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How much can you see here? How's the tie? Hey!

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A Friday afternoon in June last year.

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This thing has changed so many times, I'm just reading what you want me to read.

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A titan of Wall Street prepares to address his staff in New York, London and around the world.

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HE ROARS He wants to put an end to rumours that the firm is in trouble.

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Crisis? What crisis?

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Every one of you should feel confident and proud.

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Our firm is strong today.

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And we will emerge from this cycle even stronger.

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We've done it before.

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And we will do it again.

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12 weeks later, the bank went bust.

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REPORTER:Lehman Brothers suffering a spectacular downfall... You should go to jail right now!

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This is the inside account of what caused a Wall Street giant to collapse.

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This is really stupendous this has happened.

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I think, in the history of business in the last 50 years,

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it was the most extraordinary weekend there has been.

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It was the biggest bankruptcy in history and the tipping point into global recession.

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Lehman was a seminal moment in the sense that it illustrated

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these two big problems that if we didn't solve, things would get a huge amount worse.

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The panic that followed hurt us all as mortgages dried up.

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Stock markets tumbled and businesses went to the wall.

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So why did one bankruptcy have such catastrophic consequences for the world?

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I don't think any of us easily anticipated that we would see

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the sort of financial panic that we saw after the failure of Lehman Brothers.

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So this has been an extraordinarily serious set of events.

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We did not have those tools coming into the crisis and I think that was

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a tragic mistake for the United States and the rest of the world.

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This is what really happened at the tipping point of the crash in 2008.

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Those who were there on the inside tell the story of the weekend that changed the world.

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When America's treasury secretary arrived in New York

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a year ago this week, he faced a dilemma.

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Hank Paulson, the man in charge of US economic policy, had flown up from Washington

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because Lehman Brothers, one of Wall Street's oldest investment banks, was haemorrhaging money.

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Should he keep it alive with a cash injection,

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or let the markets take their course?

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And if he let it go bust, what would be the consequences for the global economy?

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With only an hour's notice, he summoned the chief executives of America's leading banks -

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the so-called "masters of the universe" -

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to a crisis meeting.

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So, it was Friday afternoon.

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I was in Merrill's midtown offices.

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It was raining quite hard.

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I got a phone call at 5:00pm.

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"Be at the Fed at 6:00pm this evening."

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Those types of phone calls are always bad.

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And this was just about as bad as it gets.

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I think it was me who used the word "Armageddon".

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"This is going to be Armageddon."

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The Fed, the New York Federal Reserve, the stage on which

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the crisis played out, is round the corner from Wall Street.

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The granite fortress is a symbol of American economic might.

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I don't think there was a person there who didn't understand,

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at least to a large extent, the stakes we were playing for.

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We had a conference room there.

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I had been told that the chief executives

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of most of the Wall Street firms were there as well.

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But apparently there was another floor and other conference rooms.

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We were trying to do our part. To do what was being asked of us

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with a sense of the clock ticking. I'll probably never have a weekend quite like it.

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Lehman may post another ¤2.5 billion write-down on home loans in the third quarter.

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For months, Wall Street had been worried about Lehmans because of the bank's massive property investments.

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With the crash in the market, it was now dangerously exposed.

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Shareholders were dumping stock and other banks were withholding credit.

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REPORTER: Lehman has lost ¤6.5 billion so far this year.

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The bank's share price had been dropping since May.

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Lehman shares have been down sharply.

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But in the last ten days, it had been in freefall.

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By that Friday afternoon, it was losing more than ¤8 million a minute.

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Confidence in the bank was evaporating under the glare of the media spotlight.

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Has the market given up on Lehman? We knew Lehmans was in trouble.

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Remember, there's a constant traffic between our Treasury

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and the US Treasury, between the regulators.

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During that time, I spoke to Hank Paulson regularly.

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And on the Friday evening, we knew that they would have to do something about Lehmans.

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# It's a beautiful day... #

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In the last few months, the fallout from the sub-prime mortgage crisis and the collapse in house prices

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had forced the US Treasury to bail out one bank and America's two biggest mortgage companies.

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Many assumed the authorities would do the same again.

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But the presidential election was weeks away.

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On the campaign trail, the cry went out, "It's Main Street, not Wall Street, that matters."

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So when the bank chiefs assembled that Friday evening,

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it was clear from the start there would be little sympathy from the Government.

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It was really Hank Paulson, the Treasury Secretary, and Tim Geithner,

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the head of the New York Fed, who really were running the meeting.

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And they said to us, "This is the problem.

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"Lehman needs to be rescued.

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"You have to come up with a solution.

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"And we, the Government, are not going to help."

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As the leaders of Wall Street wrestled with what to do about Lehman Brothers,

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across town at Shea Stadium, the home team, the Mets, were trailing to the Atlanta Braves.

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It was not a good omen.

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With no government bail-out, two of Lehman's rivals were eager to swoop.

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The first was Bank of America, one of the largest banks in the United States.

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And the other was a British outsider -

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Barclays, keen to expand across the Atlantic. We had our eyes open.

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We had a good opportunity of taking a very careful look at the books.

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We deployed a big team in New York, under Bob Diamond.

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We certainly didn't know what we were going to find

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completely in due diligence, but I can tell you for sure,

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we wouldn't have boarded the plane

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in a situation as serious as the markets were in if we weren't very serious.

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It was very clear that this was going to be a seminal event in the history of the credit crunch.

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Few ever imagined that America's fourth-largest investment bank would fall so far and so fast.

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Its earlier success was largely down to one man, a larger-than-life figure,

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who was proud to call himself a "Lehman lifer".

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In 1966, 20-year-old Richard Severin Fuld Jr

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arrived in New York to work as an intern at Lehman Brothers.

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When he finished university, the bank snapped him up.

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Dick Fuld was driven and good at what he did -

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very good.

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Steadily and determinedly, he worked his way up...to the top.

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In 1993, he was appointed chief executive.

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Under him, Lehmans evolved and grew from a traditional investment bank, raising money and managing mergers

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and acquisitions for clients, to using borrowed money to play the markets itself.

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I must tell you, having been with Lehman Brothers for 24 years, this is my only job.

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When I started off

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I was lower than low.

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Thinking that I would stand here today and to give this address to my people, I am thrilled.

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The new boss had one simple ambition -

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to overtake his rivals -

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Merrill Lynch, Morgan Stanley and Goldman Sachs.

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Lehman Brothers will eventually inherit the heritage

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and the tradition that will let us stand alone and conquer all the people that stand in front of us.

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That's what I want Lehman Brothers to be.

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Basically to crush our enemies like this!

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Dick Fuld was to become the longest-serving chief executive on Wall Street.

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He strode like a colossus through his domain and his reputation preceded him.

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Within the firm, he had god-like status.

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This was a man who was clearly in charge.

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And clearly had a vision

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for the business. Would you want to get into an argument with Dick?

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Absolutely not...

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unless you were totally solid on the grounds you were arguing.

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He wouldn't even acknowledge anybody.

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Most of the time, I'd say "good morning" or "hello" to him, and you'd get a response back

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but it was almost like he built a wall up around himself.

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The other employees felt the same way.

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They wouldn't even speak to him.

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They'd ride in the elevator in total silence.

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Fuld built up a network of over 60 offices around the world, employing more than 28,000 staff.

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When Lehman Brothers opened a grand new European headquarters at Canary Wharf,

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the bank had truly arrived.

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Let me formally declare this new building open.

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Thank you very much.

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Dick Fuld's unorthodox style of leadership

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meant he was admired and feared in equal measure.

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Dick took the floor like a statesman and proceeded to deliver this fearsome attack

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on short sellers, the people who were depressing Lehman's share price

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by being short of stock.

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And he, rather to everyone's surprise and mystification, he said...

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If we get this right today,

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we'll squeeze some of those shorts...

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..and squeeze 'em hard.

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LAUGHTER

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Not that I want to hurt 'em.

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Don't get that, please, cos that's just not who I am.

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LAUGHTER

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I'm soft. I'm lovable.

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But what I really want to do is, I want to reach in, rip out their heart and eat it before they die!

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APPLAUSE Dick Fuld also had an insatiable appetite for profits -

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with or without fava beans.

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And he delivered.

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In 1994, one share cost ¤4.

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As the economy boomed, by 2007 that investment was now worth ¤82,

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a 20-fold increase.

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And how had the bank done this?

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By expanding into lucrative new products as the market became less regulated.

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Highly complex products, including credit default swaps,

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a kind of insurance against borrowers defaulting on loans.

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Risk was the name of the game.

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As a trader, you take risks to make profits.

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The more risk you take, the more money that you're playing with, the more profits you can make.

