American Scandal - Lehman Brothers | The Gorilla of Wall Street | 1

Episode Date: January 13, 2026

Rising from humble summer intern to the formidable CEO of Lehman Brothers, Dick Fuld is determined to make the investment bank succeed, even if that means making risky bets that could set the stage for disaster.Be the first to know about Wondery’s newest podcasts, curated recommendations, and more! Sign up now at https://wondery.fm/wonderynewsletterListen to American Scandal on the Wondery App or wherever you get your podcasts. Experience all episodes ad-free and be the first to binge the newest season. Unlock exclusive early access by joining Wondery+ in the Wondery App, Apple Podcasts or Spotify. Start your free trial today by visiting wondery.com/links/american-scandal/ now.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

American scandal uses dramatizations that are based on true events. Some elements, including dialogue, might be invented, but everything is based on historical research. It's October 6, 2008 in Washington, D.C. A black SUV pulls up outside the Rayburn House office building on Capitol Hill. Protesters crowd around a barricade. They wave signs, scrawled with the words, shame and crook, as the former CEO of Lehman Brothers, Dick Fold, emerges from the car with his lawyer by his side. Folle hurries toward the white marble building while his lawyer tries to

shield him from the jeering crowd. When they enter the hearing room, Folle takes a seat at a long mahogany witness table, a microphone, a single cup of water, and the House Committee on Oversight and Government Reform wait in front of him. Folle glances at his lawyer, who sits over to the side. They've rehearsed their story. Lehman Brothers was a victim of the financial crisis, not the cause, But now, sitting before the scowling members of Congress, Foll begins to sweat. He delivers his prepared statement and takes questions from the lawmakers. Foll has been giving answers for over an hour when Representative Peter Welch leans toward the microphone. Thank you, Mr. Foll, for being here today.

There's a tragedy unfolding all across America. We're only just beginning to fuel the pain. Wall Street, the Lehman Brothers, took a simple step in the American dream, a family buying a home and turned it into a completely. commodity to be sold and traded, and now, well, there was a whole series of bailouts. But the decision was made when it came to Lehman, there was going to be no governmental assistance. So, in fact, Lehman Brothers was treated differently than some of the other financial giants that were in similar circumstances. Do you have any understanding of why Lehman Brothers was allowed to

fail, whereas other banks were the beneficiaries of multi-billion dollar bailouts sponsored by the Treasury Department? Well, clearly, I would have loved to have been part of that group that got that. But why were you allowed to fail when the rest were bailed out? That was a decision that was made at the Fed that Sunday afternoon. I wasn't there. You've got to be wondering, though, right? Why? Why Lehman Brothers? What was different about your company?

Fold stares down at the table, blinking slowly. Congressman, I will wonder that until the day they put me in the ground. In front of members of Congress, Dick Fold insists he takes full responsibility for what happened to Lehman Brothers. And he says that if he could turn back the clock and do things differently, he would. But inside, an anger still simmers. The government saved everyone else, spending billions upon billions of dollars, but they let his beloved Lehman burn to the ground. You're listening to the first episode of this American scandal season.

With Wondery Plus, you can binge the remaining episodes, listen to new episodes early, and explore more exclusive seasons completely ad-free. Start to a free trial of Wondry Plus in the Wondry app. Apple Podcasts or Spotify today. From Wondery, I'm Lindsay Graham, and this is American Scandal. On September 15th, 2008, the Investment Bank Lehman Brothers collapsed, but it wasn't just the firm's 25,000 employees who suffered. The implosion was the largest bankruptcy in history, a $600 billion

disaster that threatened to pull down the global financial system with it. At the center of Lehman's dramatic demise stood at CEO Dick Ford. Foll. Nicknamed the gorilla for his ruthless leadership style, Fould had led the company to new heights in the early 2000s, but that only meant that when the market turned, Lehman had that much further to fall. Like so many other companies on Wall Street, Lehman had gorged itself on the profits created by soaring home prices and easy credit. The firm specialized in complex securities that bankers claimed diluted risk, but in fact only spread contagion throughout the entire financial system. And when the bubble burst, Foll and his executives insisted their firm was strong enough to survive,

but they couldn't hide from the truth forever, and soon the U.S. government was faced with an almost impossible decision, whether or not to bail out Wall Street from the consequences of its own greed. As people across the world struggled amid the worst economic downturns since the Great Depression, they demanded to know who was to blame for all the layoffs, the foreclosures, and the disappearance of their savings. They soon found the villain they were looking for. This is episode one, The Gorilla of Wall Street. It's the summer of 1966 in an office building in downtown Denver, Colorado. 20-year-old Dick Fold is a part-time summer intern and a small trading outpost of Lehman Brothers.

