"How much can you see here?" "How's the tie?" "Hey!" "A Friday afternoon in June last year." "This thing has changed so many times, I'm just reading what you want me to read." "A titan of Wall Street prepares to address his staff in New York, London and around the world." "HE ROARS He wants to put an end to rumours that the firm is in trouble." "Crisis?" "What crisis?" "Every one of you should feel confident and proud." "Our firm is strong today." "And we will emerge from this cycle even stronger." "We've done it before." "And we will do it again." "12 weeks later, the bank went bust." "REPORTER:" "Lehman Brothers suffering a spectacular downfall..." "You should go to jail right now!" "This is the inside account of what caused a Wall Street giant to collapse." "This is really stupendous this has happened." "I think, in the history of business in the last 50 years, it was the most extraordinary weekend there has been." "It was the biggest bankruptcy in history and the tipping point into global recession." "Lehman was a seminal moment in the sense that it illustrated these two big problems that if we didn't solve, things would get a huge amount worse." "The panic that followed hurt us all as mortgages dried up." "Stock markets tumbled and businesses went to the wall." "So why did one bankruptcy have such catastrophic consequences for the world?" "I don't think any of us easily anticipated that we would see the sort of financial panic that we saw after the failure of Lehman Brothers." "So this has been an extraordinarily serious set of events." "We did not have those tools coming into the crisis and I think that was a tragic mistake for the United States and the rest of the world." "This is what really happened at the tipping point of the crash in 2008." "Those who were there on the inside tell the story of the weekend that changed the world." "When America's treasury secretary arrived in New York a year ago this week, he faced a dilemma." "Hank Paulson, the man in charge of US economic policy, had flown up from Washington because Lehman Brothers, one of Wall Street's oldest investment banks, was haemorrhaging money." "Should he keep it alive with a cash injection, or let the markets take their course?" "And if he let it go bust, what would be the consequences for the global economy?" "With only an hour's notice, he summoned the chief executives of America's leading banks - the so-called "masters of the universe" - to a crisis meeting." "So, it was Friday afternoon." "I was in Merrill's midtown offices." "It was raining quite hard." "I got a phone call at 5:00pm." ""Be at the Fed at 6:00pm this evening."" "Those types of phone calls are always bad." "And this was just about as bad as it gets." "I think it was me who used the word "Armageddon"." ""This is going to be Armageddon."" "The Fed, the New York Federal Reserve, the stage on which the crisis played out, is round the corner from Wall Street." "The granite fortress is a symbol of American economic might." "I don't think there was a person there who didn't understand, at least to a large extent, the stakes we were playing for." "We had a conference room there." "I had been told that the chief executives of most of the Wall Street firms were there as well." "But apparently there was another floor and other conference rooms." "We were trying to do our part." "To do what was being asked of us with a sense of the clock ticking." "I'll probably never have a weekend quite like it." "Lehman may post another ¤2.5 billion write-down on home loans in the third quarter." "For months, Wall Street had been worried about Lehmans because of the bank's massive property investments." "With the crash in the market, it was now dangerously exposed." "Shareholders were dumping stock and other banks were withholding credit." "REPORTER:" "Lehman has lost ¤6.5 billion so far this year." "The bank's share price had been dropping since May." "Lehman shares have been down sharply." "But in the last ten days, it had been in freefall." "By that Friday afternoon, it was losing more than ¤8 million a minute." "Confidence in the bank was evaporating under the glare of the media spotlight." "Has the market given up on Lehman?" "We knew Lehmans was in trouble." "Remember, there's a constant traffic between our Treasury and the US Treasury, between the regulators." "During that time, I spoke to Hank Paulson regularly." "And on the Friday evening, we knew that they would have to do something about Lehmans." "# It's a beautiful day... #" "In the last few months, the fallout from the sub-prime mortgage crisis and the collapse in house prices had forced the US Treasury to bail out one bank and America's two biggest mortgage companies." "Many assumed the authorities would do the same again." "But the presidential election was weeks away." "On the campaign trail, the cry went out, "It's Main Street, not Wall Street, that matters."" "So when the bank chiefs assembled that Friday evening, it was clear from the start there would be little sympathy from the Government." "It was really Hank Paulson, the Treasury Secretary, and Tim Geithner, the head of the New York Fed, who really were running the meeting." "And they said to us, "This is the problem." ""Lehman needs to be rescued." ""You have to come up with a solution." ""And we, the Government, are not going to help."" "As the leaders of Wall Street wrestled with what to do about Lehman Brothers, across town at Shea Stadium, the home team, the Mets, were trailing to the Atlanta Braves." "It was not a good omen." "With no government bail-out, two of Lehman's rivals were eager to swoop." "The first was Bank of America, one of the largest banks in the United States." "And the other was a British outsider " "Barclays, keen to expand across the Atlantic." "We had our eyes open." "We had a good opportunity of taking a