond conceded, “We were—we were, you know, quite fortunate. Because of the bank we were able to just select those assets and liabilities that fit with the business we were taking.” He added that Barclays rightly did not want to take on any risk, and without a federal backstop, a deal for the whole purchase was just out of the question. But this limited purchase allowed Barclays to get a foothold in the United States. In many respects it was a brilliant deal. As we spoke, just days after Lehman declared bankruptcy, the Lehman sign was coming off the building and a Barclays sign was going up.
The immediate fallout of the weekend’s events—at least where Merrill and Lehman were concerned—was starting to wrap up. But anyone who believed that the crisis was about the future of a couple of investment banking firms wasn’t seeing the bigger picture. Indeed, the symbol of the crisis in the months to come would not be Lehman, Merrill, or even Bear Stearns, but AIG, which, like Fannie and Freddie before it, became the company deemed too big to fail.
By Tuesday, September 16, all eyes were on AIG, and the news was emerging that the Feds were discussing an $85 billion bailout of the troubled insurance giant.
The force of his personality gave David Boies a youthful demeanor that belied his sixty-seven years. He was one of the most successful and well-known lawyers in America, whose