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In the case of Lehman Brothers,

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Dick Fuld essentially said to our head risk-taker

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in commercial mortgage-backed securities,

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"You gotta take more risk. Risk, risk, risk."

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And that risk leads more to the bottom line.

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I think Wall Street found, but also a lot of other people believed,

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that modern finance was a form of alchemy.

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That it was a way of taking risk

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and distributing it very widely,

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so widely that the overall system was de-risked.

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And this built up a sense of false confidence in the markets.

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And for the staff who signed up to Dick Fuld's credo,

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along with the bottom line came rewards which were life-changing.

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In a good year, as I had in 2006, I made more than ¤30 million.

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That gave me more than a ¤1 million bonus

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and I know traders who made ¤10 million in a year, in a good year.

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But those type of traders made north of 100, 150, ¤200 million for the firm.

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In 2004, Lehman's turnover was ¤11.5 billion.

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It rewarded its staff over 5 billion in pay and bonuses.

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By 2007, turnover had almost doubled,

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with staff collecting more than 9 billion in pay and bonuses.

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And top of the pile was Dick Fuld.

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From the year 2000 to 2008,

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he took home between 310 and ¤500 million.

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The precise figure is disputed.

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Now, at the Fed on that Friday night last September,

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the rivals Dick Fuld had boasted of crushing

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were sitting in judgment over him.

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He had not been invited to the crisis meeting of chief executives.

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Even some on his own side felt his combative nature would be an unhelpful distraction.

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After the bank chiefs had left the building, their accountants

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and lawyers carried on working through the night.

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The smell of stale pizza and unwashed bodies

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is not all that appealing,

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but you learn to live with it as part of the business.

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But...the intensity was...

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at a much higher pitch than is normally the case

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because the stakes were just so high.

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They were carrying out due diligence -

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going through Lehman's accounts to piece together an accurate picture of the bank's finances.

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To be frank, we had trouble getting traction

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and it was clear to us that the management of Lehman Brothers

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were spending an awful lot of time

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with at least one other firm going through due diligence.

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And so we got off to a slow start.

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That was because Lehmans was giving its attention to that other suitor.

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Bank of America was the favourite to buy the ailing investment house.

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There were highly-profitable parts of Lehman Brothers

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like the investment division, which they wanted to salvage.

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But when its advisers started going through Lehman's accounts, what they found appalled them.

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Although we were expecting

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not to be very happy with what we saw,

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it was worse than we expected. They calculated the property crash

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had left a massive hole in Lehman's balance sheet.

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Just a month before, the bank had said its portfolio was worth ¤40 billion.

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Now it had fallen to around 25 billion.

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They might have paid ¤100 million for a property, and on their balance sheet

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it says it's worth 100 million but the reality was it was worth 50 million or 25 million.

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And when you start adding all those losses up from this property and that property and so on,

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it ended up adding up to a very big number,

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a number that was so large, the losses were so large, that it

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really meant the company was bankrupt unless it got support from the US government.

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But the man in charge of the US Treasury, Hank Paulson,

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had already made clear that was not an option.

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What happened next took everyone by surprise.

239
00:16:49,600 --> 00:16:56,120
The following morning, most New Yorkers were oblivious to the drama playing out down in lower Manhattan.

240
00:16:57,680 --> 00:17:02,000
And as the morning went on, the stakes got higher.

241
00:17:02,040 --> 00:17:07,280
Dick Fuld was still counting on Bank of America making him a proposal,

242
00:17:07,320 --> 00:17:12,120
but was about to learn that his suitor had a roving eye.

243
00:17:14,920 --> 00:17:18,000
John Thain, the chief executive of Merrill Lynch,

244
00:17:18,040 --> 00:17:21,960
was the new kid on the block, but he had his own problems.

245
00:17:22,000 --> 00:17:25,440
Merrill Lynch's share price was going down because investors were

246
00:17:25,480 --> 00:17:31,640
selling, fearful of how exposed this bank also was to the property slump.

247
00:17:31,680 --> 00:17:34,640
So when he returned to the Fed on Saturday morning,

248
00:17:34,680 --> 00:17:39,480
he took a particularly close interest in the predicament facing his rival.

249
00:17:39,520 --> 00:17:43,480
Watching Lehman's representative wilt under the pressure,

250
00:17:43,520 --> 00:17:49,520
he began to fear attention might next switch to his own troubled bank.

251
00:17:49,560 --> 00:17:54,760
Seeing him and understanding

252
00:17:54,800 --> 00:17:58,360
the emotional drain of what was happening to him,

253
00:17:58,400 --> 00:18:01,680
and then knowing that, on Saturday,

254
00:18:01,720 --> 00:18:06,360
it was likely they were going to go bankrupt so all of their efforts were going to fail,

255
00:18:06,400 --> 00:18:11,920
in some ways reinforced with me that I didn't want to be that person a week later.

256
00:18:11,960 --> 00:18:16,080
So he grabbed the chance to save his own bank.

257
00:18:16,120 --> 00:18:21,680
And so from my perspective, the problem no longer became

258
00:18:21,720 --> 00:18:25,560
how to save Lehman because I assumed Lehman was gonna go bankrupt.

259
00:18:25,600 --> 00:18:32,680
It became, "What does that mean for the financial markets and what does that mean for Merrill Lynch?

260
00:18:32,720 --> 00:18:38,560
"And how do I make sure that I protect Merrill Lynch's shareholders and Merrill Lynch's employees

261
00:18:38,600 --> 00:18:44,200
"and Merrill Lynch's clients so that Merrill Lynch isn't in a similar position a week later?"

262
00:18:44,240 --> 00:18:49,800
He decided to contact Bank of America's chief executive, Ken Lewis,

263
00:18:49,840 --> 00:18:55,000
at home in North Carolina, and made him an audacious offer.

264
00:18:55,040 --> 00:18:58,240
I stepped out of the building and actually stood

265
00:18:58,280 --> 00:19:02,400
on the sidewalk, on the street, and called Ken from my cellphone.

266
00:19:02,440 --> 00:19:06,200
The conversation was relatively short and I said to him that I thought

267
00:19:06,240 --> 00:19:10,800
it made sense for us to explore some strategic options.

268
00:19:10,840 --> 00:19:15,200
He said, "Great, I can be in New York in a couple of hours."

269
00:19:15,240 --> 00:19:17,400
All bets were now off.

270
00:19:17,440 --> 00:19:19,800
It was everyone for themselves.

271
00:19:19,840 --> 00:19:27,240
As Bank of America's boss was flying north on his secret date, Dick Fuld had no idea he'd been dumped.

272
00:19:27,280 --> 00:19:33,160
Excluded from the Fed, he had spent the morning holed up in Lehman's midtown HQ.

273
00:19:33,200 --> 00:19:36,720
Dick would occasionally ask, "Have you heard anything back

274
00:19:36,760 --> 00:19:38,400
"from Bank of America?"

275
00:19:38,440 --> 00:19:42,920
We still found it difficult to believe they had disappeared.

276
00:19:42,960 --> 00:19:46,320
And the answer, of course, was always no.

277
00:19:49,040 --> 00:19:52,560
Just a few blocks away, John Thain began to hammer out a deal

278
00:19:52,600 --> 00:19:58,280
with Bank of America's chief at a discreet hideaway by Central Park.

279
00:19:58,320 --> 00:20:04,960
It was a corporate apartment, so it was not that different from a hotel room. And it was pretty stark.

280
00:20:05,000 --> 00:20:09,560
And it was just the two of us - just the two of us, talking.

281
00:20:09,600 --> 00:20:14,640
To Ken Lewis, Merrill Lynch was a much more attractive proposal.

282
00:20:14,680 --> 00:20:19,520
It was proof of the Wall Street maxim, "kill or be killed".

283
00:20:19,560 --> 00:20:25,800
By late afternoon, the jilted Lehman's team were trying hard to put on a brave face.

284
00:20:25,840 --> 00:20:31,880
Late Saturday afternoon, there was a slip of the tongue in

285
00:20:31,920 --> 00:20:36,760
a meeting that I was at at the Fed, which led me to conclude that

286
00:20:36,800 --> 00:20:41,160
Bank of America was definitely talking to Merrill,

287
00:20:41,200 --> 00:20:45,040
as well as my inability to get calls returned.

288
00:20:45,080 --> 00:20:50,240
So I called Dick and said, "I'm very worried that this is accurate."

289
00:20:50,280 --> 00:20:53,920
And he said, "I can't believe it."

290
00:20:53,960 --> 00:21:00,920
And there was an adjective which I will not repeat, or an adverb, I guess, before "believe it".