very careful look at the books." "We deployed a big team in New York, under Bob Diamond." "We certainly didn't know what we were going to find completely in due diligence, but I can tell you for sure, we wouldn't have boarded the plane in a situation as serious as the markets were in if we weren't very serious." "It was very clear that this was going to be a seminal event in the history of the credit crunch." "Few ever imagined that America's fourth-largest investment bank would fall so far and so fast." "Its earlier success was largely down to one man, a larger-than-life figure, who was proud to call himself a "Lehman lifer"." "In 1966, 20-year-old Richard Severin Fuld Jr arrived in New York to work as an intern at Lehman Brothers." "When he finished university, the bank snapped him up." "Dick Fuld was driven and good at what he did - very good." "Steadily and determinedly, he worked his way up...to the top." "In 1993, he was appointed chief executive." "Under him, Lehmans evolved and grew from a traditional investment bank, raising money and managing mergers and acquisitions for clients, to using borrowed money to play the markets itself." "I must tell you, having been with Lehman Brothers for 24 years, this is my only job." "When I started off" "I was lower than low." "Thinking that I would stand here today and to give this address to my people, I am thrilled." "The new boss had one simple ambition - to overtake his rivals " "Merrill Lynch, Morgan Stanley and Goldman Sachs." "Lehman Brothers will eventually inherit the heritage and the tradition that will let us stand alone and conquer all the people that stand in front of us." "That's what I want Lehman Brothers to be." "Basically to crush our enemies like this!" "Dick Fuld was to become the longest-serving chief executive on Wall Street." "He strode like a colossus through his domain and his reputation preceded him." "Within the firm, he had god-like status." "This was a man who was clearly in charge." "And clearly had a vision for the business." "Would you want to get into an argument with Dick?" "Absolutely not... unless you were totally solid on the grounds you were arguing." "He wouldn't even acknowledge anybody." "Most of the time, I'd say "good morning" or "hello" to him, and you'd get a response back but it was almost like he built a wall up around himself." "The other employees felt the same way." "They wouldn't even speak to him." "They'd ride in the elevator in total silence." "Fuld built up a network of over 60 offices around the world, employing more than 28,000 staff." "When Lehman Brothers opened a grand new European headquarters at Canary Wharf, the bank had truly arrived." "Let me formally declare this new building open." "Thank you very much." "Dick Fuld's unorthodox style of leadership meant he was admired and feared in equal measure." "Dick took the floor like a statesman and proceeded to deliver this fearsome attack on short sellers, the people who were depressing Lehman's share price by being short of stock." "And he, rather to everyone's surprise and mystification, he said..." "If we get this right today, we'll squeeze some of those shorts..." "..and squeeze 'em hard." "LAUGHTER" "Not that I want to hurt 'em." "Don't get that, please, cos that's just not who I am." "LAUGHTER" "I'm soft." "I'm lovable." "But what I really want to do is, I want to reach in, rip out their heart and eat it before they die!" "APPLAUSE Dick Fuld also had an insatiable appetite for profits - with or without fava beans." "And he delivered." "In 1994, one share cost ¤4." "As the economy boomed, by 2007 that investment was now worth ¤82, a 20-fold increase." "And how had the bank done this?" "By expanding into lucrative new products as the market became less regulated." "Highly complex products, including credit default swaps, a kind of insurance against borrowers defaulting on loans." "Risk was the name of the game." "As a trader, you take risks to make profits." "The more risk you take, the more money that you're playing with, the more profits you can make." "In the case of Lehman Brothers," "Dick Fuld essentially said to our head risk-taker in commercial mortgage-backed securities," ""You gotta take more risk." "Risk, risk, risk."" "And that risk leads more to the bottom line." "I think Wall Street found, but also a lot of other people believed, that modern finance was a form of alchemy." "That it was a way of taking risk and distributing it very widely, so widely that the overall system was de-risked." "And this built up a sense of false confidence in the markets." "And for the staff who signed up to Dick Fuld's credo, along with the bottom line came rewards which were life-changing." "In a good year, as I had in 2006, I made more than ¤30 million." "That gave me more than a ¤1 million bonus and I know traders who made ¤10 million in a year, in a good year." "But those type of traders made north of 100, 150, ¤200 million for the firm." "In 2004, Lehman's turnover was ¤11.5 billion." "It rewarded its staff over 5 billion in pay and bonuses." "By 2007, turnover had almost doubled, with staff collecting more than 9 billion in pay and bonuses." "And top of the pile was Dick Fuld." "From the year 2000 to 2008, he took home between 310 and ¤500 million." "The precise figure is disputed." "Now, at the Fed on that Friday night last September, the rivals Dick Fuld had boasted of crushing were sitting in judgment over him." "He had not been invited to the crisis meeting of chief executives." "Even some on his own side felt his combative nature would be an unhelpful distraction." "After the bank chiefs had left the building, their accountants and lawyers carried on working through the night." "The smell of stale pizza and unwashed bodies is not all that appealing, but you learn to live with it as part of the business." "But...the