Even as President Barack Obama lauded the economic recovery of the five years since the collapse of Lehman Brothers, he admitted that the details surrounding the largest bankruptcy filing in U.S. history might be difficult to recall.
“It’s hard to remember everything that happened during those months,” Obama said.
In September 2008, the Dow Jones industrial average's 500-plus-point drop was the biggest since 9/11, and the economy began to backslide in ways the U.S. hadn't seen in decades.
"It's unconscionable what they did – or more accurately what they didn't do," Joseph Stiglitz, a Nobel Prize-winning economist and professor at Columbia University, told The Independent in 2009. "[Lehman Brothers] didn't do their homework. People were talking about the failure of Lehman Brothers from the moment of the failure of Bear Stearns in March, or before, and they didn't do a thing. If they knew there was systemic risk, why didn't they do anything about it?"
Now, five years after the U.S. economy was about to be sent into a tailspin, America Tonight offers some of the most interesting reads on the collapse of Lehman Brothers.
The Confidence Man by Hugo Lindgren, New York Magazine (June 15, 2008)
Almost three months before the bankruptcy filing was made official, Hugo Lindgren profiled hedge fund manager David Einhorn, who had called out Lehman Brothers on its shortcomings in the summer of 2008. In his conversations with Erin Callan, then-chief financial officer of Lehman Brothers, Einhorn recalled that Callan was being "evasive" and "dishonest" during his questions to her about the discrepancies in Lehman's financial filings. Then, Einhorn would make his doubts very public at a May 2008 conference, putting Lehman under the microscope months before the collapse.
"Dressed conservatively in a dark suit and tie, Einhorn explained that he was there to speak, despite the possibility of legal and personal attacks, because 'I believe it is important and the right thing to do.' The ratio of BlackBerrys to humans in the room was probably greater than one to one, and they all seemed to light up simultaneously. This was going to be good," Lindgren wrote. "Einhorn proceeded with a bracing analysis—including a recap of the Allied saga and a careful dissection of Lehman’s recent financial filing—that had all the moral fervor of a prosecutor’s closing argument. It was as if he were putting away a killer. His firm had a short position on Lehman Brothers, he maintained, not only because Lehman had fudged its numbers but because its recklessness had put the financial system as we know it at grave risk. He ended with a call to federal regulators to 'guide Lehman toward a recapitalization and recognition of its losses—hopefully before federal taxpayer assistance is required.'"
Lehman Brothers, We Heard You Were Dead by Adam Davidson, The New York Times (Sept. 11, 2012)
Last year, Adam Davidson wrote about the current Lehman Brothers operation, which takes up two floors of the Time & Life Building in Midtown Manhattan. (When I worked in the Time & Life Building as recently as May, I often saw members of the custodial staff in work clothes issued by Lehman Brothers.) In the piece, Davidson talked to Kenneth Rogoff, who co-wrote "This Time is Different," which is thought of as one of the definitive series on financial crises.
"Confidence comes, [Rogoff] said, when 'enough time passes so everyone forgets there was ever a problem.' I was thinking about this as I walked through the new Lehman headquarters and overheard one employee brag about a real estate deal he had just made. (After all, the advisory firm Alvarez & Marsal could earn more than $600 million from winding down Lehman.) But the larger fact is that Lehman, which once seemed essential to the economy, is slowly disappearing. That few even know that this is happening in the Time & Life Building suggests that our confidence may not be far away."
My Time at Lehman by Nicholas Chirls, NickChirls.com (April 9, 2013)
Nick Chirls penned an account of his year working as a first-year analyst at Lehman Brothers, spanning from the summer of 2007 to late 2008. Wanting to follow in the same Wall Street footsteps of his late mother, Chirls quickly became disenchanted with the culture.
"What I discovered, quite starkly, is that the part of Wall Street that I worked in was simply transferring wealth from the less sophisticated investors, often teachers’ pension funds and factory workers’ retirement accounts, to the more sophisticated investors that call themselves proprietary trading desks and hedge funds," Chirls wrote. "Of course, the traders had all sorts of excuses and jargon to deal with this truth. 'Oh no,' they would say, 'We are important providers of liquidity that create stable financial markets. We’re a crucial part of a system. And besides, if we don’t do it, someone else will.' These are the lies that people tell themselves so that they can buy larger homes."
Ex-Lehman Employees Cashing In From ‘Recovery’ That Left Most Workers Behind by Ben Hallman, Huffington Post (Sept. 12, 2013)
Last week, Ben Hallman looked at former Lehman employees who have benefited greatly in the five years since the collapse. But he also recalled the case of Matthew Lee, a former senior vice president who is currently unemployed. Lee was one of the first to work with investigators from the office of Anton Valukas, a former U.S. Attorney who led the review of Lehman's collapse. Lee characterized Repo 105, the practice of classifying a short-term loan as a sale, as being dangerous.
"It was a risky move for an employee in Lee’s position to challenge management. But he felt morally compelled, he wrote, to sound the alarm," Hallman wrote.
'These are, indeed, turbulent times in the economic world and demand, more than ever, our adherence and respect of the [code of ethics] so that the firm may continue to enjoy the investing public’s trust and confidence in us,' Lee concluded.
He was fired a few weeks later."
Where is Dick Fuld Now? Finding Lehman Brothers' Last CEO by Joshua Green, Bloomberg (Sept. 12, 2013)
Bloomberg's Joshua Green's account of former Lehman CEO Dick Fuld starts off with a self-depricating introduction from Fuld: "Hi, I’m Dick Fuld, the most hated man in America." Green's talks with friends and associates of Fuld paints a picture of a man who will never fully heal from the Lehman collapse, but is still trying to claw back to some level of respectability.
"Fuld may simply be motivated by an old-fashioned sense of propriety, however belated," Green wrote. "When he finally left Lehman Brothers in 2009, he received no severance package. Nor did he file a claim against the Lehman estate to recover deferred compensation, as have other executives, including the man he once chose as his successor, Joe Gregory, who’s seeking $233 million. Instead, five years after the fall, Fuld seems to be seeking solace and some small measure of dignity by quietly carrying on."