American Scandal - Lehman Brothers | The Reckoning | 4

Episode Date: February 3, 2026

After Lehman Brothers declares bankruptcy, U.S. Treasury Secretary Hank Paulson is thrust into a financial war, knowing every decision he makes could tip the nation even deeper into chaos. 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 7.10 a.m. on September 15, 2008 in New York City. Secretary of the Treasury, Hank Paulson, sits on his bed in the Waldorf Astoria Hotel and rubs his face. He's only slept a few hours. All night long, his mind has been replaying the weekend that's just gone by. The British Bank, Barclays, was ready to save Lehman Brothers. The most powerful CEOs of Wall Street came up with billions of dollars to support the deal, but then it all fell apart.

Paulson was left with the choice of either funding another Wall Street bailout with government money or letting Lehman fail. He made his choice, and in the early hours of this morning, Lehman Brothers went bust. Now, Paulson has to deal with the fallout. But as he starts to get ready, his cell phone rings. It's the White House switchboard. A few moments later, Paulson is connected directly to President George W. Bush. Morning, Hank. How are you doing?

Good morning, Mr. President. It's been a long weekend, but Lehman's bankruptcy is now official. They filed at 1.45 this morning. Yeah, I heard. How do you think the markets will react? Well, there's no precedent for a bankruptcy of this size, sir. But this isn't like Bear Stearns, at least. That came out of nowhere for a lot of people. They should be more prepared this time. The Asian and European markets are open, and they're only down slightly, so I'm cautiously optimistic, but I really wish it hadn't come to this, though.

We had a deal ready to go. We just didn't anticipate that the British would disrupt it so late in the negotiations. I'm sure you tried everything you could. Downing Street could have forced it over the line. But I spoke to Chancellor Darling, he wasn't interested, and that clearly came from the top over there. I don't know Prime Minister Brown so well. If Tony was still in charge, I would have called. He always had my back. Well, in the end, sir, we were just simply out of options. Yeah, I understand. But look, I'm not going to pretend I'm happy about this situation, Hank.

A lot of people might lose their shirts here, but you've made the right choice. You stood up for the free market, and we've sent a strong message that this administration is not in the business of bailouts. Well, thank you, Mr. President. I appreciate that. I think it is the right move. There's some good news, at least, about the sale of Merrill Lynch. The deal with Bank of America will secure its future, and that's a sign of underlying strength in the market. I think, one that will hopefully mitigate any panic.

Yeah, that's good news. But what's this I'm hearing about AIG? Are there going to be the next Lehman? I've got the Wall Street Journal right here in front of me, and it says they're seeking to raise cash. Paulson goes pale. Over the past few days, it has become clear that the insurance giant AIG is in danger of collapse, but he doesn't want to alarm the president, so he picks his words carefully. Well, AIG could be a problem, sir, but there are meetings planned at the Fed here today. I think this week Wall Street has really shown that it's willing to step up to the plate. It didn't work out with Lehman, sadly, but I'm confident that was a unique situation. So you think AIG will be okay? All right, glad to hear it. And you're back in Washington later?

I'll be there this morning, sir. All right, I'll speak to you then. Thanks for all your hard work, Hank. You're doing a great job. Hank Paulson sits down his phone and finishes getting ready. By this afternoon, he'll be in front of cameras in the press room of the White House. He'll have to defend his decision to let Lehman Brothers fail and try to convince the world that the American financial system is still stable, something Paulson isn't entirely sure he believes himself. 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 your 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.

When Lehman Brothers collapsed in September 2008, many people praised Treasury Secretary Hank Paulson's decision not to intervene and prop up the company with government money. Politicians and commentators said that Wall Street had to face the consequences of its own greed, but within hours of Lehman's bankruptcy, another potential disaster emerged. The world's largest insurance company, AIG, was running out of money. money. Saving the company days after abandoning Lehman would be a glaring contradiction for the U.S. government, but letting AIG go under would devastate the already fragile global economy. So as a new panic, gripped stock markets around the world, Hank Paulson had another brutal decision to make. This is episode four, The Reckoning. It's the afternoon of September 15th, 2008 in Washington, D.C. Treasury Secretary Hank Paulson is ushered through the hallways