intensity was... at a much higher pitch than is normally the case because the stakes were just so high." "They were carrying out due diligence - going through Lehman's accounts to piece together an accurate picture of the bank's finances." "To be frank, we had trouble getting traction and it was clear to us that the management of Lehman Brothers were spending an awful lot of time with at least one other firm going through due diligence." "And so we got off to a slow start." "That was because Lehmans was giving its attention to that other suitor." "Bank of America was the favourite to buy the ailing investment house." "There were highly-profitable parts of Lehman Brothers like the investment division, which they wanted to salvage." "But when its advisers started going through Lehman's accounts, what they found appalled them." "Although we were expecting not to be very happy with what we saw, it was worse than we expected." "They calculated the property crash had left a massive hole in Lehman's balance sheet." "Just a month before, the bank had said its portfolio was worth ¤40 billion." "Now it had fallen to around 25 billion." "They might have paid ¤100 million for a property, and on their balance sheet it says it's worth 100 million but the reality was it was worth 50 million or 25 million." "And when you start adding all those losses up from this property and that property and so on, it ended up adding up to a very big number, a number that was so large, the losses were so large, that it" "really meant the company was bankrupt unless it got support from the US government." "But the man in charge of the US Treasury, Hank Paulson, had already made clear that was not an option." "What happened next took everyone by surprise." "The following morning, most New Yorkers were oblivious to the drama playing out down in lower Manhattan." "And as the morning went on, the stakes got higher." "Dick Fuld was still counting on Bank of America making him a proposal, but was about to learn that his suitor had a roving eye." "John Thain, the chief executive of Merrill Lynch, was the new kid on the block, but he had his own problems." "Merrill Lynch's share price was going down because investors were selling, fearful of how exposed this bank also was to the property slump." "So when he returned to the Fed on Saturday morning, he took a particularly close interest in the predicament facing his rival." "Watching Lehman's representative wilt under the pressure, he began to fear attention might next switch to his own troubled bank." "Seeing him and understanding the emotional drain of what was happening to him, and then knowing that, on Saturday, it was likely they were going to go bankrupt so all of their efforts were going to fail," "in some ways reinforced with me that I didn't want to be that person a week later." "So he grabbed the chance to save his own bank." "And so from my perspective, the problem no longer became how to save Lehman because I assumed Lehman was gonna go bankrupt." "It became, "What does that mean for the financial markets and what does that mean for Merrill Lynch?" ""And how do I make sure that I protect Merrill Lynch's shareholders and Merrill Lynch's employees" ""and Merrill Lynch's clients so that Merrill Lynch isn't in a similar position a week later?"" "He decided to contact Bank of America's chief executive, Ken Lewis, at home in North Carolina, and made him an audacious offer." "I stepped out of the building and actually stood on the sidewalk, on the street, and called Ken from my cellphone." "The conversation was relatively short and I said to him that I thought it made sense for us to explore some strategic options." "He said, "Great, I can be in New York in a couple of hours."" "All bets were now off." "It was everyone for themselves." "As Bank of America's boss was flying north on his secret date, Dick Fuld had no idea he'd been dumped." "Excluded from the Fed, he had spent the morning holed up in Lehman's midtown HQ." "Dick would occasionally ask, "Have you heard anything back" ""from Bank of America?"" "We still found it difficult to believe they had disappeared." "And the answer, of course, was always no." "Just a few blocks away, John Thain began to hammer out a deal with Bank of America's chief at a discreet hideaway by Central Park." "It was a corporate apartment, so it was not that different from a hotel room." "And it was pretty stark." "And it was just the two of us - just the two of us, talking." "To Ken Lewis, Merrill Lynch was a much more attractive proposal." "It was proof of the Wall Street maxim, "kill or be killed"." "By late afternoon, the jilted Lehman's team were trying hard to put on a brave face." "Late Saturday afternoon, there was a slip of the tongue in a meeting that I was at at the Fed, which led me to conclude that" "Bank of America was definitely talking to Merrill, as well as my inability to get calls returned." "So I called Dick and said, "I'm very worried that this is accurate."" "And he said, "I can't believe it."" "And there was an adjective which I will not repeat, or an adverb, I guess, before "believe it"." "It was a whirlwind romance." "Two days later, Bank of America announced it had bought Merrill Lynch for ¤50 billion." "The combined company is a much stronger entity and will survive most anything." "So, having been stood up, Lehman now had only one potential suitor." "Mid-afternoon on Saturday came." "We had a very positive sign." "We got moved into a much bigger conference room in the Fed and there was a sign on the door that said "buyer"." "So we had a feeling that one of the other banks that had been looking at the transaction probably wasn't there." "The teams from Barclays and Lehman were edging closer to a deal." "REPORTER:" "The man nobody wants to be right now is the longest-serving CEO on Wall Street." "Dick