291
00:21:00,960 --> 00:21:03,920
It was a whirlwind romance.

292
00:21:03,960 --> 00:21:10,840
Two days later, Bank of America announced it had bought Merrill Lynch for ¤50 billion.

293
00:21:10,880 --> 00:21:18,040
The combined company is a much stronger entity and will survive most anything.

294
00:21:18,080 --> 00:21:23,840
So, having been stood up, Lehman now had only one potential suitor.

295
00:21:23,880 --> 00:21:25,640
Mid-afternoon on Saturday came.

296
00:21:25,680 --> 00:21:29,960
We had a very positive sign. We got moved into a much bigger conference room in the Fed

297
00:21:30,000 --> 00:21:32,920
and there was a sign on the door that said "buyer".

298
00:21:32,960 --> 00:21:35,840
So we had a feeling that one of the other banks

299
00:21:35,880 --> 00:21:38,320
that had been looking at the transaction

300
00:21:38,360 --> 00:21:39,960
probably wasn't there.

301
00:21:40,000 --> 00:21:42,600
The teams from Barclays and Lehman

302
00:21:42,640 --> 00:21:44,480
were edging closer to a deal.

303
00:21:44,520 --> 00:21:46,840
REPORTER:The man nobody wants to be right now

304
00:21:46,880 --> 00:21:49,520
is the longest-serving CEO on Wall Street.

305
00:21:49,560 --> 00:21:53,760
Dick Fuld faces his biggest challenge to date by far.

306
00:21:53,800 --> 00:22:00,360
Still up in his midtown office, just along from Times Square, Dick Fuld was now a helpless bystander,

307
00:22:00,400 --> 00:22:06,200
as others decided the fate of the bank he had led for so long.

308
00:22:06,240 --> 00:22:11,280
Now all the hopes rested on Barclays.

309
00:22:11,320 --> 00:22:16,320
So it was a real disappointment, but it was buffered to some extent,

310
00:22:16,360 --> 00:22:20,400
because Barclays seemed a lot more interested than they had previously.

311
00:22:21,560 --> 00:22:25,560
How different it all seemed nine months earlier.

312
00:22:29,000 --> 00:22:32,960
Lehman Brothers were celebrating the end of a record-breaking year.

313
00:22:33,000 --> 00:22:37,280
It made over ¤4 billion profit.

314
00:22:37,320 --> 00:22:40,120
And the reason for this success?

315
00:22:40,160 --> 00:22:42,200
Bricks and mortar.

316
00:22:42,240 --> 00:22:46,800
Both Presidents Clinton and Bush had championed home ownership.

317
00:22:46,840 --> 00:22:50,560
PRESIDENT GW BUSH:Our government is supporting home ownership

318
00:22:50,600 --> 00:22:53,320
because it is good for America.

319
00:22:53,360 --> 00:22:55,960
It is good for our families.

320
00:22:56,000 --> 00:22:58,640
It is good for our economy.

321
00:22:58,680 --> 00:23:03,280
American house prices had risen steadily since the Second World War

322
00:23:03,320 --> 00:23:08,440
but had rocketed after 9/11, when interest rates were slashed.

323
00:23:08,480 --> 00:23:15,760
The boom was fuelled by loans with tempting introductory rates being offered to ever more risky clients.

324
00:23:15,800 --> 00:23:20,360
The so-called sub-prime mortgage scandal was born.

325
00:23:20,400 --> 00:23:23,560
We got to the point where they created mortgages

326
00:23:23,600 --> 00:23:27,600
that were known as "NINJA mortgages" -

327
00:23:27,640 --> 00:23:30,720
"no income, job or assets" -

328
00:23:30,760 --> 00:23:34,440
relying solely on the appreciation of housing prices.

329
00:23:34,480 --> 00:23:36,480
Mortgage rates are still near 20-year lows.

330
00:23:36,520 --> 00:23:40,000
Homeowners, refinance now with almost no paperwork.

331
00:23:40,040 --> 00:23:43,560
If you're a homeowner who's ready for some financial relief...

332
00:23:43,600 --> 00:23:48,120
But the real money for Wall Street banks came not from selling mortgages to homeowners,

333
00:23:48,160 --> 00:23:54,520
but from trading bundles of these loans among themselves and other institutional investors.

334
00:23:54,560 --> 00:24:01,520
It's that easy!These bundles were labelled as high-quality, low-risk assets by the banks.

335
00:24:01,560 --> 00:24:08,560
By 2007, Lehmans was the largest underwriter of real-estate loans in America.

336
00:24:08,600 --> 00:24:10,080
It was a great machine.

337
00:24:10,120 --> 00:24:13,200
The risk involved in the machine was

338
00:24:13,240 --> 00:24:18,000
that investment banks were supposed to act as distributors.

339
00:24:18,040 --> 00:24:21,840
They were supposed to be in the removal business. Dick Fuld used to say this -

340
00:24:21,880 --> 00:24:24,960
"We're in the removal business, not the storage business."

341
00:24:25,000 --> 00:24:30,400
Across Wall Street, and in the City of London, there was a growing assumption

342
00:24:30,440 --> 00:24:32,840
the financial wizards had been able

343
00:24:32,880 --> 00:24:34,480
to eradicate risk.

344
00:24:34,520 --> 00:24:39,120
OK, Mommy, I'll take the house. I think there was a general view around the market place

345
00:24:39,160 --> 00:24:43,240
that the sophistication of 21st-century financial markets

346
00:24:43,280 --> 00:24:46,120
had enabled different sorts of risk to be taken

347
00:24:46,160 --> 00:24:48,960
by people who really knew what they were doing.

348
00:24:49,000 --> 00:24:51,560
There was, if you like, a bit of a fool's paradise.

349
00:24:51,600 --> 00:24:54,120
That was not specific to Lehman.

350
00:24:54,160 --> 00:25:00,080
That was a market belief that somehow or other everyone had cured the problem.

351
00:25:00,120 --> 00:25:04,560
And that false sense of confidence led Lehman Brothers to do something

352
00:25:04,600 --> 00:25:08,280
other more cautious banks shied away from.

353
00:25:08,320 --> 00:25:10,560
It borrowed more and more money.

354
00:25:10,600 --> 00:25:18,400
By August 2007, for every ¤1 the bank owned, it was borrowing up to ¤44.

355
00:25:18,440 --> 00:25:21,240
It's called leverage.

356
00:25:21,280 --> 00:25:26,080
Whilst most of their competitors, like Goldman Sachs and Morgan Stanley, had a leverage ratio

357
00:25:26,120 --> 00:25:31,360
in the 20s or low 30s, Lehman's was much higher.

358
00:25:31,400 --> 00:25:35,240
When I got to Lehman, our leverage was 20 to 1.

359
00:25:35,280 --> 00:25:37,120
And when I left, it was 44 to 1,

360
00:25:37,160 --> 00:25:41,480
top max. That means we had a relatively small amount of capital

361
00:25:41,520 --> 00:25:44,400
relative to the amount that we owed. 44 to 1.

362
00:25:44,440 --> 00:25:46,400
Real dollars that we have,

363
00:25:46,440 --> 00:25:49,360
and massive dollars that we owe.

364
00:25:50,920 --> 00:25:54,800
It used this borrowed money to play the property market.

365
00:25:54,840 --> 00:26:00,600
By 2007, it was investing ¤60 billion in commercial property -

366
00:26:00,640 --> 00:26:05,280
hotels, shopping centres and residential developments around the world.

367
00:26:05,320 --> 00:26:09,960
But while leverage multiplies profits when prices go up,

368
00:26:10,000 --> 00:26:13,400
it also multiplies losses if prices fall.

369
00:26:15,520 --> 00:26:19,440
And that's what happened in 2007. Why?

370
00:26:19,480 --> 00:26:25,160
A growing number of the people who had been seduced by those cheap introductory mortgage rates

371
00:26:25,200 --> 00:26:28,520
couldn't keep up with the payments when the rates increased.

372
00:26:28,560 --> 00:26:32,200
Repossessions rocketed and house prices slumped.

373
00:26:32,240 --> 00:26:37,400
The sub-prime crisis exploded on the world.

374
00:26:41,600 --> 00:26:44,920
Welcome to Bakersfield, California.

375
00:26:49,400 --> 00:26:54,000
It's not quite the kind of place one would imagine as a luxury destination.

376
00:26:57,080 --> 00:27:00,280
But that's what Lehman Brothers hoped it would become.

377
00:27:01,840 --> 00:27:05,920
It loaned ¤78 million to a developer with plans to build

378
00:27:05,960 --> 00:27:09,680
thousands of new homes in the scorching Central Valley.