of the White House by his chief of staff. They're headed toward the briefing room in the West Wing. Paulson's eyes are heavy from lack of sleep. He only arrived in D.C. this morning, but in a few minutes, he'll have to face the nation. As they walk, Paulson's chief of staff says that the reporters are sure to grill him, and it won't be easy. But this is also an opportunity to project strength and confidence to both the market

and the wider public. Paulson just has to handle it right. Cameras flash as Paulson enters the press room. dozens of reporters are here from every major news outlet around the world. Paulson steps up to the lectern and clears his throat, saying that he hopes everyone had an enjoyable weekend. A ripple of awkward laughter passes through the room. Then Paulson swallows and steadies himself.

He briefly explains that although this is a difficult period in the markets, Americans should keep faith in the resilience of the financial system. He praises the work of his officials and those at the Federal Reserve, and he reiterates that he is working with regulators in the United States and abroad to take all necessary steps to maintain stability. Then he invites questions from the journalists. The first comes from a reporter who asks whether or not the government will ever intervene and rescue other companies in the future.

Paulson answers smoothly. The Treasury's role is to ensure stability and order in the financial system. It will always take whatever action it decides is necessary to do that. But at the same time, the Treasury is aware it, has a responsibility to the American taxpayers who are ultimately paying the bills, and sometimes institutions must face the consequences of their own poor decisions. The reporter nods. It's an assured answer from Paulson, but the next question is less forgiving. Paulson has asked whether or not he accepts any personal blame for the situation.

As Treasury Secretary, he's in charge, but the economy only seems to be getting worse on his watch. In his answer, Paulson can't help getting defensive, leaning over the lectern and speaking faster. He says that he's playing the hand that was dealt to him. A lot of what he's trying to fix is the result of decisions made years ago. But then he thinks back to the advice from his chief of staff. Paulson takes a breath and reiterates that he's focused solely on the future. He can't change what happened in the past. Stabilizing the markets is what matters now. Yet as more questions come, Paulson's stomach tightens. He's on live television, reassuring the public that the economy is stable, but at the very same time, he knows the clock is ticking. He knows the clock is ticking. He's

at AIG, and he can't help but think about what must be happening on Wall Street. Because hundreds of miles away from the White House, inside the marble halls of the New York Federal Reserve, exhaustion hangs in the air, the fourth consecutive day of emergency meetings has begun. Over the weekend, the CEOs of America's most powerful banks nearly saved Lehman Brothers. Now, though, their focus has shifted to AIG, a colossal insurance firm that is hemorrhaging money at an alarming rate. The president of the New York Fed, Timothy Geithner, has delivered a familiar message to the executives. There will be no public bailout.

But the CEO's tempers are afraid, and they insist that AIG is not like Lehman. Its scale is vast. It has half a trillion dollars in insurance contracts that tie it to every major bank in the world. If it goes down, it could ignite a global crisis, one that could tear the financial system apart. But Geithner holds his ground. There won't be any taxpayer money for AI. The talks continue through the day and into the night again, and by 2 a.m., eyes are bloodshot, and patience is running out.

The CEOs rallied to save Lehman, only to watch that deal collapse, but AIG is simply too big. Private money won't be enough to save it, and in the end, even Geithner must admit to himself, Wall Street can't fix this on its own. He dismisses the meeting and urges everyone to go get some sleep, because there's nothing more they can do now. Lehman's bankruptcy has already caused the biggest one-day decline in the market since the terrorist attacks on 9-11.

But the crisis deepens as word of AIG's trouble spreads. The insurance company has only days, maybe even hours, before it follows Lehman into bankruptcy. So all around the world, stock prices tumble and markets seize up as financial institutions begin to hoard cash and stop lending to one another. As the global economy threatens to tumble into the abyss, Treasury Secretary Henry Paulson and Federal Reserve Chair Ben Bernanke request an urgent meeting with President George Bush. Paulson and Bernanke enter the Roosevelt room at the White House and sit across from the president and some of his staffers.