Fuld faces his biggest challenge to date by far." "Still up in his midtown office, just along from Times Square, Dick Fuld was now a helpless bystander, as others decided the fate of the bank he had led for so long." "Now all the hopes rested on Barclays." "So it was a real disappointment, but it was buffered to some extent, because Barclays seemed a lot more interested than they had previously." "How different it all seemed nine months earlier." "Lehman Brothers were celebrating the end of a record-breaking year." "It made over ¤4 billion profit." "And the reason for this success?" "Bricks and mortar." "Both Presidents Clinton and Bush had championed home ownership." "PRESIDENT GW BUSH:" "Our government is supporting home ownership because it is good for America." "It is good for our families." "It is good for our economy." "American house prices had risen steadily since the Second World War but had rocketed after 9/11, when interest rates were slashed." "The boom was fuelled by loans with tempting introductory rates being offered to ever more risky clients." "The so-called sub-prime mortgage scandal was born." "We got to the point where they created mortgages that were known as "NINJA mortgages" " ""no income, job or assets" - relying solely on the appreciation of housing prices." "Mortgage rates are still near 20-year lows." "Homeowners, refinance now with almost no paperwork." "If you're a homeowner who's ready for some financial relief..." "But the real money for Wall Street banks came not from selling mortgages to homeowners, but from trading bundles of these loans among themselves and other institutional investors." "It's that easy!" "These bundles were labelled as high-quality, low-risk assets by the banks." "By 2007, Lehmans was the largest underwriter of real-estate loans in America." "It was a great machine." "The risk involved in the machine was that investment banks were supposed to act as distributors." "They were supposed to be in the removal business." "Dick Fuld used to say this " ""We're in the removal business, not the storage business."" "Across Wall Street, and in the City of London, there was a growing assumption the financial wizards had been able to eradicate risk." "OK, Mommy, I'll take the house." "I think there was a general view around the market place that the sophistication of 21st-century financial markets had enabled different sorts of risk to be taken by people who really knew what they were doing." "There was, if you like, a bit of a fool's paradise." "That was not specific to Lehman." "That was a market belief that somehow or other everyone had cured the problem." "And that false sense of confidence led Lehman Brothers to do something other more cautious banks shied away from." "It borrowed more and more money." "By August 2007, for every ¤1 the bank owned, it was borrowing up to ¤44." "It's called leverage." "Whilst most of their competitors, like Goldman Sachs and Morgan Stanley, had a leverage ratio in the 20s or low 30s, Lehman's was much higher." "When I got to Lehman, our leverage was 20 to 1." "And when I left, it was 44 to 1, top max." "That means we had a relatively small amount of capital relative to the amount that we owed. 44 to 1." "Real dollars that we have, and massive dollars that we owe." "It used this borrowed money to play the property market." "By 2007, it was investing ¤60 billion in commercial property - hotels, shopping centres and residential developments around the world." "But while leverage multiplies profits when prices go up, it also multiplies losses if prices fall." "And that's what happened in 2007." "Why?" "A growing number of the people who had been seduced by those cheap introductory mortgage rates couldn't keep up with the payments when the rates increased." "Repossessions rocketed and house prices slumped." "The sub-prime crisis exploded on the world." "Welcome to Bakersfield, California." "It's not quite the kind of place one would imagine as a luxury destination." "But that's what Lehman Brothers hoped it would become." "It loaned ¤78 million to a developer with plans to build thousands of new homes in the scorching Central Valley." "HORN BLARES" "I just heard about it." "It wasn't a large focus on the desk but you thought to yourself, "Jeez, this is a little aggressive for a firm our size."" "The advertising promised McAllister Ranch with its golf course, man-made lake and beach, and beautiful homes, where dreams become reality and where the good life truly begins." "But this oasis was a mirage." "Nothing beside remains." "It's a victim of Lehman's bankruptcy and the downturn in the property market." "Here's a picture of the lake - what it was supposed to look like when it was finished." "Other pictures, someone enjoying the lake." "We were contracted to build block walls around the project." "I believe it was close to 20 miles of wall, if we were to finish the whole contract." "As you can see, the walls are quite long." "That wall right there is approximately three miles long." "John Scripter is still owed around ¤1 million for unpaid work." "It was the decision to invest in commercial developments like these that was to be the tipping point for Lehman Brothers." "The bank invested aggressively in the property market at its peak, but couldn't get out before the crash." "In essence, Lehman loaned money to McAllister in the short haul and then tried to syndicate and sell the syndicated loans globally." "When you can't sell it and share the risk, then it becomes a lead weight on your balance sheet over time." "We really just didn't have that much bread, that many dollars, to hold on to an asset like this over a longer period of time." "It really became a lead weight." "And to Dick Fuld, the architect of Lehman Brothers' grand designs, that lead weight must have seemed heavier by the hour as