Eager to please, he darts between desks, clutching papers he's just copied. Fold is at the bottom of the pecking order, an errand boy, but he loves it here. The energy in the cramped office is electric. Cigarette smoke hangs in the air and phones ring off the hook as traders shout out. the latest prices and deals. Fold pushes his hair back and wipes the sweat from his forehead as he presents the copies to one of the traders. Finishing a phone call, the man snatches them from Bald's hands and then curses. Fold has copied the wrong document. Fold's cheeks flushed with embarrassment. His wealthy grandfather pulled strings to get him this internship, and now Folt

fears he's letting him down. With a contemptuous sneer, the traitor thrusts the copies back at him and says Fold needs to be better, faster, and smarter in order to work here. For a moment, Fold falters. This rebuke stings. But then something hardens behind his eyes. He straightens his back, meets the traitor's glare, and says he'll prove himself. He returns to his desk, his jaw set, and gets back to work, more determined than ever. He's never experienced anything like Lehman before. The intensity of work makes him feel alive, and Fold only wants more.

So after college, he follows up his internship in Denver with a permanent position at the company, this time at its main office in New York City. Although it was founded as a small general store in Alabama, Lehman Brothers had been based in New York since the 1860s. Having started out trading cotton, the company steadily expanded and began buying and selling a variety of raw materials. By the time Dick Fould starts working for the firm in the late 1960s, Lehman has developed into a full-fledged investment bank. It helps corporations raise capital by issuing stocks and bonds to investors, and its employees advise their clients on mergers, acquisitions, and asset management. Fould starts his career out in the commercial paper desk, trading what are effectively

IOUs issued by companies. His salary is $6,000 a year, already $1,000 more than the average American, but Fold is eager to climb the ranks and earn more as quickly as he can. So on the trading floor, he soon gets a reputation. as someone who isn't afraid to stand up to his colleagues, even his superiors. He shouts out his trades in a commanding, rapid-fire rhythm. Sometimes he gets so caught up in the moment that he swings his arm across the desk sending papers flying. His aggression earns him a nickname, The Gorilla.

And although he's not a tall man, Fall does have an intense physical presence. He's a weightlifter and a fitness buff. He loves competition and loves winning even more. So he embraces his new nickname and starts keeping a stand. stuffed toy gorilla in his office. And throughout the 1970s, promotion follows promotion for the gorilla of Wall Street. Colleagues come and go, but fold stays loyal to Lehman Brothers, even as the company itself falters. In the early 1980s, internal divisions at the top of Lehman threatened

to tear it apart. Eventually, American Express steps in to acquire the struggling firm, and for 10 years it tries to breathe new life into Lehman. But the two companies never really fit. In 1994, American Express cuts its losses, spinning Lehman off as an independent firm again. Few Wall Street observers believe it will survive on its own. What Dick Fould does, he stayed with the firm through all its up and downs, and now he gets his reward, appointed Lehman's CEO. It's everything he's wanted. Not yet 50 years old, he's climbed to the top of the tree.

His new pay package is thousands of times what he made when he started out. But that first night, after gaining the top job, when Fall gets home and climbs into bed, he feels his chest tighten. His lungs seem to stop working, and he gasps for air. He's having a panic attack. Fall has dedicated his career to Lehman Brothers, and now he holds the company's fate in his hands. The responsibility suddenly feels very overwhelming. But he doesn't let anyone else see his anxiety. After a sleepless night, the next morning, he's back at his desk at Lehman's headquarters in Lower Manhattan, as if nothing has happened. And soon he is remaking the investment bank in his own image. He recruits an inner circle that reflects his own upbringing and education,