Bush sighs. Well, what's the latest, fellas? Paulson looks grave. AIG is about to fail, sir. Damn, how long do we have? Without intervention, perhaps only hours. The collapse will devastate almost every financial institution in the world. Bush shakes his head.

Can someone tell me how we got to the point where we can't let one institution fail without it affecting the whole economy? Paulson can't answer. Well, what is it you want to do? We're going to need the Fed to step in and provide them with a loan. And how much are we talking? $80 to $90 billion. Oh, you can't be serious. I'm afraid I am, sir.

$90 billion. Hank, yesterday you stood down the hall in the press room telling America we weren't in the business of bailing out Wall Street. I've got to say this sounds an awful lot like a bailout to me. Well, it would be a loan. I'm not sure many folk will make the distinction. We said we'd stand up against these guys. Now you want me to write them a $90 billion check. What happened to the free market?

To consequences? Sir, you know I wouldn't be suggesting this unless I thought it was necessary, unless I thought we had no other choice. But we let Lehman go for a reason, didn't we? AIG is different. Bush looks at Paulson and Bernanke for a long moment and then sighs. Well, I'm not happy about this, fellas.

But sometimes you have to make the tough decisions. If you think this has to be done, you have my blessing. Thank you, Mr. President. Bush stands to leave. But you know, Hank, someday you're going to need to tell me how we ended up with a system like this. We can't be doing something right if we're stuck with these miserable choices. After getting the go-ahead from President Bush, Hank Paulson and Ben Bernanke head straight to the Capitol building. They don't need congressional approval to loan money to AIG.

the Fed can deploy its funds without it. But they do want leaders on the Hill to back the decision. They fear that if the different branches of government appear divided, the markets will only panic even more. So at 6 p.m., on September 16th, Paulson and Bernanke meet with congressional leaders in the Senate Majority Leaders' Conference Room. They explain to members of Congress why government intervention is now necessary and the steps they intend to take to stabilize the markets.

The Federal Reserve Act contains an important emergency provision, allowing the Fed to lend money in what the legislation calls, unusual and exigent circumstances. This was the power Bernanke used to help Baris Stearns, and now he plans to use it to save AIG as well. The Fed will lend up to $85 billion to AIG, and as collateral, they'll take an almost 80% stake in the company. But before lawmakers can protest too much, Paulson and Bernanke insist that AIG will still be punished for its excessive risk-taking. As a condition of the loan, the CEO will be removed, and the Fed will impose a hefty 11.5% interest rate. Still, members of Congress can't quite believe what they're hearing. At least with the Bear Stearns deal, there was a private company taking on most of the risk.

The loan from the Fed just greased the wheels. With AIG, though, there is no buyer, and many in the conference room doubt the loan will ever be paid back. That means the government is effectively proposing to nationalize AIG, And that seems extraordinary for an administration that advocates small government and the rule of the free market, especially one that just let Lehman Brothers fail in similar circumstances. But Paulson defends the move. AIG is not like Lehman. It's the connective tissue of the global financial system, and they have to save it.

Still Paulson can tell that the lawmakers are far from convinced. So he shifts gears. He moves the conversation away from loans, securities, and money markets, and starts talking about the impact AIG's best. bankruptcy would have on everyday Americans. AIG is among the 10 most widely held stocks in 401 case. If the company goes bust, it's not just Wall Street fat cats who will suffer. Ordinary people will see their savings and retirement funds decimated.

That's a sobering thought for the members of Congress. Because if there's one thing they know about politics, is that it doesn't matter if elected representatives are blameless or not, the finger will still be pointed at them if people get poorer. By the time the meeting ends, Paul Simbush. believes he has at least the understanding of those in the room, if not their full backing. It's better than nothing. So that night, the deal is formalized and the U.S. government effectively takes control of AIG. But this is only the first step in slowing the financial crisis.

Early the next morning, two dozen exhausted staffers crowd into Paulson's office. Paulson is just as tired as they are. But he praises his team's work so far. Still, despite all they've done, the world economy stands on the brink of disaster, and the crisis is moving faster all the time. There were several months between Bear Stearns and Lehman, days between Lehman and AIG, and it could now just be hours until the next catastrophe. And it's not just Wall Street that are feeling the heat.