the weekend ticked away." "CHURCH BELLS RING" "Sunday morning in New York started with a sense of optimism." "The favourite, Bank of America, may have walked away, but Barclays was still in the game." "As a precaution, Lehman Brothers had called in America's most famous bankruptcy lawyer, just in case the unthinkable happened." "But even he thought a deal would be struck before the day was out." "When I came down Sunday morning, as I was driving down," "I was thinking that I might be out about three or four in the afternoon because I had some other things to do." "I was actually thinking that this might be a fire drill - there's going to be a deal and they'll announce it sometime this afternoon and then I'll be free to go and do the things I had planned to do that Sunday." "That's how the day started." "At the Fed, negotiations had been going on through the night and a deal looked close." "We had been in a conference call with our board in London and I was on the call from here." "It was around nine-thirty or ten when we finished the board meeting," "Sunday morning, New York time." "We were feeling cautiously optimistic." "I think somebody said there may have been a handshake on a deal, and that it had to be run through the FSA in London." "There was a belief, even an assumption, that Lehmans was too big, too important, to be allowed to fail." "By now, the media were catching on to the story that something big was happening at the Fed." "At this point, all the main players were inside, and I basically just photographed anything that came out of the garage." "As soon as that gate goes up, we start shooting, looking for anything, any kind of movement, anybody in a suit." "We don't know who we're looking for." "Once we do see them, I can't recognise them because they're not like Paris Hilton." "These people are not celebrities, so for me, I'm shooting anybody in a suit and then I figure I'll figure it out later." "One CEO did not have tinted windows and he shielded his face with his hands and it was just very telling that here are the titans of business, who are lauded and had been lauded, shielding their faces, perhaps ashamed." "I don't know why they were doing that." "Lehman Brothers CEO Dick Fuld is backed into a corner, to say the least." "Fuld has very few options left." "The stock, in a freefall." "A lot of things perhaps a bit too late for Lehman in terms of owning up..." "Here we go." "The bank and its boss had had a difficult relationship with the media." "Shares of Lehman Brothers have fallen 12% in the last week." "Three months earlier, when the press and news channels were full of reports questioning the health of Lehman Brothers, Dick Fuld had railed against them." "I'm also so tired of looking at my ugly picture in the goddamn newspapers." "But the source is close to the firm." "It could be a little hot dog guy who stands on the corner." "He's close to the firm." "I think we in the media do not and are not responsible in any way for causing a run on the bank." "I think that's absurd." "I think some people want to blame the messenger." "But at the end of the day, you're talking about institutions that made choices to lever their balance sheets 30 or 40 times." "Nobody in the media was forcing them to do that." "They should have known better." "And the SEC is investigating four rumours that circulated about Lehman Brothers over the past two months." "But Dick Fuld thought the constant reporting of Lehman's plunging share price was creating a downward spiral." "We've got to close it down." "I make a joke out of it, it's no joke." "This has got to end." "The leakage hurts us." "That's where the rumour mill comes from." "That's where the misinformation comes from." "We have a communications division, it's got to be controlled there." "Anybody outside of that is not authorised to talk to the press." "Period." "But the man who was authorised to talk to the press found defending the firm to be a thankless task." "The atmosphere was quite surreal and also very unpleasant because there was this very well-entrenched view among senior Lehman people that the outside world was agin it." "But when it came to it, the story was," ""Does Lehman have the wherewithal to get to the other side?"" "And they were right to ask the question and we were not able to provide the answers." "Back at the Fed, Barclays was now close to making an offer for Lehmans, but, like Bank of America before it, the British bank wanted guarantees for Lehman's debts so it could open for business the next day." "Who would underwrite the deal?" "The American authorities?" "The British?" "No-one seemed to have an answer." "The tone of the conversations was beginning to change and you could hear in the voices of the Lehman representatives a higher level of doubt that things were going to work out." "There was deadlock." "Lehmans and Barclays had come so far and were so close to a deal, but couldn't seal it without a guarantee in place." "The telephone calls across the Atlantic were strained." "Midway through the Sunday afternoon, we, the FSA, informed the New York Fed categorically that from our perspective, we couldn't see how this deal could go forward given that they were not willing to offer any liquidity guarantees." "Lehman would be cut loose, unless Treasury Secretary Hank Paulson authorised the guarantee." "The teams of advisers were summoned." "It was now or never." "We were asked to come to the main floor, where the group of major banks was closeted behind these very heavy doors, and we were asked to wait." "We spent hours waiting there." "The tension was palpable, as behind closed doors, Hank Paulson was on the phone to London." "The fate of Lehman hung on this call and time was running out." "The markets in Europe would open in 12 hours." "If the bank wasn't rescued by then, it would be too late." "I