people from undistinguished backgrounds with barely an Ivy League degree among them. Fould wants a culture defined by his ethos of relentless hard work and fierce loyalty. Lunch breaks are frowned upon, leaving early as unthinkable. Other banks are no longer the competition, they're the enemy, and every meeting, every deal, every trade must be devoted to beating them. Lehman Brothers will be the biggest, most profitable investment bank in the world. Fould's obsessive and relentless focus on work pays off. Having been near bankruptcy in 1994, by the turn of the millennium Lehman is celebrating its 150th anniversary with record earnings. So all across Wall Street, Fault is recognized as a true leader, and on one of the darkest days in American,

history, many in the finance industry turned to him for guidance. Dick Fold is in New York on September 12, 2001. The day after 9-11, when the Twin Towers fell, Lower Manhattan is still shrouded with dust and smoke. Streets that are usually crowded with bankers and taxis are covered with ash. Sirens continue to wail and the air smells a burning metal. Standing out amid the destruction and chaos is the austere, orderly beauty of the New York Stock Exchange building. Dick Fould sits at a long oak table with a group of other Wall Street executives. They've come to decide when the market should reopen, and the room hums with a strange mix of business talk and stunned disbelief. One CEO turns to Fault and asks when he thinks

Lehman will be able to start trading again, but Fault's usual bravado is gone. Lehmann's headquarters was directly across from Ground Zero. From the windows of his company's trading floor, Fold's employees had watched in horror as the planes hit the World Trade Center, and now Lehmann's headquarters is in ruins. Its windows blown out, its floors coated in debris from the fallen towers. Fold turns back to the other CEO, telling him that they don't even know who's still alive yet. The room falls silent. For a man known as the gorilla of Wall Street, it's a rare moment of public vulnerability. So Fold uncomfortably excuses himself and steps outside. He's joined by a colleague who quietly asks Fold what he wants to do. Fold's shock, gradually gives way to resolve.

He gives orders to set up makeshift offices for the firm's employees at the Sheraton Hotel on 7th Avenue. Then he begins work on a plan to buy Lehman Brothers a new home. Fault is determined that his company will rise from the ashes and defy the destruction and death of 9-11 to reach new heights. And less than a month later, he negotiates the purchase of a new 33-story tower in Midtown. This glittering skyscraper was built for rival bank Morgan Stanley. But since the terrorist attacks, Morgan Stanley has been reevaluating as primevaluating as primary. property portfolio and headcount in New York. Fould spied an opportunity. The $700 million deal will require Lehman to move out of its traditional home in Lower Manhattan. But Folled is looking to

the future. He's intoxicated by the firm's rapid growth and is determined to push it even further. He's seen the money that's been made by rivals like Goldman Sachs, who are dipping their toes into the mortgage business and he wants a piece of the pie. So Lehman begins underwriting mortgages and offering mortgage-backed securities as well. Then they venture into leveraged lending, providing loans to businesses with high debt and poor credit. This new strategy is lucrative, but it's also far more risky, and not all of Lehman's executives are happy with the decisions Fold is making.

One day in June of 2005, a senior colleague tries to intervene. It's a warm summer evening and Lehman's top team is enjoying drinks at a rooftop oyster bar with spectacular views over Manhattan. Mike Gelban, Lehman's global head of fiction, income. Peers across the terrace and spots his boss, Dick Fold, is on his own for a moment. So cutting through the crowd, he takes a seat beside him. Hey, Dick, can I have a work? Only if you have a drink with me first. I just ordered another bottle. A waiter approaches with champagne. Hey, two glasses, please. No, no, no, I'm okay, thanks.

Don't be ridiculous. Two glasses. This is the good stuff, Mike. The waiter pours their drinks, and Fold immediately takes his glass from the table and takes a sip. But Gelban doesn't touch his. Look, Dick, I'm worried about the real estate market. Oh, come on. It's a bubble. What are you talking about? The leveraging, the borrowing, the house prices, they just can't keep going up forever. What happens when families can't pay back their mortgages? The entire thing could collapse.

There are trillions of dollars of leverage out there. Trillions, Dick. I think we have to rethink some things. Folds face hardens. Your job isn't to tell me why we can't do things, Mike. I want you to tell me how we can. But this is a bubble. Like all bubbles, it's going to pop.

I'm not sure we're prepared for that. I mean, the champagne's flowing now. There's a big hangover coming. Well, you don't need to lecture me about risk. I'm not lecturing. There's not a single thing in life that doesn't carry risk. This isn't crossing this street we're talking about here, Dick. Mike, look at this view.

