Lehman Brothers - The Bank That Bust The World (Documentary)

how much can you see here how's the tie hey a Friday afternoon in June last year look you know what 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 wants to put an end to rumors 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 Lehman Brothers suffering a spectacular downfall itself this is the inside account of what caused the 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's been it was the biggest bankruptcy in history and the Tipping Point into Global recession Lehman's was a seminal moment in the sense that it Illustrated these two big problems that if we didn't solve things we'd get a huge amount worse the Panic that followed hurt us all as mortgages dried up stock markets tumbled and businesses went to the war 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 Lima 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 for 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 foreign secretary arrived in New York a year ago this week he faced a dilemma Hank Paulson the man in charge of U.S Economic Policy had flown up from Washington because Lehman Brothers one of wall Street's oldest investment Banks was hemorrhaging money should he keep it alive with the cash injection or let the markets take their course and if he let it go bust what will 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 00 PM be at the FED at 6 PM this evening those type of phone calls are always bad and this was just about as bad as it gets and I think it was me who used the word Armageddon this is going to be Armageddon [Music] the fed the New York Federal Reserve the stage in which the crisis played out is around 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 have been told that the chief Executives of most of the Wall Street firms were there as well but apparently it was another floor and other conference rooms we trying to do our part to do what was being asked of us and with a sense of the clock ticking I'll probably never have a weekend quite like it Lehman may post another for months Wall Street had been worried about lemons because of the bank's massive property Investments the crash in the market it was now dangerously exposed shareholders were dumping stock and other Banks were withholding credit Lehman has lost six and a half billion dollars so far this year the bank's share price had been dropping since May even shares have been down sharply but in the last 10 days it had been in free fall by that Friday afternoon it was losing more than eight million dollars a minute confidence in the bank was evaporating under the glare of the media Spotlight has the market given up on Lehman we knew lemons was in trouble remember the constant traffic between our Treasury and the U.S treasury between the regulators and during that time I spoke to Hank Paulson pretty regularly and on the Friday evening we knew that they would have to do something about lehmann's in the last few months The Fallout from the subprime mortgage crisis and the collapse in house prices would forced the U.S treasury to bail out One bank and America's two biggest mortgage companies many assume the authorities would do the same again but the presidential election was weeks away on the campaign Trail the cry went out its main street not Wall Street that matters so when the bank Chiefs assembled that Friday evening it was clear from the start there'd 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 uh 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 bailout 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 Sirius as as the markets were in if we weren't if it weren't very serious and it was very clear that this was going to be a seminal event um in the history of the credit crunch have you 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 fold Jr arrived in New York to work as an intern at Lehman Brothers when he finished University the bank snapped him up fault was driven and good at what he did very good steadily and determinate 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 lemon 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 lemon Brothers to be basically to crush our enemies like this within the firm he had dog-like status this was a man who was clearly in charge and clearly had a vision for the business um you know 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 would say good morning or hello to him you get a response back but he's very almost like he built the wall up around himself and the other employees felt the same way they wouldn't even speak to him you know it's almost they'd ride in the elevator in total silence [Music] Ford 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 Falls unorthodox style of leadership meant he was admired and feared in equal measure dick took the floor like a Statesman and he proceeded to deliver this fearsome attack on short sellers the people who were depressing Lehman's share price by being being short to stock uh and he's and he rather to everyone's surprise mystification he's he he said if we get this right today dick Ford also had an insatiable appetite for profits with or without fava beans and he delivered in 1994 one share cost four dollars 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 trailer you take risk 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 fall essentially said to our head a risk taker in commercial mortgage-backed Securities you got to take more risk risk 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 wide 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 folds 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 dollars that gave me more than a million dollar bonus and I know traders that you know made 10 million dollars in a year in a good year but you know those type of traders made north of 100 150 200 million dollars for the firm in 2004 Lehman's turnover was 11.5 billion dollars 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 fooled from the year 2000 to 2008 he took home between 310 and 500 million dollars the precise figure is disputed foreign on that Friday night last September the rivals dick fold had boasted of crushing was 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 competent 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 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 was spending an awful lot of time with at least one other firm going through due diligence and so we got off to a uh to a slow start that was because Lehman's was giving its attention to that other Suitor Bank of America was the favorite 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 advisors started going through Lehman's accounts what they found appalled them I have to say that although we were expecting not to be very happy with what we saw it was worse than what we'd 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 dollars now it had fallen to around 25 billion they might have paid 100 million dollars 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 um it really meant the company was bankrupt unless it got support