spoke to Hank Paulson on the Sunday afternoon and he said," ""Your regulators are asking hundreds of questions."" "I made the point that they're asking them with very good reason." "Eventually, Treasury Secretary Paulson came out and made an announcement." "The British government was not prepared to let Barclays continue with the transaction." "I don't know what actually went on but that's what we were told." "And we asked the Secretary whether there were certain things we could do and his statement was, "I'm not going to cajole" ""or plead with the British government, nor am I going to" ""in any way threaten the British government in terms of our relationship."" "I think the Americans recognised that, and knew that by Sunday afternoon our time, the game was up." "We couldn't get ourselves into a situation where effectively we were guaranteeing an American bank." "To be absolutely, categorically clear, the FSA did not stop the Barclays deal." "Barclays never brought us a deal." "Barclays never negotiated a deal that they thought was satisfactory from their own point of view and therefore never proposed any deal to us." "We were quite prescriptive about what was going to work and what wasn't going to work." "What we wanted was not available, so we walked, end of story." "Having worked on this for a number of days, and having been pretty positive about if we could get all the pieces lined up, I was gutted." "In the end, the sand had run out of the hourglass." "Nothing would work at that point." "It was beyond Dick, it was beyond Lehman, it was beyond all of us." "It was a decision for the United States." "Rodgin Cohen now had the unenviable task of reporting back to Dick Fuld." "There would be no knight in shining armour." "The British weren't coming." "It was as difficult a call as I've ever made in my life." "He said, "This is just unbelievable." "How can this possibly be happening?"" "We spent a few minutes going back over the same ground and then he shifted to, "Is there anything else we can do?"" "With both Bank of America and Barclays having walked away, it was time for Plan C." "There was no Plan C." "This was the first time he really, to me, lost his composure a bit." "Because now death was imminent." "Lehman's bankruptcy lawyers were summoned to the Fed and ushered into the main conference room." "We were told there wasn't going to be a Barclays transaction." "Therefore, Lehman should be prepared to go into bankruptcy." "Then suddenly they said, "by midnight"." "And my response was, "I don't understand what you're doing." ""Could you explain what the reason is for this action?"" "They were saying, "We really don't have to explain the reason." ""You need us to finance you and we're not going to finance you unless you go into bankruptcy."" "That's pretty compelling." "Then the conversation changed to," ""You," we're speaking to the assemblage, "do you understand what the consequences" ""of this decision are" ""and what's going to happen to the marketplace?"" "They said, "We'll take care of that."" "Treasury officials were confident the fallout from the collapse of Lehman would be containable." "News of the impending bankruptcy had already reached London." "There will be no money coming from New York for the bank to open for business the following morning." "So, it was absolutely clear the advice was that Lehman UK had to file." "It was insolvent." "It was not going to be in a position to pay its debts." "That reality had to be grasped and there were polar reactions to that." "There were the lawyers and the accountants, who turned their minds to the practical challenge that now had to be met of organising the filing and thereafter dealing with the consequences of it." "Then there were the commercial managers, traders and so on, who just couldn't believe that this was going to happen, and couldn't focus immediately on what the consequences of that might be for the business or for themselves." "They were just completely stunned by it." "WOMEN SINGS OPERA" "As an open-air performance of Offenbach started in Brooklyn, across the water at the Fed, it was all but over." "We were basically told to get out as we were going down to the garage." "We were standing in the elevator and we said," ""I don't think they like us."" "They basically threw us out." "And it's a very serious situation." "There was a very sombre, sad voyage, if you want to call it that, going back to Lehman." "As we approached the Lehman building, it was like pandemonium on 7th Avenue." "I remember there was an odd-looking man there, with a spear saying, "Down with Wall Street."" "I said, "This is going to be some evening."" "REPORTER:" "We await word on the fate of the 158-year-old firm Lehman brothers..." "We are a minute from midnight in terms of outright catastrophe." "We're a heartbeat away from a depression." "Dick Fuld was waiting for them, up on the 31st floor." "When we went into the boardroom, you could tell without a lot of deep thought that Dick Fuld was very concerned, very worried, and I would say, very depressed." "Dick asked me, "Are you telling me it is over?" I said, "Yes, Dick." ""I have nowhere else to go." "I'm out of options." ""I can't think of anything else to do."" "He said something like, "Well, we really gave it every effort." ""I still can't believe it."" "I saw a man sitting there sort of saying to himself, "I don't understand how this happened." ""Where did we go wrong?"" "Behind closed doors, a final throw of the dice." "It so happened that a second cousin of President Bush worked at Lehman Brothers." "Could the Commander in Chief succeed where central bankers had failed?" "What took place remains a matter of dispute." "Larry McDonald was told about it by colleagues who were there, although the story is denied by George Walker." "They've tried everything and they kind of