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Burning Down His House


At 10 a.m. Sunday, McDade e-mailed Gelband, who was at Simpson Thacher helping Barclays with its due diligence. They had a deal.

“We were high-fiving,” said one person at Simpson Thacher.

Then at 10:15, McDade e-mailed back: “There might be a problem.”

Barclays, it was later claimed, needed the approval of British regulators. It was Paulson who spoke with regulators. “They did not want the problems of the U.S. banking system infecting the British banking system,” Paulson explained, according to one person at the Fed. Barclays later offered a different version. To Barclays, the problem was not British regulators but shareholder approval, which could take weeks. The Americans in any case couldn’t guarantee the deal until a shareholder vote.

On Sunday night, September 14, McDade returned to Lehman headquarters.

“They’ve mandated that we file for bankruptcy.”

Fuld, until that moment Wall Street’s longest-serving CEO, was shocked. “Can they do that?” he asked. “Dick never believed zero was an option. He believed at end of day, good guys win,” said one Fuld associate. And Fuld believed he was one of the good guys.

“I feel like I want to throw up,” Fuld said. “He looked completely deflated,” said one person close to him.

The next day, Lehman filed for bankruptcy. The day after that, Barclays purchased some of Lehman’s North American assets for $1.75 billion—most of that for its building. A couple of days later, Paulson called Fuld, probably the last time they spoke.

“You did everything humanly possible,” he said. Later, Fuld took that as one of the ordeal’s bitter ironies.

These days, Fuld attends to details of the bankruptcy. He’s no longer ensconced at Club 31, as employees once referred to the executive floor. Indeed, most traces of Fuld’s Lehman have been assiduously removed. As a first order of business, Barclays hung its own name on each floor, though those who look closely can still see a dusty shadow of the Lehman name. Fuld is in temporary quarters on the 45th floor of the Time & Life Building until the end of the year, when he leaves with no severance or bonus.

Fuld is still in shock, and seething. How could Paulson let Lehman go? “Until the day they put me in the ground, I will wonder [why we weren’t saved],” he told Congress.

Fuld understands the political usefulness of Lehman’s collapse. The resentful public got to witness the devastating consequences of a financial failure. Four days after Lehman’s collapse, the government had to bolster the money markets, once the most secure of investments. Two weeks later, a frightened Congress handed Paulson $700 billion, part of which he quickly doled out to the country’s largest investment banks at advantageous interest rates. If only he’d had that money before, he might have been able to save Lehman, Paulson told interviewers. To those close to Fuld, Paulson was simply covering his ass, doctoring the story post facto. “They could have found a way to save Lehman,” says a person involved with both the Bear Stearns rescue and the Lehman failure.

But perhaps the worst part for Fuld is that so many of the troops now revile him. He’d been the leader around whom they rallied, the one who’d saved them time and again. Now they believed that through pride or obstinacy Fuld had screwed their futures. For Fuld, it was agonizing. He couldn’t speak out. His lawyers kept him cordoned off.

Then one day, Fuld received a letter from a former employee. Michael Petrucelli, who had been at Lehman for fifteen years, had sold mortgage-backed securities. Petrucelli still revered Fuld; it was the old style. He recalled how he’d once introduced himself at Valbella, a Greenwich restaurant. Fuld sat at a front table in a room off to the left, upstairs, Petrucelli recounted, as if to jog Fuld’s memory. At the moment of that brief encounter, Lehman was already under siege. “We are with you,” he’d told Fuld at the time.

Then a few days before the bankruptcy, Petrucelli had been laid off, seven figures of savings decimated and, to add to the injury, promised severance and health benefits were cut.

“This is all shameful,” Petrucelli wrote Fuld.

Shortly thereafter, on October 8, Fuld picked up the phone. It was 1 p.m. He called Petrucelli on his cell. His lawyers might not have liked it, but Fuld had to reach out.

“Mike, I’m sorry you got caught up in this,” Fuld began. “I’m going to try to help fix this.”

Fuld was anguished. He knew the world was indifferent to his predicament. “Not that anyone on this committee cares,” he’d told Congress.

It turned out, that Petro, his nickname at Lehman, did. And so Petro started to console Fuld. Maybe it could only be one of the troops to whom Fuld could open up.

“I can’t believe this fucking happened,” Fuld told Petrucelli. “I believed in the firm. I thought we were going to get through this.”

Petro jumped in. “Think of all the good things you did,” he told Fuld.

Fuld took a breath, “I know,” he said.

Then he got angry again. “Understand, I spent 42 years there. I spent 42 years building and living this company. I can’t believe this happened.”


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