from the U.S government [Music] but the man in charge of the U.S treasury Hank Paulson had already made clear that was not an option what happened next took Everyone by surprise [Music] 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 fold was still counting on Bank of America making him a proposal but was about to learn that his Suitor had a roving eye John Thane the chief executive of Merrill Lynch was the new kid on the blog 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 my neck 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 that it was likely they were going to go bankrupt so all of their efforts were going to fail in some ways reinforced with me you know 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 going to 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 you know 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 cell phone 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 can be in New York in a couple of hours four bets were now off it was everyone for themselves as a Bank of America's boss was flying North on his secret date dick fold 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 because we still found it difficult to believe they had disappeared um and the answer of course was always no foreign [Music] just a few blocks away John Fame 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 and it was just the two of us talking 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 lehmann's team were trying hard to put on a brave face I guess 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 the Bank of America was definitely talking to Merrill as well as my inability to get calls returned so uh I called Dick and said you know I'm very worried 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 dollars very professional the combined company is a much stronger entity and and Will Survive most anything so having been stood up Lehman now had only one potential Suitor is 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 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 the man nobody wants to be right now is the longest serving CEO on Wall Street dick fold faces his biggest challenge to date by far still up in his Midtown office just along from Times Square dick fold 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 Barkley 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 four billion dollars profit and the reason for this success bricks and mortar both presidents Clinton and Bush had championed home ownership 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 fueled by loans with tempting introductory rates being offered to ever more risky clients the so-called subprime 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 low homeowners refinance now with almost no paperwork if you're a homeowner who's ready for some Financial relief we'll even give you a free credit report 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 labeled as high quality low-risk assets by the Banks four dollars a month by 2007 lemons 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 uh Distributors they were supposed to be in the removal business uh and Dick full 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 okay mommy I'll take the house I think there was a general view around the marketplace 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 full 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 one dollar the bank owned it was borrowing up to 44 dollars 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 lehmann's was much higher when I got to Lehman our leverage was like 20 to 1 and when I left was 44-1 top Max and that means that we have a relatively small amount of capital relative to the amount that we owe it's 44 to one 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 dollars in commercial property hotels shopping centers and residential developments around the world but while leverage multiplies profits when prices go up it also multiplies losses if price is fall [Music] and that's what happened in 2007 why a growing number of the people who have 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 subprime crisis exploded on the world foreign welcome to Bakersfield California it's not quite the kind of place one would imagine as a luxury destination but that's what Lima Brothers hoped it would become [Music] it loans 78 million dollars to a developer with plans to build thousands of new homes in the scorching Central Valley [Music] just heard about it it wasn't a large focus on the desk but you thought to yourself Jesus this is a this is a this is a little aggressive for from 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 about 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 in 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 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 a million dollars for unpaid work [Music] 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 loans Money to McAllister in the short haul and then tries to Syndicate and sell the syndicated loans globally and 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 really became a lead weight and to Dick fold the architect of Lehman Brothers Grand designs that lead weight must have seemed heavier by the hour as the weekend ticked away Sunday morning in New York started with a sense of optimism the favorite 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 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 it'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 and that's how the day started at the FED negotiations have 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 on the call from here I think it was around 9 30 or 10 when we finished the board meeting Sunday morning New York time and frankly we're feeling cautiously optimistic and I think somebody said there may have been a handshake on a deal uh and that it had to be run through the FSA in London belief even an assumption that Lehman's 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 with 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 off we started shooting we're looking for anything any kind of movement anybody in a suit we don't know who we're looking for and once we do see them I can't recognize them because they're not like Paris Hilton these people are not celebrities so for me you know 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 you know here were the titans of business who are you know lauded and and you know had been modded shielding their faces perhaps ashamed or I don't know why they were doing that backed into a corner to say the least bold has very few options left the stock in a free fall a lot of things perhaps a bit too late here for Lena in terms of owning up to some of the real estate here we go the bank and its boss that had a difficult relationship with the media cheers 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 fold had railed against them I'm also so tired of looking at my ugly picture in the goddamn newspapers but the source close to the firm you know it could be a little hot dog guy who stands on the