all gather around George." "There was some hope that he'd reach out to the President, and in essence we'd go around Hank Paulson and give our message of potential worldwide financial destruction that Lehman would cause, directly to the President." "The President is his cousin but to reach out to the White House under duress is a very stressing situation for everybody." "He was in a sweat and finally he agreed to make that call to the White House." "RINGING TONE" "The operator put him on hold, which to the people in the room seemed just like an eternity." "And as the seconds ticked by, everybody was more tense." "Everybody's pulses and heartbeats were racing a little bit more intently." "Finally, the operator came back to the line." "And she said, "I'm sorry, the President cannot take your call at this time."" "There was just a real horrific blood-curdling feeling in the room of potential destruction and despair." "Dick Fuld and the board of directors had one last task to perform - pass the resolution winding up the bank." "It was dark out - very dark out." "Dick Fuld looked up, clearly a man that was in turmoil, and said, and he looked at me and said," ""I guess this is goodbye."" "After 42 years at Lehman Brothers, Dick Fuld was out of a job." "At their peak, Lehman shares were worth ¤85 each." "They were now worth 3 cents." "Finally, in the middle of the night, the bankruptcy lawyers had completed the preparations." "They were ready to file the petition." "It's like sending an e-mail." "So, at 2am, when that started, most of us were drained of emotion and yes, we filed it." "It was the end of an institution which was one of the originators of Wall Street and here it was, all coming to an end by pressing a button on a computer." "Sad in many respects." "REPORTER:" "Wall Street has seen very few days like this." "The mortgage crisis has now taken down Lehman Brothers, right behind... ..There were others who were simply devastated." "Lehman Brothers suffering a spectacular downfall..." "NEWSREADERS SPEAK IN FOREIGN LANGUAGES" "This is really stupendous that this has happened." "When it collapsed on the Sunday night, that did send shockwaves throughout the world because people thought, "If they can go down, who else can go down?"" "Lehman Brothers was the largest bankruptcy in history -ten times bigger than Enron." "The impact of the bankruptcy around the world was unparalleled." "Lehman's web of global transactions were hugely complicated and few really understood them." "So with the banking world already jumpy, panic spread as institutions feared how exposed they might be." "Lehmans illustrated this huge problem." "The level of impaired assets or bad loans in the system was so high that even recognised institutions in America were being put at risk, and secondly, that Lehmans was entangled in such a complex way with other institutions that whatever happened to one institution was bound to have an effect on the other." "Lehmans was a seminal moment in the sense that it illustrated these two big problems that if we didn't solve, things would get a huge amount worse." "5,000 staff worked at Lehman's European HQ in London." "When they arrived that morning, many discovered they were out of a job." "It was like a scene of a bombing and a family bereavement all rolled into one." "I went up to the management floor and everybody was sitting around with their heads literally in their hands." "A lot of them had red eyes and black bags under them." "They had been there all weekend and all night." "I was told there had been a meeting of staff suddenly convened that morning in which the head of the European operation had said, "It's all over, go home."" "Some people just burst into tears and just didn't know how to cope with it." "Other people were on the phone to the head-hunters straightaway, and you kind of had the best and worst of human instinct raise its head, as these situations tend to." "There were certainly people who felt they were on the lifeboat, they had something sorted out for themselves." "But they weren't going to let anybody else on that lifeboat." "They were going to sail off and leave you to sort yourselves out." "This is a CNBC special report." "The fall of Lehman Brothers..." "A seismic story on an historic day..." "As the start of trading approached, the financial world waited anxiously to discover what would happen." "From Monday morning at Treasury, we were watching the markets very carefully, in constant communication with market leaders about what was happening once they ultimately filed for bankruptcy." "It obviously turned out to be very bad." "It was worse than we had feared." "While the credit markets basically shut down two days later on Wednesday, the real depth of the damage was not seen for weeks or even months." "As I describe it, the housing market damaged our financial system, which then damaged our economy." "This crisis is what caused the severe recession that we're in right now." "We had a deluge of communication." "In fact, I had something in the order of 5,000 e-mails that day." "Our switchboard at the firm was blocked, the switchboard at Bank Street was blocked." "There was a massive communications problem because everybody wanted an immediate answer." "I've never experienced that before and I'm sure I won't again." "We were getting calls from not just banks and commercial banks, we were getting calls from large American businesses, blue-chip businesses, saying they couldn't fund themselves, they couldn't make their payroll or fund their inventory." "These are some of the best American companies that have very little to do with financial markets saying they can't access the basic funding they need to pay their employees." "The intensity of this period was unlike anything we'd seen before." "By the end of Monday's trading, ¤700 billion had