This $500 vintage, you think they exist without rolling the dice? Risk is what got me here, and frankly, it's what got you here, too. Best you remember that. And drink your damn champagne. Mike Gelban finally lifts his glass and down. the expense of champagne in one go. And he makes his excuses and leaves. As his colleagues continue to drink and eat oysters,

Mike can't shake his sense of dread. It's like he's stuck on a runaway train. He can see the disaster on the track ahead. There's nothing he can do to stop it. Hello, American Scandal listeners. I have an exciting announcement. I'm going on tour and coming to a theater near you. The very first show will be at the Granada Theater in Dallas, Texas on March 6th.

It's going to be a thrilling evening. of history, storytelling, and music with a full band behind me as we look back to explore the days that made America, and they aren't the days you might think. Sure, everyone knows July 4th, 1776, but there are many other days that are maybe even more influential and certainly more scandalous. So come out to see me live in Dallas, or for information on tickets and upcoming dates, go to American History Live.com. That's American History Live.com. Come see my Days that Made America Couture live onstage, go to American History Live.com. It's 2005 and the U.S. housing market is booming.

Following a recession in the early 2000s, the Federal Reserve slashed interest rates to revive the economy. This, combined with lax lending standards, meant that even those with poor credit ratings and little income could walk into a bank and come out with a loan for half a million dollars. Much of this cheap money flooded into property. Banks have already posted enormous revenues on the back of this real estate. estate boom, and Lehman Brothers CEO Dick Folle wants to make sure his company profits from it as well.

At the core of his new investment strategy are mortgage-backed securities. These are bundles of mortgages packaged up and divided into different tiers or tranches of risk and return profiles. Those who buy these packages receive the interest payments made by the homeowners. Those who sell them get an immediate cash injection to invest elsewhere. And at every point in the transaction, there are fees. It's a lucrative trade. But there is a problem brewing. These securities include countless subprime mortgages, loans that may never be paid back because the borrowers cannot afford them.

The banks claim that as these mortgages have been packaged up and chopped into pieces, the risk associated with them has been diluted, spread out among all the other good mortgages. But in fact, all they've done is create a web of interconnected weak points that could potentially undermine the foundations of the entire financial system. But there are supposed to be defenses against risks like this. this. Credit rating agencies are meant to police the system, and in theory they should flag these subprime mortgage-backed securities as potentially toxic assets, but they are seduced by money

as well. Banks can shop around for the best ratings, and credit agencies compete against each other for their business. So eager for market share, firms such as Moody's stamp even the most precarious mortgage bundles with a gold-standard AAA rating. This is a dangerous illusion, but it's so profitable that no one wants to stop it. There is at least one man. who's not ignoring the problem, though. On July 10, 2006, Henry Hank Paulson is sworn in as Treasury Secretary. He spent the past seven years as CEO of Goldman Sachs, one of the world's largest investment banks. He steered it through its IPO when it became a publicly traded company in 1999

and led its expansion into new territories like Australia and China. That success made Goldman the envy of Wall Street. But Paulson knows a bubble is forming in the U.S. real estate market, and he believes as Treasury Secretary, it's now his duty to do something about it. If he's to take any meaningful action, though, he'll need the approval of his new boss, President George W. Bush. So in August 2006, he heads to the presidential retreat at Camp David. It's a humid summer morning in Maryland, and the cicadas are buzzing. Marine guards stand watch along the winding paths, breaking the quiet with a crunch of gravel under their boots.

Inside the main lodge, the air is cool and smells of polished wood. Paulson takes a seat at a long table and opens the briefing binder before him. A few moments later, President Bush strides him. He greased Paulson with a slap on the back and a quick grin. How you doing, Hank? Welcome to Camp David. Thank you, Mr. President. It's an honor to be here. Someone gets you coffee? We have some fine coffee here. Bush stops, noticing Paulson's somber expression.

Oh, are you not happy to see me or something, Hank? Smile a bit. The economy's booming. You've got the easiest job in Washington. Well, sir, I wish that were true. The economy is overdue for a crisis, I believe. There's a lot of dry tinder out there. Dry tinder. What sort of tinder we talk about? It's the subprime mortgage market, sir.

Well, you may have to explain that one to me, Hank. I'm not one of your Wall Street boys, you know. Well, sir, essentially, it's higher risk loans to folks with poor credit. All right, gotcha. And you're worried about foreclosures. I'm worried about contagion. I'm afraid that if this real estate bubble pops, then subprime mortgages could bring the entire financial system down.

