The ’97 Barbaresco was not supposed to be opened for this. Stashed under a desk on the third floor of Lehman Brothers’ Seventh Avenue headquarters, the bottle awaited an appropriate victory. Like food, wine pairs well with vast sums of money.
But on Friday, September 12, as Lehman’s stock flatlined at $3.65 per share, the Trader knew it was time to uncork the Santo Stefano. He was in his late thirties, at the prime of his earning potential, a standout in one of Lehman’s profitable trading divisions. When the stock price had fallen below $20 a share in July, the Trader knew things were bad but took solace in the prospect of one more bonus cycle. Things are bad; things will be bad for a while. We’ll hunker down and survive, he had thought then.
But the fact that the Trader’s desk met its targets in August meant nothing at Lehman, where cascading losses from a few epic bets on commercial real estate triggered a firmwide meltdown. As one recently laid-off Lehman staffer said, in characteristic Wall Street vernacular, “These assholes on another floor completely dropped our pants.”
Around 5:30 p.m. on Friday, as the reality sank in, the Trader assembled his staff. With the weekend looming, this would likely be the last time they would gather at Lehman as a team. The eight colleagues, friends really, stood around glowing Bloomberg terminals as the $700 Barbaresco was poured into paper cups. A crowd formed. Champagne was brought out. What they didn’t know was that upstairs, Lehman lawyers and bankers were negotiating with counterparts at Barclays, Bank of America, and the Fed, piecing together a deal. After a few minutes, the Trader was called over to open the books for the counterparties. He brushed his teeth, scrubbing the scent of wine from his breath. Leaving work at nine that evening, the Trader knew that Lehman Brothers, as he’d known it, was at an end. The culture would change, inevitably. But at that moment, he couldn’t conceive of the firm’s actually going bankrupt.
The Trader had come to Lehman only a year ago, after being recruited from a rival firm. He’d studied physics as a grad student, then come to Wall Street as the tech bubble and the aggressive gentrification of the Giuliani years remade Manhattan into a banker’s playground, a place where a $2 million salary could seem like the norm.
Like many on Wall Street, the Trader’s career was moving along briskly. By 2006, he had settled into a new $2 million house in Connecticut with a pool, and kept a pied-à-terre in Manhattan. With two young children, he had private-school tuition to cover. He had recently completed a home renovation, and now there was talk of a new porch with a built-in stainless-steel barbecue. The Trader estimated that he was two years from making enough money to retire and never have to work again.
But by Saturday, September 13, Lehman Brothers teetered on the precipice of bankruptcy after Barclays and Bank of America walked away from a deal. The Trader was certain of little, except that he was a lot poorer. The unvested stock from his previous year’s bonus, once worth $3 million, was now reduced to a scant $6,000. And on Wall Street, self-worth and net worth can amount to the same thing. “The hardest thing in my mind is to have your compensation cut,” a veteran Wall Street executive says. “It’s almost like you’re a bad person.”
At a dinner party in Darien that evening, the conversation was a mix of denial and panic. An executive from UBS lamented what the Lehman meltdown would mean for Wall Street. “This is going to be a disaster,” the executive said. The executive’s wife nervously tried to steer the topic toward lighter subjects. She kept talking about summer vacation. And then she turned to the Trader and asked, “What do you do?”
The collapse of the world’s most powerful wealth-creating engine required everyone to take stock of their financials. One Lehman executive in Rye Brook, fretting about paying off a Hamptons summer house and a ski chalet in Vermont, panicked on Monday morning and laid off her nanny, who had been with the Westchester family for nine years. “The nanny called me crying,” says Marla Sanders, who runs Advance Nannies and staffs Lehman homes. “One of the children she had brought home from the hospital.” Sanders knows more cuts for her clients are on the way. “They’re going to have to sell homes. The question is, will the homes sell? They’re cutting some of the children’s activities out, dance class, acting class. Are they going to have flowers delivered every day to their homes? I don’t think so!”