been wiped off the global stock markets." "The Dow Jones, the leading stock exchange index, had plummeted 500 points." "It was the biggest fall in a day since 9/11." "Money markets around the world froze up because the collapse of Lehman destroyed the confidence banks need to lend to each other." "And over the four-week period, the 28 days between the failure of" "Lehman Brothers and the announcement of recapitalisation packages for banks around the world in October, there was an extraordinary loss of confidence." "A panic, I would call it." "Good afternoon, everyone, and I hope you all had an enjoyable weekend." "LAUGHTER" "The fall of Lehman Brothers brought the global financial system to its knees." "And still the debate goes on - should the US Treasury have stepped in to save the bank?" "I never once considered that it was appropriate to put taxpayers' money on the line in resolving Lehman Brothers." "Historians will debate for years about whether, if the US government had rescued Lehman Brothers, whether there would have been a greater degree of financial stability." "My own view is that the US government had to draw a line in the sand, not least to make everyone in the world, world governments and central banks, focus on the fact that there was a massive problem." "I believe that allowing Lehman Brothers to go bankrupt was a tremendous mistake." "The amount of money it would have taken, 20 billion, 30 billion, compared to the destruction in value that followed the Lehman bankruptcy and the complete shutdown of the credit markets, the billions and billions and billions of losses" "that were experienced in the market subsequently." "When the Federal Reserve lends money - they can loan money to financial institutions - the law requires the Fed to be secured, so that they're not taking much risk." "And so in the case of Bear Stearns, they lent ¤30 billion against a pool of mortgages." "In the case of Lehman Brothers, the question is, "What assets could they lend against?"" "The tragic thing for the US was that we came into this crisis without an adequate set of tools to withstand and protect the economy from the acute stress you saw in the financial system." "The constraints we faced at Lehman were one example of those kind of constraints." "We shouldn't have been in that position." "That's why it's important we move more quickly now and we're moving very quickly." "We're still in the midst of a severe economic crisis globally and yet we're going to move with comprehensive regulatory reform, while we're still trying to get recovery back on track." "That's a symptom of the importance we attach to trying to put in place reform." "It was something that shouldn't have happened." "Two days after the bankruptcy," "Barclays Bank got what it wanted all along." "It sealed a deal to buy the bulk of Lehman's North American assets for ¤1.75 billion." "It was a bargain - much less than they would have paid had the bank been solvent." "I think all of us would say this is something that we never expected, that we could actually combine with a US bulge-bracket firm." "I don't use the word transformational lightly." "This transaction was transformational." "But for many backroom staff, there was no happy ending." "Two weeks after that, I got a letter " "Federal Express - to my house, from Lehman Brothers, stating that they were no longer honouring my severance agreement." "Everything has been taken away." "So that really sent me into a tailspin." "It was like, "How could they do that after 20 years of service?"" "Now I have absolutely nothing." "A month later, Dick Fuld made his first and only public appearance, summoned to Washington to account for the disaster at a Congressional hearing." "Don't you have anything to say to the people that are watching us right now, that are wondering why this has happened?" "You have nothing to say?" "Are you going to be in the testimony?" "Absolutely.Good." "'I wake up every single night...'" "Please wait till then." "..thinking, "What could I have done differently?"" "In certain conversations, "What could I have said?" "What should I have done?"" "And I have searched myself... every single night." "I thought he should have apologised." "I think he didn't confess to anything." "He made it sound like he personally, Dick Fuld, did not cause the collapse of the firm, like he denied everything, that it wasn't his fault." "I don't think he was honest." "' I can look right at you and say, "This is a pain" "' "that will stay with me for the rest of my life."" "'That's all.'" "You belong in jail, you criminal!" "You should go to jail, right now!" "Dick Fuld may yet be called to account in court." "The former chief executive has been subpoenaed in numerous civil cases which allege the bank misrepresented and overvalued its assets in the months before the collapse." "He declined to be interviewed for this documentary." "Lehman Brothers was the catalyst for the crash of 2008." "Those who were there on Wall Street that weekend say what brought this American giant down was the love of money." "It was greed and hubris that led to the fall." "The bankers soared so high for so long, they thought they were invincible but they were flying too close to the sun." "When I went to college, I learnt in Economics 101, you do not finance long-term investments with short-term money, and that's what happened." "And I believe it happened because greed took over and the returns were so big, and so many people were making so much money, that they lost all fear." "And risk did not become a factor in doing anything." "'And that was the real dilemma.'" "All right, thank you, all." "MICROPHONE CRACKLES" "OK." "Next week - what caused the greatest financial crisis since the Depression?" "We examine the boom before the bust." "To find out more, go to " "Subtitles by Red Bee Media Ltd"