Paulson has just heard from the CEO of General Electric, one of the largest conglomerates in the world. It's in danger now, too. It's clear to Paulson that they have to quit firefighting. They have to stop trying to solve this crisis one failing bank at a time. What's needed is a systemic solution that will deal with tomorrow's problems and next weeks, not just today's. Looking around at the pale, hollow-eyed faces staring back at him,

Paulson says that they are in the financial equivalent of a war, and if they're going to win it, they're going to need special wartime powers. 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, 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 4, 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 Tour live on stage. go to American History Live.com. By the middle of September 2008,

it's clear that America and the world is in the midst of the biggest economic crisis since the Great Depression. After the fall of Lehman Brothers and the near collapse of AIG, even the largest investment banks on Wall Street are looking vulnerable. Shares in Morgan Stanley and Goldman Sachs are tumbling,

but it isn't just the banks that are in trouble. The contagion is spreading to the rest of the economy, too. The Dow Jones Industrial Average is an index of 30 of the country, country's most prominent companies. It's now down 23% below its level from the previous year, and boardrooms around the country are getting nervous. CNBC begins flashing stock prices across the screen like a grim scoreboard, part of what some call a death watch. The crisis that began in Wall Street's banks is now dragging the entire market down. And during the day on September 17th,

2008, Treasury Secretary Hank Paulson takes over 70 phone calls and meetings. He's asked his advisors at the Treasury and officials at the Federal Reserve to draw up a list of what new resources and powers they think they'll need. He's been gathering their responses all day, and his evening falls. Paulson's phone rings once again. It's Ben Bernanke, the chairman of the Fed. Burnanke is usually calm and analytical. He's a scholar of the Great Depression who used to be an economics professor at Stanford and Princeton. And when he was first considered for the job at the Fed, White House officials worried he didn't have the assertiveness required for the role. but now his voice is urgent.

Hang, I've been thinking about this, and you're going to have to go to Congress. I was worried you'd say that. There's nothing more you can do under your existing powers? After the bailout of Bear Stearns and AIG, Morgan Stanley looks vulnerable, and after them, it's going to be Goldman Sachs. We just can't keep doing this. We don't have the necessary resources for one, but I also just don't think it's fundamentally democratic.

The powers we're using under the Federal Reserve Act are meant for unusual and exigent circumstances. And I just don't think we can claim it's unusual if we keep doing it. Congress needs to step up and take charge. Well, look, Ben, I agree with you. But what if they say no? We can't let that happen. But in mind, you know what these people are like?

They're not economists, Ben. Half of them are damn lawyers. They probably would have blocked the AIG loan if they'd had the power. And where would we be then? Look, I understand that you guys don't want to feel like you're fighting this alone over there. But the worst outcome would be if I ask and Congress tells me no. We'll show the markets that we're vulnerable and we still won't. have the powers we need. I won't say, though, if we explain it properly. Well, Republicans are going

to hate it no matter what we say. And so will plenty of Democrats, but for totally opposite reasons. Well, that's probably true, but it doesn't mean they won't vote for it, though. You know the saying there are no atheists in foxholes? Well, I don't think there are any ideologues in a financial crisis either. I don't know. I still don't think it's a good idea. If the Treasury and the Fed say it's an emergency and we need to help, but the help doesn't come, it's going to further destabilize the markets. We can't go public until we're certain we're going to get. We're at what we're asking for. Hank, listen to me, we're done, right? We are out of time. The Fed has stretched its powers to the limit, and I don't want to sound like a broken record, but just look at

the Great Depression. Ben, I'm not one of your students. I know economic history. My point is that the lesson of these crises is clear. They are only resolved when every arm of the government comes together with nothing less than overwhelming force. We do not have a choice here, Hank. And neither do they. Once we explain that to Congress, they will not say, No. Ben Bernanke continues his lecture for almost 15 minutes straight. He is a quiet man suddenly burning with conviction. Hank Paulson can only listen as Bernanke talks about the lessons he's drawn from a century of economic collapses. But when the call finally ends, Paulson still hasn't said whether or not he's going to take Bernanke's advice. It takes him a sleepless night. But by the time the sun rises over Washington the following morning, he's decided, Bernanke is right. They have no choice. So early in the morning of September 18th, Paulson tells Bernanke that they're going to Congress. But before either of them can head to the hill, they must decide exactly what they're asking for. Paulson orders his top advisors to his office at the Treasury building.