379
00:27:09,720 --> 00:27:12,280
HORN BLARES

380
00:27:14,400 --> 00:27:17,440
I just heard about it. It wasn't a large focus on the desk

381
00:27:17,480 --> 00:27:23,160
but you thought to yourself, "Jeez, this is a little aggressive for a firm our size."

382
00:27:27,080 --> 00:27:30,400
The advertising promised McAllister Ranch

383
00:27:30,440 --> 00:27:35,400
with its golf course, man-made lake and beach, and beautiful homes,

384
00:27:35,440 --> 00:27:41,160
where dreams become reality and where the good life truly begins.

385
00:27:44,480 --> 00:27:47,600
But this oasis was a mirage.

386
00:27:47,640 --> 00:27:51,600
Nothing beside remains.

387
00:27:51,640 --> 00:27:56,200
It's a victim of Lehman's bankruptcy and the downturn in the property market.

388
00:27:57,520 --> 00:27:59,280
Here's a picture of the lake -

389
00:27:59,320 --> 00:28:03,120
what it was supposed to look like when it was finished.

390
00:28:03,160 --> 00:28:07,000
Other pictures, someone enjoying the lake.

391
00:28:07,040 --> 00:28:11,520
We were contracted to build block walls around the project.

392
00:28:11,560 --> 00:28:13,240
I believe it was close

393
00:28:13,280 --> 00:28:17,920
to 20 miles of wall, if we were to finish the whole contract.

394
00:28:17,960 --> 00:28:21,160
As you can see, the walls are quite long.

395
00:28:21,200 --> 00:28:24,600
That wall right there is approximately three miles long.

396
00:28:24,640 --> 00:28:30,760
John Scripter is still owed around ¤1 million for unpaid work.

397
00:28:30,800 --> 00:28:34,880
It was the decision to invest in commercial developments like these

398
00:28:34,920 --> 00:28:38,240
that was to be the tipping point for Lehman Brothers.

399
00:28:38,280 --> 00:28:45,160
The bank invested aggressively in the property market at its peak, but couldn't get out before the crash.

400
00:28:45,200 --> 00:28:49,160
In essence, Lehman loaned money to McAllister in the short haul and then

401
00:28:49,200 --> 00:28:52,600
tried to syndicate and sell the syndicated loans globally.

402
00:28:52,640 --> 00:28:59,320
When you can't sell it and share the risk, then it becomes a lead weight on your balance sheet over time.

403
00:28:59,360 --> 00:29:03,040
We really just didn't have that much bread, that many dollars,

404
00:29:03,080 --> 00:29:06,120
to hold on to an asset like this over a longer period of time.

405
00:29:06,160 --> 00:29:08,560
It really became a lead weight.

406
00:29:08,600 --> 00:29:13,120
And to Dick Fuld, the architect of Lehman Brothers' grand designs,

407
00:29:13,160 --> 00:29:19,720
that lead weight must have seemed heavier by the hour as the weekend ticked away.

408
00:29:19,760 --> 00:29:21,800
CHURCH BELLS RING

409
00:29:26,600 --> 00:29:28,360
Sunday morning in New York

410
00:29:28,400 --> 00:29:30,600
started with a sense of optimism.

411
00:29:30,640 --> 00:29:36,120
The favourite, Bank of America, may have walked away, but Barclays was still in the game.

412
00:29:36,160 --> 00:29:41,960
As a precaution, Lehman Brothers had called in America's most famous bankruptcy lawyer,

413
00:29:42,000 --> 00:29:45,280
just in case the unthinkable happened.

414
00:29:45,320 --> 00:29:50,400
But even he thought a deal would be struck before the day was out.

415
00:29:50,440 --> 00:29:52,720
When I came down Sunday morning,

416
00:29:52,760 --> 00:29:54,400
as I was driving down,

417
00:29:54,440 --> 00:29:57,680
I was thinking that I might be out

418
00:29:57,720 --> 00:30:01,000
about three or four in the afternoon

419
00:30:01,040 --> 00:30:07,680
because I had some other things to do. I was actually thinking that this might be a fire drill -

420
00:30:07,720 --> 00:30:09,880
there's going to be a deal

421
00:30:09,920 --> 00:30:13,160
and they'll announce it sometime this afternoon

422
00:30:13,200 --> 00:30:14,560
and then I'll be free to go

423
00:30:14,600 --> 00:30:17,040
and do the things I had planned to do that Sunday.

424
00:30:17,080 --> 00:30:18,720
That's how the day started.

425
00:30:18,760 --> 00:30:26,720
At the Fed, negotiations had been going on through the night and a deal looked close.

426
00:30:26,760 --> 00:30:31,680
We had been in a conference call with our board in London and I was on the call from here.

427
00:30:31,720 --> 00:30:35,000
It was around nine-thirty or ten when we finished the board meeting,

428
00:30:35,040 --> 00:30:38,720
Sunday morning, New York time. We were feeling cautiously optimistic.

429
00:30:38,760 --> 00:30:42,640
I think somebody said there may have been a handshake on a deal,

430
00:30:42,680 --> 00:30:47,840
and that it had to be run through the FSA in London.

431
00:30:50,760 --> 00:30:52,840
There was a belief, even an assumption,

432
00:30:52,880 --> 00:30:57,680
that Lehmans was too big, too important, to be allowed to fail.

433
00:30:59,520 --> 00:31:05,040
By now, the media were catching on to the story that something big was happening at the Fed.

434
00:31:05,080 --> 00:31:07,640
At this point, all the main players were inside,

435
00:31:07,680 --> 00:31:13,160
and I basically just photographed anything that came out of the garage.

436
00:31:13,200 --> 00:31:15,720
As soon as that gate goes up, we start shooting,

437
00:31:15,760 --> 00:31:19,120
looking for anything, any kind of movement, anybody in a suit.

438
00:31:19,160 --> 00:31:23,080
We don't know who we're looking for. Once we do see them, I can't recognise them

439
00:31:23,120 --> 00:31:26,240
because they're not like Paris Hilton.

440
00:31:26,280 --> 00:31:28,240
These people are not celebrities,

441
00:31:28,280 --> 00:31:30,480
so for me, I'm shooting anybody in a suit

442
00:31:30,520 --> 00:31:32,960
and then I figure I'll figure it out later.

443
00:31:33,000 --> 00:31:38,320
One CEO did not have tinted windows and he shielded his face with his hands and it was just very telling

444
00:31:38,360 --> 00:31:41,640
that here are the titans of business,

445
00:31:41,680 --> 00:31:44,880
who are lauded and had been lauded,

446
00:31:44,920 --> 00:31:49,760
shielding their faces, perhaps ashamed. I don't know why they were doing that.

447
00:31:49,800 --> 00:31:54,120
Lehman Brothers CEO Dick Fuld is backed into a corner, to say the least.

448
00:31:54,160 --> 00:31:57,480
Fuld has very few options left. The stock, in a freefall.

449
00:31:57,520 --> 00:32:01,440
A lot of things perhaps a bit too late for Lehman in terms of owning up...

450
00:32:01,480 --> 00:32:03,600
Here we go.

451
00:32:03,640 --> 00:32:08,840
The bank and its boss had had a difficult relationship with the media.

452
00:32:08,880 --> 00:32:12,960
Shares of Lehman Brothers have fallen 12% in the last week.

453
00:32:13,000 --> 00:32:16,880
Three months earlier, when the press and news channels were full of reports

454
00:32:16,920 --> 00:32:21,760
questioning the health of Lehman Brothers, Dick Fuld had railed against them.

455
00:32:21,800 --> 00:32:26,960
I'm also so tired of looking at my ugly picture in the goddamn newspapers.

456
00:32:27,000 --> 00:32:28,880
But the source is close to the firm.

457
00:32:28,920 --> 00:32:33,280
It could be a little hot dog guy who stands on the corner. He's close to the firm.

458
00:32:33,320 --> 00:32:39,080
I think we in the media do not and are not responsible in any way

459
00:32:39,120 --> 00:32:42,720
for causing a run on the bank. I think that's absurd.

460
00:32:42,760 --> 00:32:45,280
I think some people want to blame the messenger.

461
00:32:45,320 --> 00:32:49,960
But at the end of the day, you're talking about institutions

462
00:32:50,000 --> 00:32:55,840
that made choices to lever their balance sheets 30 or 40 times.

463
00:32:55,880 --> 00:32:58,960
Nobody in the media was forcing them to do that.

464
00:32:59,000 --> 00:33:00,680
They should have known better.

465
00:33:00,720 --> 00:33:07,640
And the SEC is investigating four rumours that circulated about Lehman Brothers over the past two months.

