Dick Fuld was shattered. He had vowed to fight for Lehman until his dying day, and he had lost. It felt like death. In the days and weeks ahead, he would play the events over and over again in his mind, trying to think of a way Lehman’s collapse could have been avoided.
“Dick and I had this conversation several times,” one of his former colleagues at Lehman told me. “We asked each other what we could have done differently. And we’d say, maybe we should have had a better government relationship, because our interface was woefully inadequate compared with Goldman Sachs and Morgan Stanley. Or we’d say, maybe we shouldn’t have had so many illiquid securities. Maybe we should have allocated our capital differently, so we didn’t have a high margin business. But then we’d be the laggard in terms of return on equity. The market would have punished us as an underperformer. We kept concluding that it was an industry issue. Look, there were countless things that could have been done that would have saved the day. Like turning into a bank holding company. [Ironically, it wasn’t until after Lehman failed that the government allowed the remaining investment banks, Goldman Sachs and Morgan Stanley, the option of becoming bank holding companies.] Like getting a guarantee on the debt Friday night. Like getting a Bank of America or a Barclays deal done. We knew all of the options going in. It wasn’t as if we took a left when we should have taken a right.”
Characteristically, Fuld remained out of the spotlight, refusing to give interviews or even produce an official statement. Few people would hear from him until October 7, when he sat alone in front of the House Committee on Oversight and Government Reform. The congressmen were angry, looking for answers—and for blood.
Glaring down at Fuld, his dark eyes beneath heavy glasses flashing with outrage, committee chairman Henry Waxman demanded to know why Lehman failed.
Fuld’s voice was thick with emotion, and he frequently stumbled over his words. “I do not know why we were the only one…I must tell you…we walked into that weekend firmly believing that we were going to do a transaction. My employees, my shareholders, my clients, have taken a huge amount of pain.” He gazed back at the committee, looking wounded. “Not that anybody on this committee cares about this, but I wake up every single night thinking, ‘What could I have done differently? What could I have said? What should I have done?’ And I have searched myself every single night. And I come back to this: at the time I made those decisions, I made those decisions with the information I had. I can look at you and say, this is a pain that will stay with me the rest of my life, regardless of what comes out of this committee, and regardless of what the record book will say when it’s finally written.”
Waxman was not impressed. With a mix of anger and sarcasm, he replied, “I accept the fact that you are still haunted by whether this could have had a different ending. But the system you lived under gave you a very, very generous reward when everything was going up…but when things weren’t holding up, you still got substantial compensation. We thought you made $500 million; you say that you made only $350 million. That seems to me an incredible amount of money…. What I didn’t hear from you, Mr. Fuld, is that you say you wished you had done some things differently, but you don’t seem to acknowledge that you did anything wrong.”
Fuld left the hearings and made his way down the steps of Capitol Hill with his head bowed. A crowd of protesters surrounded him, angry and shouting. One of them shoved a bright pink sign in his face, on which was scrawled a single word: “Crook.” It was public anger colliding with free-market capitalism.
SEVEN
Popcorn and Dominoes
“It was extraordinary from a personal point of view. I remember being in the meetings and thinking, ‘My gosh, I’m a mere mortal and I’m in a situation where me and half a dozen people hold the fate of three hundred million people in our hands.’”
—ED LAZEAR, ECONOMIST AND CHIEF ECONOMIC ADVISER TO PRESIDENT GEORGE W. BUSH, IN AN INTERVIEW WITH MARIA BARTIROMO, FEBRUARY 25, 2010
SEPTEMBER 21, 2008
The mild Sunday evening provided perfect baseball weather, but for the crowds that jammed Yankee Stadium in the Bronx, the victory over the Baltimore Orioles was bittersweet. After eighty-five years and twenty-six world championships, it was the last game to be played at the stadium Ruth built. Twelve miles away, in the caverns of Wall Street, it would also go down as the last day of investment banking as we knew it.
It had been a bad week on Wall Street. Morgan Stanley CEO John Mack, who had watched the disastrous events unfold over the Lehman weekend, and had seen Merrill Lynch jump the investment banking ship to save its life, was deeply troubled. It was becoming increasingly clear that the two remaining investment banks, Morgan Stanley and Goldman Sachs, were vulnerable to the same forces that brought the other three to their knees. Mack knew he had to move fast to save his firm. “It wasn’t a question of being scared,” he told me. “It was a question of how we were going to solve these problems. After Merrill was bought, Morgan Stanley’s and Goldman’s stock went down. There was a lot of fear in the market about these firms.” Mack started reaching out to international companies that might be investment partners—in particular, Mitsubishi and CIC in China. It was a frustrating period. “What do we have to do to get people to have confidence not only in us but in the entire