Bush stares at Paul. You're talking about some kind of crash, like the 1930s? You believe that? I do, sir, and I think we need to act before it's too late. Well, what's your thinking? My first priority would be to give regulators the power to wind down failing investment banks. Traditional banks have the FDIC and the Federal Reserve to protect them, with the authority to take them over and auction off their assets in an orderly fashion,

but no such authority exists over the likes of Morgan Stanley or Lehman or Merrill Lynch or Goldman Sachs, right? Or Goldman Sachs, right? I want similar wind-down authorities for all of them. Well, now, Hank, you think if I'd come to you a year ago when you were still at Goldman and said, I want to put some kind of federal overseer above you, you're really telling me that you'd have welcomed that? Well, I could see the bubble developing, sir. It's partly why I took this job. And you want me to get the government into the business of taking over investment banks, selling them for parts? You know, I'm a Republican, Hank. I believe in the free market.

Well, I believe in free markets too, Mr. President. but even free markets need an emergency plan. Oh, I don't know, Hank. Paulson leans forward. Mr. President, I know no one else is talking about it. It's easier if everyone turns a blind eye. But the fallout from this could be, well, it could be catastrophic. Hank Paulson is something of a paradox.

Once the highest-paid CEO on Wall Street, he's also a devout Christian scientist who claims not to care for material wealth. When he was in New York, he always preferred bird watching in Central Park over black-tie gala's, and while his Wall Street colleagues drove Bentley's as a passionate environmentalist, Paulson chose a Prius.

Still, that didn't stop him from raising millions of dollars for the presidential campaign of Oilman George W. Bush. And now, after 32 years at Goldman, Paulson finds himself embodying yet another contradiction. He is a crucial part of an administration that preaches the virtues of free markets, but he has inherited an economy that may demand bold and dramatic government intervention.

Paulson is convinced the housing bubble is ready to burst, And with almost every piece of the financial system now connected to every other, the risk is not contained to the real estate market. But despite Paulson's warnings, no decisive action is taken. Following this meeting at Camp David in August 2006, the Bush administration takes a wait-and-see approach. The president remains resistant to government interference in private markets, especially when his many backers on Wall Street don't want the party to end.

So all Paulson can do is keep watch and look to sound the alarm as quickly as possible, should the worst happen. Paulson is now an outsider. He's not on the ground in New York anymore, and despite all his Wall Street connections, he's worried that he might miss something important. So he makes an unlikely seeming move. A month into his job as Treasury Secretary, he reaches out to one of his fiercest Wall Street rivals. Dick Fould is on a golf course in Idaho when the call comes in. Folled owns a 71-acre estate near the resort town of Sun Valley. This 11-bedroom property is one of his five homes and has a favorite refuge from the chaos of Wall Street. He's on the seventh hole and closing in on one of its best games. He lines up his drive and swings hard. The ball cuts through the

pale blue sky in a perfect dark. As Fault watches it disappear into the distance, his phone rings. Officially cell phones aren't allowed on the course, but Folld ignores the rule. He tosses his club to his caddy and fishes his phone out of his pocket. He frowns. Calls from Hank Paulson, and Fault can't imagine what the Treasury Secretary wants with him, but he answers all the same. Paulson wastes no time in addressing the irony of the conversation. Half laughing and half serious, he admits that they've been trying to kill each other for years in the boardroom, but now he needs Fould's help. For a moment, Folld lets those words hang in the air.

This is not what he expected from his old rival. But he likes the feeling of having something Paulson might need, so cautiously he tells him to go on. Paulson tells Fold that in his new role as Treasury Secretary, he needs eyes and ears. He can look up any official figures with just a click of a button, but those numbers never tell the whole story. They won't keep them up to date on all the trading floor rumors, the hunches and the fads that shape so much of the market. So he tells Fold that he wants to keep a line open between them, to hear what's really happening on Wall Street. Fold is flattered by Paulson's proposal, but his first instinct is to distrust it.

After all, this is the same man who has been trying to outmaneuver him for years. Sensing Fould's hesitance, Paulson presses on with more urgency, saying they need to share information, not fight each other. Standing there amid the silence of the Idaho Mountains, Fault looks at his golf ball glinting in the distance and weighs his options. Having a direct line to the Treasury Secretary could be useful for Lehman, even if it is Hank Paulson. So in the end, Faulted agrees, and he and Paulson start talking regularly.