Clutching spreadsheets, memos, and coffee, they gather chairs around a corner sofa. As Paulson takes his seat, they began to debate how much money they'll need and the best way of using it. One staffer points out that the banks just need capital. Normally, they could simply sell stock to raise whatever money they needed, but no one's buying shares in banks right now, so the Treasury should step in. It's the simplest way. But others in the room pushed back. The amount of shares they'd have to buy to recapitalize the banks would probably give the government a majority stake in all of them. It would effectively be a large-scale nationalization.

The government would then own and run some of America's biggest banks. The political and financial risks would be enormous, especially as there's a presidential election country. coming in just a few months. Questions over a decision like that could dominate the entire race. Paulson dislikes the idea of direct investment as well. He worries that if the government buys up shares, it will squeeze out whatever little private investment still exists out there. So in hoping to save the market, they might effectively kill it off entirely. So Paulson asked for a different approach. Another advisor points out that it's the mortgage-backed securities that have caused this crisis. They destroyed first Bear Stearns and then Lehman Brothers.

there the poison the government has to remove. So rather than buying shares in the banks, the government should just buy up the mortgage-backed securities and other toxic assets instead. This cash infusion will shore up their balance sheet and reduce their liabilities, and once the market knows the contagion is gone, confidence should return.

Paulson likes this idea more. It will avoid the controversial topic of nationalization, and it has a precedent in recent history as well. Less than 20 years ago, in 1989, Congress created a special corporation to buy distressed real estate assets following another financial crisis. It helped stabilize the market then, and the property was auctioned off at a later date, so it didn't even cost the taxpayer that much. But across the table, objections are quickly raised. Real estate is tangible. It's houses, lands, buildings. Even at rock-bottom prices, it's still worth something. These mortgage-backed securities are different.

The government wouldn't know how much to pay for them. Too little, and the banks would have, would be still left undercapitalized and vulnerable. Too much, and the taxpayer would be ripped off. Either way, it might still be a bad deal for the government because there's no guarantee those assets could ever be sold again. Voices rise and overlap, and the room grows tense. The debate shifts from the mechanics of the possible plans to the politics of them and then back again. Paulson listens quietly, his hands folded across his stomach. It's clear to him that every option has its flaws. Every available path opens them to a different political attack, but they can't just keep going around in circles. Even as they speak, global stock markets are falling.

More companies are getting into trouble. They simply cannot wait for a perfect solution. So Paulson straightens up in his chair. He tells the group that he's made his decision. They will move forward with a plan to buy up the mortgage-backed securities. Now they must work out how much money they need from Congress. Staffers exchange uneasy looks. months ago, they estimated the value of toxic assets in the market at $500 billion.

That figure seemed astronomical back then, but now, with everything that's happened with Lehman Brothers, it doesn't seem nearly enough. Eventually, a staffer clears his throat and says there is potentially a trillion dollars worth of toxic assets out there. That's how much money they might need. The words hang in the air. A trillion dollars is more than a third of last year's entire federal budget. Paulson's chest tightens.

He knows that asking Congress to hand the Treasury that kind of money could be explosive, and it still might not work. Around the table, he can see similar thoughts, flitting across the anxious faces of his staff. Then Paulson takes a deep breath and nods once, slowly and decisively. By nightfall, Hank Paulson will be marching toward Capitol Hill. He doesn't have an elegant, perfectly formed solution to present to Congress. All he does have is a trillion-dollar roll of the dice, and there will be no winners if his gamble doesn't work out.