corner he's close to the firm 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 would 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 he's investigating four rumors that circulated about Lehman the dick fold thought the constant reporting of Lehman's plunging share price was creating a downward spiral we've got to close it down you know I I make a joke out of it it's no joke this has got to end the leakage hurts us this is where the rumor mill comes from it's one of the misinformation comes from we have a Communications division it's got to be control there anybody outside of that is not authorized to talk to the Press period but the man who was authorized 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 Living people that the outside world was a guineet but when it came to it the story was does Lehman have to wear with all 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 closed to making an offer for Lehman's 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 lemons and Barclays had come so far and was 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 uh the New York fed uh categorically that from our perspective we couldn't see how this deal could go forward um given that they were not willing to offer any liquidity guarantees Lehman would be cut loose unless treasury secretary Hank Paulson authorized the guarantee the teams of advisors 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 were asked to wait and 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 will be too late I spoke to Hank Paulson on the Sunday afternoon and he said look your Regulators are asking hundreds of questions and I made the point 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 uh but that's what we were told and uh we asked the secretary whether there were certain things we could do and his statement was that I'm not going to cajole or plead with the British government nor am I going to in any way threaten the British government uh and in terms of a relationship I think the Americans recognized that and knew that the by Sunday afternoon our time the game was up uh you know we you know we couldn't possibly 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 and what we wanted was not available we walked end of story you know I think having worked on this for a number of days and having been pretty positive about if we could get all of the pieces lined up it was uh I was gutted in the end you know the sand had run out of The Hourglass nothing would work at that point um it was beyond dick it was beyond Lehman it was beyond all of us it was really a decision for the for the United States Rogen Cohen now had the unenviable task of reporting back to Dick fold there will be no night in shining armor the British weren't coming it was as difficult to call as I have 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 his he then shifted to all right 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 I think to me lost his composure a bit uh 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 isn't going to be a Barclays transaction and therefore Lehman should be prepared to go into bankruptcy and then suddenly they said by midnight and we and my response was I don't understand what you're doing could you explain what the reason is for this action and net net what they were saying well 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're going to bankruptcy well that's pretty compelling but then with 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 and they said we we will 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 lemon UK had to file it was insolvent it was not going to be in a position to pay his debts as they fell due so that reality had to be grasped and there there were 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 organizing the filing and thereafter dealing with the consequences of it and then there were the commercial managers Traders and so on who just couldn't believe that this was going to happen and 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 [Music] 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 uh to the garage we were standing in the elevator and said I don't think they like us they basically threw us out and it's a very serious situation [Music] it was a very somber said Voyage if you want to call it that going back to Lehman as we approached the Lima building it was like pandemonium on seventh hour and I remember there was an odd looking man there sort of with a spear saying down with Wall Street and well it was going to be some evening we await word on the fate of the 158 year old uh a minute from Midnight in terms of outright catastrophe where a heartbeat away from a depression dick fold 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 fold was very concerned very worried and I would say very depressed dick asked me are you telling me it's it is over and I said yes dick I have nowhere else to go I am out of options I can't think of anything else to do he said something like well we really gave at 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 gathered around George there was some hope that that he would reach out to the president and in essence we would go around Hank Paulson and and give our message of potential worldwide Financial destruction that Lehman would cause directly to the president you know 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 foreign [Music] the operator put him on hold which to the people room seemed just like an eternity and as the seconds ticked by everybody was you know more intense to everybody's pulses and heartbeats were racing a little bit more intently and finally the operator came back to the line and she said I'm sorry the president cannot take your call at this time it was just a real horrific blood curdling feeling in the room of of potential destruction and despair dick fold and the board of directors had one last task to perform past the resolution winding up the bank it was dark out very dark out and Dick full looked up clearly a man that was in turmoil and said I and he looked up and he said I guess this is goodbye after 42 years at Lehman Brothers dick fold was out of a job at their Peak Lehman's shares were worth 85 each they were now worth three 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 email so at 2 am when that started most of us were drained of emotion and yes we filed it it was the end of a institution which was one of The Originators of Wall Street and here was all coming to an end by pressing a button on a computer [Music] said in many respects [Music] Wall Street has seen very very few days like this the mortgage crisis has now taken down Lehman Brothers right behind expected it and there are others who were just simply devastated suffering a spectacular downfall it's stuck Brothers [Music] this is really stupendous this has happened when it collapsed on the Sunday night that did send shock waves throughout the world because people thought well if they can go down who else can go down [Music] Lehman Brothers was the largest bankruptcy in history ten