They exchange information and share insights about developments in the industry, and what began as a tense conversation between two former adversaries becomes an unexpected friendship. But beneath the cordial messages, one thing does not change. Foll does not share Paulson's anxiety about the financial system. As far as he's concerned, he only needs to look at the accounts, and Lehman's revenues and profits prove that his company is stronger than ever. And if the market ever does turn, and they need a helping hand,

Well, that's what his new friend in Washington is for. In 2006, Lehman Brothers stands at the pinnacle of Wall Street. The firm is now the world's largest underwriter of subprime mortgage-backed securities, the bundles of risky home loans that have been cut up, repackaged, and sold to investors. This business has brought Lehman's staggering rewards, breaking new company records for revenue and profit, and inside the firm's gleaming headquarters in New York, the mood is euphoric. Still, CEO Dick Folled pushes even harder. Lehman's leverage ratio closes in on 32 to 1, meaning that for every dollar the firm holds in capital, it owes another 32 to outside investors.

That's a higher ratio than any of its major competitors. Fold says he understands the risk he's running. He knows theoretically that if people can't pay back their mortgages, the real estate bubble will eventually pop, mortgage-backed securities will plummet in value, and Lehman's assets will be worth even less. And if all the firm's creditors then demand their money back, Lehman will be in serious trouble. But right now, the profits are just too rich to resist. Fold admits it's all a little like paving a road with cheap tar, quick and easy.

Potholes may appear when the weather changes, but that's a problem for the future. So day after day, Lehman keeps laying down more of that cheap tar, hoping a storm will never come. But by the end of 2006, the sky is darkening. Far beyond the United States Financial Center in New York, mortgage default rates quietly tick upward. housing prices begin to flatten for the first time in years, but the traders at Lehman keep working, their machines keep humming, and the cheer of the holidays and year-end bonuses help to mask any unease they might feel. But not everyone is distracted by their swollen paychecks. For Lehman's global head of fixed income, Mike Gelban, even a $20 million pay package isn't

enough to shake his concerns. He warns his colleagues again and again that the market is in more trouble than they know and that the housing bubble is about to burst. He has repeated meetings with Dick Fold and Joe Gregory, Lehman Brothers president, and Foll's most powerful ally at the firm. But time and again, he's ignored. And by early May 2007, Gelband has had enough. Gelban takes the elevator up to the executive suite on the 31st floor of Lehman's headquarters. Striding down the hallway, he walks straight into a conference room without bothering to knock.

Sitting at the head of the table, surrounded by junior executives, Joe Gregory looks up in surprise. If we're in the middle of a meeting here, Mike, I need to talk to you. Can it wait? No, it cannot. Okay, well, I guess you heard him, fellows. Give us the room, please. The other men in the meeting look around disgruntled, then pack up their things and leave.

As the door shuts, Gregory shoots Galban a quizzical look. All right, Mike, what's so important? I can't do this anymore, man. Do what? For the past two years, I've been begging you to stop with these subprime mortgages. And we listened. We diversified. And to different types of real estate, I wouldn't be.

and call that diversification. Warned you over and over again that we are buying into a bubble, and not once that you or anyone else, listen to me. So if you don't make changes, then I will. Oh, what are you talking about? I'm done, I'm leaving the firm. Gregory blinks, taking a back. You leave it.

What, you want more money? No, it's not about the money, Joe. People can care about more things than money. And what's that supposed to make? It means greed is going to drive this company into the ground. Gregory shakes his head. Oh, you know, Dick and I have talked about this. About what? Your attitude toward risk. You've been holding back and we've been missing out on deals at a result.

