Of course, this is one of the meanings of moral hazard, that term that’s been used so much in recent months. At this level, it’s not a tragedy so much as the end of a specific vision of the American good life, one that’s helped to define the city and its suburbs for more than a decade.
Pain was relative. “One of my managers, he’s a guy who is a little bit older,” one low-level Lehman staffer said on September 16. “He has an $800,000 mortgage, a wife who can’t work, and two kids. That gives you a little perspective.”
On Friday, September 12, the Wall Street Journal reported that Lehman’s former president, Joe Gregory, who was demoted along with former CFO Erin Callan in a management shake-up in June, was listing his Bridgehampton house on Surfside Drive for $32.5 million. The collapse of Lehman’s stock is a blow to Gregory’s lifestyle. He reportedly used to travel by helicopter to midtown from his $3.5 million mansion in Huntington, which was recently renovated, according to a Sotheby’s broker. According to one source, Gregory’s financial adviser was in negotiations with Lehman’s attorneys at Simpson Thacher & Bartlett, working to avert his filing for bankruptcy, after he borrowed money against his Lehman stock to pay for the renovation. “He owes a lot of money for it. They called the margin loan” late last week, the source said. (Gregory and attorneys didn’t return calls for comment.)
And some around the city met the crisis with a kind of glee. “What do you think just happened to the lifestyles of all the guys who girls want to meet?” one hedge-fund analyst wondered. “This is the best time ever to maintain ten girlfriends. You could be an African tribal leader!”
“Wall Street is like the auto industry in the seventies, which had a product that exploded on impact.”
In the days after the fall of Lehman, Craigslist attracted several posts from people who said they were Lehman employees, becoming a kind of clearinghouse for the detritus of the Wall Street male ego. On September 17, one banker put his East 91st Street apartment up for rent and with it, his bachelorhood. (“I can no longer afford my apartment seeing as Lehman Brothers felt the need to steal my money and my soul … I am moving in with my girlfriend.”) Another headline read, “Should I leave my fiancé? … I guess I already know the answer. My boyfriend … rather fiancé, is/was employed by Lehman Brothers,” the posting stated. “In less than a week we went from being millionaires to just having a couple of 100K … I suppose this means it’s over. I am who I am. I personally blame all this on [Lehman CEO] Dick Fuld. I blame him for ruining my happiness.”
Riding the Metro-North into Grand Central on Monday morning, September 15, the Trader stood out in his jeans and T-shirt among the rows of suits. A few passengers on the early-morning banker train were similarly dressed, and it was clear to all the commuters to what office guys in jeans, but reading the Journal, were headed.
Like Bear Stearns, Lehman’s culture was built on fierce loyalty to the firm. Senior staffers were granted bonuses that would be paid with 50 percent or more in Lehman stock, which they couldn’t unload for five years. In July, Dick Fuld approved a move to guarantee staffers a part of their bonuses midyear. But the plan backfired when staffers learned that they’d be assured only 20 percent of their previous year’s bonus and would receive restricted stock at $21 per share (“Great, so you basically shorted my own compensation,” one Lehman staffer groused).
At the Seventh Avenue headquarters, the Trader watched it all unfold like a nightmare. Managers instructed the staff not to trade. The company blocked outgoing e-mails with attachments. A colleague frantically called human resources to find out if his wife, who was due to give birth any day now, would be covered by Lehman’s benefits plan. With no instructions from the top, the Trader took his colleagues down to a lunch at Pastis. The next day at around 3:30 in the afternoon, Bart McDade, Lehman’s president and COO, roamed the trading floor with Barclays president Robert Diamond, who traveled from London to inspect his new prize. The men told staffers they had agreed to a deal for Barclays to acquire Lehman. They had set aside a bonus pool for this year, and it would be paid 75 percent in cash.
Even if the Barclays deal would save many jobs, staffers were outraged at Fuld. Since Friday, September 12, Fuld’s domineering presence had all but disappeared from Lehman’s headquarters, and he was assigned a security detail. “They are sneaking him in and out of this place,” a senior Lehman staffer said. “They wouldn’t let him near this deal. It was for his own safety.” Asked what Fuld could do at this point to make it up to his company, the Trader said, “Stand naked in Times Square while I Tase you.”