times bigger than Enron [Music] 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 lemons Illustrated this huge problem the level of impaired assets or bad loans in the system was so high that even recognized institutions in America were being put at risk and secondly that Lehman's 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 so Lehman's was a seminal moment in the sense that it Illustrated these two big problems that if we didn't solve things we'd get a huge amount worse five thousand 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 when I went up to the management floor everybody was sitting around with their heads literally in their hands a lot of them had red eyes and black bags under them uh been there all weekend and all night and I was told there'd been a meeting of Staff suddenly convened that morning in which the head of the European operation had said it's all over God some people just burst into tears and just didn't know how to cope with it other people were on the phone so the Headhunters straight away and you kind of had the best and the worst of human instinct raise its head as these situations tend to um you know there were certainly people who felt they were on the Lifeboat they had something sorted out for themselves um but they weren't going to let anybody else on that Lifeboat you know they're going to sail off and leave you and sort yourselves out this is a CNBC Special Report the fall of Lehman Brothers over this seismic story a historic day as the start of trading approached the financial World waited anxiously to discover what would happen so Monday morning at treasury we were watching the markets very carefully in content 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 and you know all 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 you know as I describe it the housing market damaged our financial system which then damage our economy so this crisis is what caused the severe recession that we're in right now we had a deluge of communication in fact in fact I had something in the order of 5 000 emails that day our switchboard at the firm was blocked to switchboard at Bank Street was blocked it was a massive Communications problem because everybody wanted an answer they wanted it immediately I've never experienced that before and I'm sure I'll never experience that 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 they couldn't 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 seen before by the end of Monday's trading 700 billion dollars have 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 full week period the 28 days between the failure of Lehman Brothers and the announcement of recapitalization packages for banks around the world in October there was an extraordinary loss of confidence panic I would call it good afternoon everyone and I hope you all had an enjoyable weekend the fall of Lehman Brothers brought the Global Financial system to its knees and still the debate goes on should the U.S treasury have stepped in to save the bank I never once considered that it was appropriate to put taxpayer money on the line with in resolving Lehman Brothers historians will debate four years about whether if the U.S government had rescued Lehman Brothers whether they 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 and 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 the amount of money it would have taken 20 billion 30 billion compared to the destruction and value that followed the Lehman bankruptcy and the complete shutdown of the credit markets uh the billions and billions and billions of losses that were experienced in the market subsequent now 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 dollars against a pool of mortgages in the case of Lehman Brothers the question is what assets could they lend against I think the the tragic thing for the United States was that we came into this crisis without an adequate set of tools to to withstand protect the economy from the acute stress you saw in the financial system the constraints we face in Lehman were one example of those kind of constraints we should not have been in that position and that's why it's so important that we move more quickly now and we're moving very very quickly you know we're still in the midst of a pretty severe economic crisis globally and yet we're going to move with Comprehensive regulatory reform uh 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 uh and it was a you know it was something that should not have happened two days after the bankruptcy Barclays Bank got what it wanted all along it sealed the deal to buy the bulk of Lehman's North American assets for 1.75 billion dollars it was a bargain much less than they would have paid at the bank in solvent I think all of us would say this is something that we never expected that we could actually combine with the U.S bulge bracket firm I don't use the word transformational lately 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're no longer honoring my Severance agreement everything's been taken away so that really set me into a tailspin it's like how could they do that you know after 20 years of service now I have absolutely nothing a month later dick fold 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 that are watching this right now that are wondering you know why this 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 apologized I think he didn't confess to anything it made it made it sound like he personally dick fold 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 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 declined to be interviewed for this documentary [Music] 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 banker 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 learned 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 risked to not become a factor in doing anything and that was the real dilemma all right thank you all foreign okay next week what caused the greatest financial crisis since the depression We examined the boom before the bust to find out more go to bbc.co.uk love of money and the second of the series is here on BBC Two same time nine o'clock next Thursday [Music] on news night in half an hour some of the top voices in the Afghan crisis including the man who alleges wholesale fraud in the elections and America's top representative in the region and the foreign secretary join us at 10 30. before that new time slots for

Channel: TradingCoachUK

Views: 1,862,859

Keywords: Wall street, fx, forex, stocks, trader, warren buffet, trading, investment, options, finance, markets, news, financial, stock market, hedge fund, documentary, documentaries, motivation, inspiration, 2023, stock market for beginners, investing tips, technical Analysis, forex trading, lehman brothers, inside job documentary, stock market crash, inflation, subprime mortgage, fed, federal reserve, money, 2008 financial crisis, 60 minutes, investing, magnatesmedia, shorts, too big to fail, cnbc, fomc

Id: ovcno7tiZas

Length: 58min 13sec (3493 seconds)

Published: Fri Jan 13 2023