466
00:33:07,680 --> 00:33:10,240
But Dick Fuld thought the constant reporting

467
00:33:10,280 --> 00:33:14,120
of Lehman's plunging share price was creating a downward spiral.

468
00:33:14,160 --> 00:33:18,600
We've got to close it down. I make a joke out of it, it's no joke.

469
00:33:18,640 --> 00:33:21,440
This has got to end.

470
00:33:21,480 --> 00:33:26,080
The leakage hurts us.

471
00:33:26,120 --> 00:33:30,080
That's where the rumour mill comes from.

472
00:33:30,120 --> 00:33:32,960
That's where the misinformation comes from.

473
00:33:37,640 --> 00:33:40,840
We have a communications division,

474
00:33:40,880 --> 00:33:43,240
it's got to be controlled there.

475
00:33:43,280 --> 00:33:49,560
Anybody outside of that is not authorised to talk to the press. Period.

476
00:33:49,600 --> 00:33:54,520
But the man who was authorised to talk to the press

477
00:33:54,560 --> 00:33:58,080
found defending the firm to be a thankless task.

478
00:33:58,120 --> 00:34:01,600
The atmosphere was quite surreal and also very unpleasant because

479
00:34:01,640 --> 00:34:07,360
there was this very well-entrenched view among senior Lehman people

480
00:34:07,400 --> 00:34:10,480
that the outside world was agin it.

481
00:34:10,520 --> 00:34:12,640
But when it came to it, the story was,

482
00:34:12,680 --> 00:34:16,040
"Does Lehman have the wherewithal to get to the other side?"

483
00:34:16,080 --> 00:34:18,120
And they were right to ask the question

484
00:34:18,160 --> 00:34:20,480
and we were not able to provide the answers.

485
00:34:22,640 --> 00:34:25,680
Back at the Fed, Barclays was now close

486
00:34:25,720 --> 00:34:28,240
to making an offer for Lehmans,

487
00:34:28,280 --> 00:34:30,600
but, like Bank of America before it,

488
00:34:30,640 --> 00:34:36,160
the British bank wanted guarantees for Lehman's debts so it could open for business the next day.

489
00:34:36,200 --> 00:34:38,360
Who would underwrite the deal?

490
00:34:38,400 --> 00:34:41,080
The American authorities? The British?

491
00:34:41,120 --> 00:34:43,320
No-one seemed to have an answer.

492
00:34:44,960 --> 00:34:48,920
The tone of the conversations was beginning to change

493
00:34:48,960 --> 00:34:52,960
and you could hear in the voices

494
00:34:53,000 --> 00:34:55,440
of the Lehman representatives

495
00:34:55,480 --> 00:35:00,080
a higher level of doubt that things were going to work out.

496
00:35:01,960 --> 00:35:09,280
There was deadlock. Lehmans and Barclays had come so far and were so close to a deal,

497
00:35:09,320 --> 00:35:12,960
but couldn't seal it without a guarantee in place.

498
00:35:13,000 --> 00:35:16,440
The telephone calls across the Atlantic were strained.

499
00:35:16,480 --> 00:35:18,760
Midway through the Sunday afternoon,

500
00:35:18,800 --> 00:35:25,000
we, the FSA, informed the New York Fed

501
00:35:25,040 --> 00:35:27,520
categorically that from our perspective,

502
00:35:27,560 --> 00:35:30,040
we couldn't see how this deal could go forward

503
00:35:30,080 --> 00:35:33,720
given that they were not willing to offer any liquidity guarantees.

504
00:35:35,680 --> 00:35:42,600
Lehman would be cut loose, unless Treasury Secretary Hank Paulson authorised the guarantee.

505
00:35:42,640 --> 00:35:47,600
The teams of advisers were summoned. It was now or never.

506
00:35:47,640 --> 00:35:52,840
We were asked to come to the main floor,

507
00:35:52,880 --> 00:35:55,440
where the group of major banks

508
00:35:55,480 --> 00:36:01,400
was closeted behind these very heavy doors, and we were asked to wait.

509
00:36:01,440 --> 00:36:04,040
We spent hours waiting there.

510
00:36:04,080 --> 00:36:11,640
The tension was palpable, as behind closed doors, Hank Paulson was on the phone to London.

511
00:36:11,680 --> 00:36:16,920
The fate of Lehman hung on this call and time was running out.

512
00:36:16,960 --> 00:36:19,840
The markets in Europe would open in 12 hours.

513
00:36:19,880 --> 00:36:23,040
If the bank wasn't rescued by then, it would be too late.

514
00:36:23,080 --> 00:36:28,280
I spoke to Hank Paulson on the Sunday afternoon and he said,

515
00:36:28,320 --> 00:36:31,000
"Your regulators are asking hundreds of questions."

516
00:36:31,040 --> 00:36:33,200
I made the point that they're asking them

517
00:36:33,240 --> 00:36:34,920
with very good reason.

518
00:36:34,960 --> 00:36:39,720
Eventually, Treasury Secretary Paulson came out and made an announcement.

519
00:36:41,760 --> 00:36:47,280
The British government was not prepared to let Barclays continue with the transaction.

520
00:36:47,320 --> 00:36:49,880
I don't know what actually went on

521
00:36:49,920 --> 00:36:53,480
but that's what we were told.

522
00:36:53,520 --> 00:37:00,360
And we asked the Secretary whether there were certain things we could

523
00:37:00,400 --> 00:37:05,600
do and his statement was, "I'm not going to cajole

524
00:37:05,640 --> 00:37:10,880
"or plead with the British government, nor am I going to

525
00:37:10,920 --> 00:37:15,720
"in any way threaten the British government in terms of our relationship."

526
00:37:15,760 --> 00:37:18,320
I think the Americans recognised that,

527
00:37:18,360 --> 00:37:22,240
and knew that by Sunday afternoon our time, the game was up.

528
00:37:22,280 --> 00:37:24,520
We couldn't get ourselves into a situation

529
00:37:24,560 --> 00:37:27,760
where effectively we were guaranteeing an American bank.

530
00:37:27,800 --> 00:37:30,520
To be absolutely, categorically clear,

531
00:37:30,560 --> 00:37:33,200
the FSA did not stop the Barclays deal.

532
00:37:33,240 --> 00:37:36,040
Barclays never brought us a deal.

533
00:37:36,080 --> 00:37:39,640
Barclays never negotiated a deal that they thought was satisfactory

534
00:37:39,680 --> 00:37:43,440
from their own point of view and therefore never proposed any deal to us.

535
00:37:43,480 --> 00:37:46,200
We were quite prescriptive about what was going to work

536
00:37:46,240 --> 00:37:47,800
and what wasn't going to work.

537
00:37:47,840 --> 00:37:50,800
What we wanted was not available, so we walked, end of story.

538
00:37:50,840 --> 00:37:55,040
Having worked on this for a number of days, and having been pretty positive

539
00:37:55,080 --> 00:38:00,800
about if we could get all the pieces lined up, I was gutted.

540
00:38:00,840 --> 00:38:03,320
In the end, the sand had run out of the hourglass.

541
00:38:03,360 --> 00:38:07,080
Nothing would work at that point.

542
00:38:07,120 --> 00:38:10,880
It was beyond Dick, it was beyond Lehman,

543
00:38:10,920 --> 00:38:14,200
it was beyond all of us. It was a decision for the United States.

544
00:38:17,840 --> 00:38:23,800
Rodgin Cohen now had the unenviable task of reporting back to Dick Fuld.

545
00:38:23,840 --> 00:38:26,920
There would be no knight in shining armour.

546
00:38:26,960 --> 00:38:29,000
The British weren't coming.

547
00:38:30,240 --> 00:38:36,280
It was as difficult a call as I've ever made in my life.

548
00:38:36,320 --> 00:38:41,880
He said, "This is just unbelievable. How can this possibly be happening?"

549
00:38:41,920 --> 00:38:43,480
We spent a few minutes

550
00:38:43,520 --> 00:38:45,840
going back over the same ground

551
00:38:45,880 --> 00:38:53,480
and then he shifted to, "Is there anything else we can do?"

552
00:38:55,160 --> 00:38:59,640
With both Bank of America and Barclays having walked away,

553
00:38:59,680 --> 00:39:01,520
it was time for Plan C.

554
00:39:01,560 --> 00:39:04,200
There was no Plan C.

555
00:39:06,080 --> 00:39:12,480
This was the first time he really, to me, lost his composure a bit.

556
00:39:12,520 --> 00:39:15,720
Because now death was imminent.

557
00:39:17,680 --> 00:39:20,960
Lehman's bankruptcy lawyers were summoned to the Fed

558
00:39:21,000 --> 00:39:23,640
and ushered into the main conference room.