What deals? We're handing out money like it's going out of fashion. Have you seen our leverage ratio? Look, our balance sheet is fine. You're bearing your head in the sand. You and Dick. Oh, come on. Where's your loyalty to him? You've been at this company for 20 years? 23. So after 23 years, you're going to insult Dick and me and all your other colleagues and just walk away? Joe, look, I love this company. I do. But I'm not going to stay here and watch it. Leam and die. After handing in his resignation, Mike Gelban heads down to his office. By the time he's gathered his things, word has spread of his departure, and when he goes to leave, he's met by a line of colleagues. It seems everyone wants to shake his hand, some are even in tears. Gilband is walking away

from a coveted position, one of the highest paying jobs on Wall Street, but he has no doubt that he's making the right decision. His exit isn't mourned by Dick Fold, though. He's not seen eye-to-eye with Gelban for a while, and he figures that in its long history, Lehman Brothers has survived far worse. It came through the Civil War, two world wars, and the Great Depression. And even if Galban's riot about the property bubble bursting, Folld thinks that Lehman's sheer size will protect it. Under Fould's leadership, Lehman has been woven into the fabric of the global economy, and the markets won't allow it to fail, and neither will the U.S. government. So Foll barrels ahead with his strategy. And by the end of 2007, Lehman sits on $11 billion

of real estate-related assets and securities, more than double the amount had held just a year earlier. But the crunch that Treasury Secretary Hank Paulson feared and that Mike Gelbant long warned about has finally arrived. As more and more homeowners default on their mortgages, the financial infrastructure Wall Street has built on top of them starts to crumble. The mortgage-backed securities Lehman trades are so complex, so tangled into the financial system that no one can say with any certainty what they're actually worth. And without prices, there is no market. And without a market, there is no liquidity.

The dominoes start falling faster and faster. And by early 2008, Wall Street is effectively paralyzed, and confidence is evaporating. But as the crisis deepens in New York, Dick Folle is half a world away in India. He's asleep on his private jet in an airfield outside New Delhi, where he's woken by hand on his shoulder. It's his wife, Kathleen, who's accompanied him on this work trip. Fold stirs disoriented for a moment. Her voice is sharp. Hank Paulson is on the phone, calling from Washington. He says it's urgent. Fold snaps awake and grabs the phone. Paulson's voice on the other end of the line is grave.

He quickly tells Fold that Bear Stearns will either be sold or go bankrupt by Monday morning. Fold blinks, not sure he heard that right. Bear Stearns is one of the top five investment banks in the world. You can't go under. But Paulson declares with grim certainty that it's unavoidable. The bank is insolvent. Fold stares out the window at the the runway lights blinking against the morning sky. He thinks about Lehman's balance sheet back in New York and the towers of mortgage-backed security stacked on his books. Then Paulson continues, his tone hardening,

and he gives Fold an order cloaked as a polite suggestion. Fold needs to abandon whatever deal he's trying to make in India and return to New York right now. Bear Stearn's collapse will send shockwaves through the world's financial centers, and Lehman will be sure to feel the effects. Finally, grasping the gravity of the situation, Bold asks Paulson if the U.S. government can help him get clearance to fly his Gulfstream through Russian airspace. He says it will shave at least five hours off the flight time.

But Paulson just gives a short dismissive laugh. He couldn't even get that for himself. The call ends and fold is now wide awake. His mind racing, he lowers the phone and turns to his wife to tell her the bad news. The trip is over. They have to head home. The global financial system may be on the brink of unraveling, and Lehman Brothers could be the next to fall.

From Wondery, this is the first episode of our series on Lehman Brothers for American Scandal. In our next episode, Dick Fould scrambles to convince the world that his firm can survive. But inside the company, tensions are boiling over. Lehman's dirty secrets can't stay buried forever. If you'd like to learn more about Lehman Brothers, we recommend the book Too Big to Fail by Andrew Ross Sorkin. All the Devils are Here by Bethany McLean and Joan O'Sara, and a Big Short by Michael Lewis.

This episode contains reenactments and dramatized details. And while in most cases we can't know exactly what was said, all our dramatizations are based on historical research. American Scandal is hosted, edited and executive produced by me, Lindsay Graham for Airship, audio editing by Mohamed Shazzy, sound design by Gabriel Gould, music by Throm. This episode is written in research by Olivia Thomas, fact-checking by Alyssa Jung Perry, managing producer Emily Byrd, development by Stephanie Jens, senior producer Andy Beckerman,

executive producers are William Simpson for Airship, and Jenny Lauer Beckman and Marshall Louis for Wonderry. To listen to the rest of this season of American Scandal, start your free trial of Wondry Plus in the Wondery app, Apple Podcasts, or Spotify. With Wondry Plus, you can listen to other incredible history podcasts like American History Tellers, History Daily, Tides of History, and more. Download the Wondry app today.