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God, Country, Lehman

Stocks in this article: BAC JPM GS C

Fuld and Callan were polarizing inside the firm, however. Some saw reason to believe they could help the firm survive. Others weren't so sure.

At a picnic with fellow college grads in June, many of whom were also headed to Wall Street, one hedge fund manager remarked that 2008 would be the last stop on the gravy train between colleges and Wall Street. A lot of us would be out of a job by year-end.

Shortly thereafter, Lehman reported a net loss of $2.3 billion, its first loss in years, as subprime mortgage writedowns finally hit the firm's financial statements. Management admitted they were disappointed by their execution and vowed to improve performance.

By the time I started working for Lehman in early July, reports were already surfacing that Fuld was traveling the world in search of a strategic buyer or a deep-pocketed sovereign wealth fund to make a cornerstone investment. It is also now known that Fuld lobbied top government officials to ask Warren Buffett if he would take a look at investing in the firm.

My job in Lehman's sprawling over-the counter (OTC) swaps operations, while not on a glamorous trading floor, exposed me to a part of Wall Street that I and most ordinary people had been virtually unaware of prior to 2008. Being in the engine room of Lehman's trading business also revealed some worthwhile anecdotes, even if they are tame in comparison to the double-chinned, onion-burger eating bond salesmen at Salomon Brothers that Michael Lewis described in Liar's Poker.

Firms like Lehman were throwing bodies at their swaps businesses, in an effort to weed through a giant paper trail of trades left outstanding from when derivatives markets were booming just a few months earlier. Some colleagues had been sleeping in Lehman's offices and working banker-like hours to untangle webs of failed trades that were woven across Wall Street.

As the summer carried on, a sharp slowdown in trading lingered as a concern. Everyone's workload tailed off. So much for an all-hands-on-deck effort.

Weekly Tuesday-evening presentations by Lehman's various fixed-income desks revealed just how surprised some were to learn of the exotic products the firm was trading. No meeting I went to was better attended than an August 2008 presentation by Lehman's synthetic CDO desk.

A geeky trader explained Lehman's understanding of the loss rates of synthetic CDOs and ended his presentation with his head hung, having conceded that the product was not performing as expected. The Q&A session stretched far longer than the presentation. Since Lehman's collapse, synthetic CDOs have yet to make a comeback.

At an orientation put on by Human Resources to introduce new hires to Lehman's "do's and don'ts," one management-type couldn't understand why the firm banned client outings to male-only golf clubs. How could one possibly build a business with those kinds of restrictions? Where would the crackdown end?

Clearly, some were mentally unprepared for the change that would soon grip Wall Street. When Lehman failed, so did its no-strip-club policy. Employees swarmed a now-defunct lounge across the street that was offering free drinks as a consolation.

All Hands on Deck

Five years ago, investors around the world were watching to see if long-tenured Wall Street lions such as Fuld, John Mack of Morgan Stanley (MS) and Lloyd Blankfein of Goldman Sachs (GS) could pull their firms through a quickly worsening credit crunch.

Next time there is a similar crisis, hopefully Wall Street's leaders won't be jetting around the world like Fuld and Mack in search of life-saving capital. Instead, they should be busy assuring regulators and investors that their firms are prepared for an organized liquidation.

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