559
00:39:23,680 --> 00:39:27,880
We were told there wasn't going to be a Barclays transaction.

560
00:39:27,920 --> 00:39:31,760
Therefore, Lehman should be prepared to go into bankruptcy.

561
00:39:31,800 --> 00:39:35,080
Then suddenly they said, "by midnight".

562
00:39:35,120 --> 00:39:39,360
And my response was, "I don't understand what you're doing.

563
00:39:39,400 --> 00:39:43,440
"Could you explain what the reason is for this action?"

564
00:39:45,000 --> 00:39:50,000
They were saying, "We really don't have to explain the reason.

565
00:39:50,040 --> 00:39:55,240
"You need us to finance you and we're not going to finance you unless you go into bankruptcy."

566
00:39:55,280 --> 00:39:57,440
That's pretty compelling.

567
00:39:57,480 --> 00:40:00,080
Then the conversation changed to,

568
00:40:00,120 --> 00:40:06,240
"You," we're speaking to the assemblage, "do you understand what the consequences

569
00:40:06,280 --> 00:40:08,160
"of this decision are

570
00:40:08,200 --> 00:40:12,080
"and what's going to happen to the marketplace?"

571
00:40:12,120 --> 00:40:15,840
They said, "We'll take care of that."

572
00:40:15,880 --> 00:40:22,280
Treasury officials were confident the fallout from the collapse of Lehman would be containable.

573
00:40:22,320 --> 00:40:27,560
News of the impending bankruptcy had already reached London.

574
00:40:27,600 --> 00:40:33,680
There will be no money coming from New York for the bank to open for business the following morning.

575
00:40:33,720 --> 00:40:39,680
So, it was absolutely clear the advice was that Lehman UK had to file. It was insolvent.

576
00:40:39,720 --> 00:40:43,320
It was not going to be in a position to pay its debts.

577
00:40:43,360 --> 00:40:47,520
That reality had to be grasped

578
00:40:47,560 --> 00:40:50,800
and there were polar reactions to that.

579
00:40:50,840 --> 00:40:53,280
There were the lawyers and the accountants,

580
00:40:53,320 --> 00:40:56,040
who turned their minds to the practical challenge

581
00:40:56,080 --> 00:41:02,960
that now had to be met of organising the filing and thereafter dealing with the consequences of it.

582
00:41:03,000 --> 00:41:08,680
Then there were the commercial managers, traders and so on,

583
00:41:08,720 --> 00:41:12,440
who just couldn't believe that this was going to happen,

584
00:41:12,480 --> 00:41:16,640
and couldn't focus immediately

585
00:41:16,680 --> 00:41:21,200
on what the consequences of that might be for the business or for themselves.

586
00:41:21,240 --> 00:41:23,760
They were just completely stunned by it.

587
00:41:23,800 --> 00:41:27,200
WOMEN SINGS OPERA

588
00:41:32,120 --> 00:41:35,760
As an open-air performance of Offenbach started in Brooklyn,

589
00:41:35,800 --> 00:41:39,760
across the water at the Fed, it was all but over.

590
00:41:44,320 --> 00:41:51,240
We were basically told to get out as we were going down to the garage.

591
00:41:51,280 --> 00:41:54,200
We were standing in the elevator and we said,

592
00:41:54,240 --> 00:41:56,000
"I don't think they like us."

593
00:41:57,560 --> 00:41:59,760
They basically threw us out.

594
00:41:59,800 --> 00:42:02,800
And it's a very serious situation.

595
00:42:06,120 --> 00:42:09,560
There was a very sombre, sad voyage,

596
00:42:09,600 --> 00:42:11,160
if you want to call it that,

597
00:42:11,200 --> 00:42:16,240
going back to Lehman. As we approached the Lehman building,

598
00:42:16,280 --> 00:42:19,360
it was like pandemonium on 7th Avenue.

599
00:42:19,400 --> 00:42:26,040
I remember there was an odd-looking man there, with a spear saying, "Down with Wall Street."

600
00:42:26,080 --> 00:42:29,000
I said, "This is going to be some evening."

601
00:42:29,040 --> 00:42:34,840
REPORTER: We await word on the fate of the 158-year-old firm Lehman brothers...

602
00:42:34,880 --> 00:42:40,280
We are a minute from midnight in terms of outright catastrophe.

603
00:42:40,320 --> 00:42:42,760
We're a heartbeat away from a depression.

604
00:42:44,320 --> 00:42:51,120
Dick Fuld was waiting for them, up on the 31st floor. When we went into the boardroom,

605
00:42:51,160 --> 00:42:55,680
you could tell without a lot of deep thought

606
00:42:55,720 --> 00:43:01,360
that Dick Fuld was very concerned,

607
00:43:01,400 --> 00:43:05,800
very worried, and I would say, very depressed.

608
00:43:05,840 --> 00:43:09,920
Dick asked me, "Are you telling me it is over?" I said, "Yes, Dick.

609
00:43:09,960 --> 00:43:13,160
"I have nowhere else to go. I'm out of options.

610
00:43:13,200 --> 00:43:16,440
"I can't think of anything else to do."

611
00:43:16,480 --> 00:43:21,440
He said something like, "Well, we really gave it every effort.

612
00:43:21,480 --> 00:43:23,120
"I still can't believe it."

613
00:43:24,840 --> 00:43:29,880
I saw a man sitting there sort of saying to himself, "I don't understand how this happened.

614
00:43:29,920 --> 00:43:31,720
"Where did we go wrong?"

615
00:43:38,720 --> 00:43:43,120
Behind closed doors, a final throw of the dice.

616
00:43:43,160 --> 00:43:49,560
It so happened that a second cousin of President Bush worked at Lehman Brothers.

617
00:43:49,600 --> 00:43:54,000
Could the Commander in Chief succeed where central bankers had failed?

618
00:43:54,040 --> 00:43:58,720
What took place remains a matter of dispute.

619
00:43:58,760 --> 00:44:02,280
Larry McDonald was told about it by colleagues who were there,

620
00:44:02,320 --> 00:44:05,400
although the story is denied by George Walker.

621
00:44:06,920 --> 00:44:11,160
They've tried everything and they kind of all gather around George.

622
00:44:11,200 --> 00:44:15,280
There was some hope that he'd reach out to the President, and in essence

623
00:44:15,320 --> 00:44:17,160
we'd go around Hank Paulson

624
00:44:17,200 --> 00:44:21,200
and give our message of potential worldwide financial destruction

625
00:44:21,240 --> 00:44:23,960
that Lehman would cause, directly to the President.

626
00:44:24,000 --> 00:44:27,480
The President is his cousin but to reach out to the White House

627
00:44:27,520 --> 00:44:30,800
under duress is a very stressing situation for everybody.

628
00:44:30,840 --> 00:44:34,760
He was in a sweat and finally he agreed to make that call to the White House.

629
00:44:34,800 --> 00:44:37,840
RINGING TONE

630
00:44:47,200 --> 00:44:52,240
The operator put him on hold, which to the people in the room seemed just like an eternity.

631
00:44:55,560 --> 00:44:59,880
And as the seconds ticked by, everybody was more tense.

632
00:44:59,920 --> 00:45:04,200
Everybody's pulses and heartbeats were racing a little bit more intently.

633
00:45:04,240 --> 00:45:06,680
Finally, the operator came back to the line.

634
00:45:06,720 --> 00:45:11,760
And she said, "I'm sorry, the President cannot take your call at this time."

635
00:45:13,360 --> 00:45:18,400
There was just a real horrific blood-curdling feeling in the room

636
00:45:18,440 --> 00:45:21,520
of potential destruction and despair.

637
00:45:23,080 --> 00:45:28,200
Dick Fuld and the board of directors had one last task to perform -

638
00:45:28,240 --> 00:45:32,440
pass the resolution winding up the bank.

639
00:45:32,480 --> 00:45:34,240
It was dark out - very dark out.

640
00:45:34,280 --> 00:45:39,680
Dick Fuld looked up, clearly a man that was in turmoil,

641
00:45:39,720 --> 00:45:42,080
and said, and he looked at me and said,

642
00:45:42,120 --> 00:45:43,520
"I guess this is goodbye."

643
00:45:43,560 --> 00:45:50,520
After 42 years at Lehman Brothers, Dick Fuld was out of a job.

644
00:45:50,560 --> 00:45:54,800
At their peak, Lehman shares were worth ¤85 each.

645
00:45:54,840 --> 00:45:58,200
They were now worth 3 cents.

646
00:46:00,360 --> 00:46:05,400
Finally, in the middle of the night, the bankruptcy lawyers had completed the preparations.

647
00:46:05,440 --> 00:46:08,320
They were ready to file the petition.

648
00:46:08,360 --> 00:46:13,320
It's like sending an e-mail. So, at 2am, when that started,

649
00:46:13,360 --> 00:46:18,080
most of us were drained of emotion

650
00:46:18,120 --> 00:46:20,600
and yes, we filed it.

651
00:46:20,640 --> 00:46:25,280
It was the end of an institution

652
00:46:25,320 --> 00:46:29,640
which was one of the originators of Wall Street

653
00:46:29,680 --> 00:46:36,120
and here it was, all coming to an end by pressing a button on a computer.

654
00:46:36,160 --> 00:46:38,640
Sad in many respects.

655
00:46:49,160 --> 00:46:52,000
REPORTER: Wall Street has seen very few days like this.

656
00:46:52,040 --> 00:46:57,120
The mortgage crisis has now taken down Lehman Brothers, right behind...

657
00:46:57,160 --> 00:47:00,920
..There were others who were simply devastated.

658
00:47:00,960 --> 00:47:04,400
Lehman Brothers suffering a spectacular downfall...

659
00:47:04,440 --> 00:47:07,280
NEWSREADERS SPEAK IN FOREIGN LANGUAGES

660
00:47:19,280 --> 00:47:21,880
This is really stupendous that this has happened.

661
00:47:23,280 --> 00:47:28,480
When it collapsed on the Sunday night, that did send shockwaves throughout the world

662
00:47:28,520 --> 00:47:32,040
because people thought, "If they can go down, who else can go down?"

663
00:47:36,040 --> 00:47:42,920
Lehman Brothers was the largest bankruptcy in history -ten times bigger than Enron.

664
00:47:47,240 --> 00:47:51,200
The impact of the bankruptcy around the world was unparalleled.

665
00:47:53,760 --> 00:47:59,840
Lehman's web of global transactions were hugely complicated and few really understood them.

666
00:47:59,880 --> 00:48:07,480
So with the banking world already jumpy, panic spread as institutions feared how exposed they might be.

667
00:48:07,520 --> 00:48:10,960
Lehmans illustrated this huge problem.

668
00:48:11,000 --> 00:48:15,200
The level of impaired assets or bad loans in the system

669
00:48:15,240 --> 00:48:18,920
was so high that even recognised institutions

670
00:48:18,960 --> 00:48:26,040
in America were being put at risk, and secondly, that Lehmans was entangled in such a complex way

671
00:48:26,080 --> 00:48:32,040
with other institutions that whatever happened to one institution was bound to have an effect on the other.

672
00:48:32,080 --> 00:48:36,160
Lehmans was a seminal moment in the sense that it illustrated these

673
00:48:36,200 --> 00:48:40,960
two big problems that if we didn't solve, things would get a huge amount worse.

674
00:48:43,360 --> 00:48:47,880
5,000 staff worked at Lehman's European HQ in London.

675
00:48:47,920 --> 00:48:51,840
When they arrived that morning, many discovered they were out of a job.

676
00:48:51,880 --> 00:48:57,360
It was like a scene of a bombing and a family bereavement all rolled into one.

677
00:48:57,400 --> 00:49:00,560
I went up to the management floor and everybody was sitting around

678
00:49:00,600 --> 00:49:02,720
with their heads literally in their hands.

679
00:49:02,760 --> 00:49:05,400
A lot of them had red eyes and black bags under them.

680
00:49:05,440 --> 00:49:08,560
They had been there all weekend and all night.

681
00:49:08,600 --> 00:49:12,560
I was told there had been a meeting of staff suddenly convened

682
00:49:12,600 --> 00:49:18,440
that morning in which the head of the European operation had said, "It's all over, go home."

683
00:49:20,920 --> 00:49:25,160
Some people just burst into tears and just didn't know how to cope with it.

684
00:49:25,200 --> 00:49:28,200
Other people were on the phone to the head-hunters straightaway,

685
00:49:28,240 --> 00:49:32,520
and you kind of had the best and worst of human instinct raise its head,

686
00:49:32,560 --> 00:49:34,680
as these situations tend to.

687
00:49:34,720 --> 00:49:38,480
There were certainly people who felt they were on the lifeboat,

688
00:49:38,520 --> 00:49:41,320
they had something sorted out for themselves.

689
00:49:41,360 --> 00:49:44,440
But they weren't going to let anybody else on that lifeboat.

690
00:49:44,480 --> 00:49:50,080
They were going to sail off and leave you to sort yourselves out. This is a CNBC special report.

691
00:49:50,120 --> 00:49:54,000
The fall of Lehman Brothers...A seismic story on an historic day...

692
00:49:54,040 --> 00:50:00,320
As the start of trading approached, the financial world waited anxiously to discover what would happen.

693
00:50:00,360 --> 00:50:05,160
From Monday morning at Treasury, we were watching the markets very carefully,

694
00:50:05,200 --> 00:50:07,800
in constant communication with market leaders

695
00:50:07,840 --> 00:50:11,480
about what was happening once they ultimately filed for bankruptcy.

696
00:50:11,520 --> 00:50:13,520
It obviously turned out to be very bad.

697
00:50:13,560 --> 00:50:16,800
It was worse than we had feared.

698
00:50:16,840 --> 00:50:21,840
While the credit markets basically shut down two days later on Wednesday,

699
00:50:21,880 --> 00:50:26,320
the real depth of the damage was not seen for weeks or even months.

700
00:50:26,360 --> 00:50:28,240
As I describe it,

701
00:50:28,280 --> 00:50:33,680
the housing market damaged our financial system, which then damaged our economy.

702
00:50:33,720 --> 00:50:38,680
This crisis is what caused the severe recession that we're in right now.

703
00:50:38,720 --> 00:50:43,160
We had a deluge of communication.

704
00:50:43,200 --> 00:50:45,080
In fact, I had something in the order

705
00:50:45,120 --> 00:50:48,080
of 5,000 e-mails that day.

706
00:50:48,120 --> 00:50:52,520
Our switchboard at the firm was blocked, the switchboard at Bank Street was blocked.

707
00:50:52,560 --> 00:50:57,760
There was a massive communications problem because everybody wanted an immediate answer.

708
00:50:57,800 --> 00:51:01,440
I've never experienced that before and I'm sure I won't again.

709
00:51:01,480 --> 00:51:07,200
We were getting calls from not just banks and commercial banks, we were getting calls from

710
00:51:07,240 --> 00:51:12,080
large American businesses, blue-chip businesses, saying they couldn't fund themselves,

711
00:51:12,120 --> 00:51:15,160
they couldn't make their payroll or fund their inventory.

712
00:51:15,200 --> 00:51:20,160
These are some of the best American companies that have very little to do with financial markets

713
00:51:20,200 --> 00:51:24,200
saying they can't access the basic funding they need to pay their employees.

714
00:51:24,240 --> 00:51:28,560
The intensity of this period was unlike anything we'd seen before.

715
00:51:28,600 --> 00:51:34,640
By the end of Monday's trading, ¤700 billion had been wiped off the global stock markets.

716
00:51:34,680 --> 00:51:40,200
The Dow Jones, the leading stock exchange index, had plummeted 500 points.

717
00:51:40,240 --> 00:51:45,280
It was the biggest fall in a day since 9/11.

718
00:51:45,320 --> 00:51:49,160
Money markets around the world froze up because the collapse of Lehman

719
00:51:49,200 --> 00:51:54,920
destroyed the confidence banks need to lend to each other.

720
00:51:54,960 --> 00:51:58,680
And over the four-week period, the 28 days between the failure of

721
00:51:58,720 --> 00:52:03,680
Lehman Brothers and the announcement of recapitalisation packages

722
00:52:03,720 --> 00:52:06,480
for banks around the world in October,

723
00:52:06,520 --> 00:52:11,600
there was an extraordinary loss of confidence. A panic, I would call it.

724
00:52:11,640 --> 00:52:17,160
Good afternoon, everyone, and I hope you all had an enjoyable weekend. LAUGHTER

725
00:52:17,200 --> 00:52:22,520
The fall of Lehman Brothers brought the global financial system to its knees.

726
00:52:22,560 --> 00:52:24,200
And still the debate goes on -

727
00:52:24,240 --> 00:52:27,320
should the US Treasury have stepped in to save the bank?

728
00:52:27,360 --> 00:52:31,440
I never once considered that it was appropriate

729
00:52:31,480 --> 00:52:35,840
to put taxpayers' money on the line in resolving Lehman Brothers.

730
00:52:35,880 --> 00:52:38,520
Historians will debate

731
00:52:38,560 --> 00:52:41,400
for years

732
00:52:41,440 --> 00:52:44,880
about whether, if the US government had rescued Lehman Brothers,

733
00:52:44,920 --> 00:52:48,960
whether there would have been a greater degree of financial stability.

734
00:52:49,000 --> 00:52:56,080
My own view is that the US government had to draw a line in the sand, not least to make everyone in

735
00:52:56,120 --> 00:53:01,720
the world, world governments and central banks, focus on the fact that there was a massive problem.

736
00:53:03,520 --> 00:53:08,800
I believe that allowing Lehman Brothers to go bankrupt

737
00:53:08,840 --> 00:53:11,320
was a tremendous mistake.

738
00:53:13,280 --> 00:53:20,520
The amount of money it would have taken, 20 billion, 30 billion,

739
00:53:20,560 --> 00:53:27,080
compared to the destruction in value that followed the Lehman bankruptcy

740
00:53:27,120 --> 00:53:31,840
and the complete shutdown of the credit markets,

741
00:53:31,880 --> 00:53:35,960
the billions and billions and billions of losses

742
00:53:36,000 --> 00:53:38,680
that were experienced in the market subsequently.

743
00:53:38,720 --> 00:53:41,240
When the Federal Reserve lends money -

744
00:53:41,280 --> 00:53:44,440
they can loan money to financial institutions -

745
00:53:44,480 --> 00:53:49,080
the law requires the Fed to be secured, so that they're not taking much risk.

746
00:53:49,120 --> 00:53:54,000
And so in the case of Bear Stearns, they lent ¤30 billion against a pool of mortgages.

747
00:53:54,040 --> 00:53:58,560
In the case of Lehman Brothers, the question is, "What assets could they lend against?"

748
00:53:58,600 --> 00:54:00,480
The tragic thing for the US was that

749
00:54:00,520 --> 00:54:03,880
we came into this crisis without an adequate set of tools

750
00:54:03,920 --> 00:54:06,480
to withstand and protect the economy

751
00:54:06,520 --> 00:54:10,240
from the acute stress you saw in the financial system.

752
00:54:10,280 --> 00:54:14,560
The constraints we faced at Lehman were one example of those kind of constraints.

753
00:54:14,600 --> 00:54:19,280
We shouldn't have been in that position. That's why it's important we move more quickly now

754
00:54:19,320 --> 00:54:23,880
and we're moving very quickly. We're still in the midst of a severe economic crisis globally

755
00:54:23,920 --> 00:54:27,480
and yet we're going to move with comprehensive regulatory reform,

756
00:54:27,520 --> 00:54:30,920
while we're still trying to get recovery back on track.

757
00:54:30,960 --> 00:54:34,760
That's a symptom of the importance we attach to trying to put in place reform.

758
00:54:34,800 --> 00:54:37,080
It was something that shouldn't have happened.

759
00:54:37,120 --> 00:54:39,960
Two days after the bankruptcy,

760
00:54:40,000 --> 00:54:43,400
Barclays Bank got what it wanted all along.

761
00:54:43,440 --> 00:54:50,040
It sealed a deal to buy the bulk of Lehman's North American assets for ¤1.75 billion.

762
00:54:50,080 --> 00:54:55,800
It was a bargain - much less than they would have paid had the bank been solvent.

763
00:54:55,840 --> 00:54:59,680
I think all of us would say this is something that we never expected,

764
00:54:59,720 --> 00:55:03,200
that we could actually combine with a US bulge-bracket firm.

765
00:55:03,240 --> 00:55:06,080
I don't use the word transformational lightly.

766
00:55:06,120 --> 00:55:08,640
This transaction was transformational.

767
00:55:08,680 --> 00:55:13,880
But for many backroom staff, there was no happy ending.

768
00:55:13,920 --> 00:55:15,760
Two weeks after that, I got a letter -

769
00:55:15,800 --> 00:55:20,080
Federal Express - to my house, from Lehman Brothers, stating that

770
00:55:20,120 --> 00:55:23,080
they were no longer honouring my severance agreement.

771
00:55:23,120 --> 00:55:28,080
Everything has been taken away. So that really sent me into a tailspin.

772
00:55:28,120 --> 00:55:31,280
It was like, "How could they do that after 20 years of service?"

773
00:55:31,320 --> 00:55:33,400
Now I have absolutely nothing.

774
00:55:37,080 --> 00:55:41,840
A month later, Dick Fuld made his first and only public appearance,

775
00:55:41,880 --> 00:55:46,400
summoned to Washington to account for the disaster at a Congressional hearing.

776
00:55:46,440 --> 00:55:50,640
Don't you have anything to say to the people that are watching us right now,

777
00:55:50,680 --> 00:55:53,040
that are wondering why this has happened?

778
00:55:54,560 --> 00:55:59,120
You have nothing to say?Are you going to be in the testimony? Absolutely.Good.

779
00:55:59,160 --> 00:56:02,400
'I wake up every single night...'

780
00:56:02,440 --> 00:56:05,080
Please wait till then.

781
00:56:05,120 --> 00:56:07,800
..thinking, "What could I have done differently?"

782
00:56:07,840 --> 00:56:13,600
In certain conversations, "What could I have said? What should I have done?"

783
00:56:13,640 --> 00:56:15,960
And I have searched myself...

784
00:56:16,000 --> 00:56:18,440
every single night.

785
00:56:18,480 --> 00:56:21,080
I thought he should have apologised.

786
00:56:21,120 --> 00:56:24,680
I think he didn't confess to anything.

787
00:56:24,720 --> 00:56:28,000
He made it sound like he personally, Dick Fuld, did not

788
00:56:28,040 --> 00:56:33,120
cause the collapse of the firm, like he denied everything, that it

789
00:56:33,160 --> 00:56:36,240
wasn't his fault. I don't think he was honest.

790
00:56:37,680 --> 00:56:42,040
' I can look right at you and say, "This is a pain

791
00:56:42,080 --> 00:56:44,960
' "that will stay with me for the rest of my life."

792
00:56:46,680 --> 00:56:47,800
'That's all.'

793
00:56:47,840 --> 00:56:51,320
You belong in jail, you criminal!

794
00:56:51,360 --> 00:56:54,200
You should go to jail, right now!

795
00:56:54,240 --> 00:56:58,880
Dick Fuld may yet be called to account in court.

796
00:56:58,920 --> 00:57:05,520
The former chief executive has been subpoenaed in numerous civil cases which allege the bank misrepresented

797
00:57:05,560 --> 00:57:10,920
and overvalued its assets in the months before the collapse.

798
00:57:10,960 --> 00:57:14,600
He declined to be interviewed for this documentary.

799
00:57:19,320 --> 00:57:24,600
Lehman Brothers was the catalyst for the crash of 2008.

800
00:57:24,640 --> 00:57:30,320
Those who were there on Wall Street that weekend say what brought this American giant down

801
00:57:30,360 --> 00:57:32,680
was the love of money.

802
00:57:32,720 --> 00:57:37,560
It was greed and hubris that led to the fall.

803
00:57:37,600 --> 00:57:41,280
The bankers soared so high for so long,

804
00:57:41,320 --> 00:57:43,920
they thought they were invincible

805
00:57:43,960 --> 00:57:46,920
but they were flying too close to the sun.

806
00:57:53,160 --> 00:57:56,760
When I went to college, I learnt in Economics 101,

807
00:57:56,800 --> 00:58:01,560
you do not finance long-term investments with short-term money,

808
00:58:01,600 --> 00:58:03,560
and that's what happened.

809
00:58:03,600 --> 00:58:07,280
And I believe it happened because

810
00:58:07,320 --> 00:58:09,520
greed took over

811
00:58:09,560 --> 00:58:14,800
and the returns were so big, and so many people were making so much money,

812
00:58:14,840 --> 00:58:17,760
that they lost all fear.

813
00:58:17,800 --> 00:58:20,800
And risk did not become a factor in doing anything.

814
00:58:22,680 --> 00:58:24,920
'And that was the real dilemma.'

815
00:58:26,360 --> 00:58:28,560
All right, thank you, all.

816
00:58:28,600 --> 00:58:30,560
MICROPHONE CRACKLES

817
00:58:44,240 --> 00:58:46,560
OK.

818
00:58:46,600 --> 00:58:50,040
Next week - what caused the greatest financial crisis

819
00:58:50,080 --> 00:58:53,800
since the Depression? We examine the boom before the bust.

820
00:58:53,840 --> 00:58:55,960
To find out more, go to -

821
00:59:19,320 --> 00:59:21,320
Subtitles by Red Bee Media Ltd