It's September 18, 2008, Treasury Secretary Hank Paulson and Federal Reserve Chair Ben Bernanke are preparing to go to Congress. But before they head to Capitol Hill with their trillion-dollar request, they briefed President George W. Bush at the White House. Just two days ago, they were here to deliver the news that the Fed would be loaning up to $90 billion for the insurance firm AIG. That amount seems shocking at the time, but it's just a fraction of what they're going to ask Congress for today.

President Bush listens quietly as Paulson and Bernanke lay out their reasoning. The Fed has used every authority it has. The Treasury must act now, but it needs the approval of Congress first. When they're finished, Paulson and Bernanke wait anxiously for Bush's reaction. The president is a conservative Republican, and many of his colleagues in the Senate and the House have already spoken out against the previous federal bailouts. But then Bush slowly nods and says he'll give his support. They're the experts, not him.

And if they think this is what it will take to stabilize the markets, then they have his backing. Paulson smiles, and for a moment he feels a rare rush of relief. But then President Bush points out that his support may not count for much. He only has a few months left in office, and he's not exactly popular. Besides, it's Congress they need to convince today, and that's controlled by the Democrats. So that night at 7 p.m., Paulson and Bernanke head to Capitol Hill with a tough task ahead of them. House Speaker Nancy Pelosi's conference room is filled with leaders from both parties. Paulson stands at the head of a long table with Bernanke beside him.

They get right to it. Paulson says that the Treasury needs authorization from Congress to spend hundreds of billions of dollars buying up Wall Street's toxic assets. Congressman in the corner scoffs, arguing that that sounds like a plan designed to help Wall Street, not Main Street. Americans struggling to pay their mortgages or losing their jobs aren't going to benefit. In fact, this will just reward the people who caused the mess in the first place. Paulson hesitates because he has some sympathy with the congressman's views. But before he can say anything, Ben Bernanke chimes in.

Bernanke argues strongly that this is a plan for Main Street. If Congress doesn't act now, the consequences will be devastating. Corporations, large and small, will go under. The stock market will drop another 20 percent and millions of jobs will be lost. The room grows quiet as the members of Congress thinking, about what those numbers mean. Finally, another congressman breaks the silence. He asks, what will happen if they say no? Paulson pauses, then answers quietly. In that case, God help us all. The meeting lasts 90 minutes, and by the end of it, most of the politicians in the room are agreed.

They will help the Treasury get what it wants. A press conference is quickly arranged in the halls of Congress. Flanked by Nancy Pelosi and other leaders and surrounded by the press, Paulson makes a brief statement about what they've discussed and says they have a comprehensive plan aimed right at the heart of this problem. The following morning, Paulson issues a statement officially announcing the initiative, which he calls the troubled asset relief program, or TARP for short. The announcement triggers an immediate Wall Street rally. And in Washington, initial reactions are cautiously supportive on both sides of the aisle. Everyone in Congress wants the financial crisis to be resolved as quickly as possible,

But once lawmakers see TARP's price tag, support for the program fractures, Democrats control both the House and the Senate, but some of them despise the principle behind helping out Wall Street with public funds. At the same time, Republican lawmakers believe the scale of the proposed government intervention is absurd. In whatever party they represent, members of Congress all receive thousands of letters, emails and phone calls, urging them to oppose what many people call a bailout for the banks. And when it comes up to a vote on September 29, 2008, Hank Paulson's worst fears are realized. Congress fails to approve the TARP legislation by a margin of 23 votes.

In response, the markets immediately tank. The Dow Jones plunges over 700 points at the largest drop in its history, while the NASDAQ falls by almost 10%. There's panic in Washington as party leaders, government officials, and industry figures lobby members of Congress to change their vote. The existing TARP Act is rapidly revised to address concerns, and the Treasury's authority has changed to allow them to buy not only mortgage-backed securities but any other financial instrument as well.

Finally, after three days of frantic talks, the legislation to authorize TARP returns to the floor of Congress, and this time it passes. This new law gives the Treasury the authority to buy up to $700 billion in troubled assets from banks. It's far less than the internal Treasury estimate, of mortgage-backed securities on the market, but Paulson hopes it will be enough to reverse the world economy's downward spiral.

Speaking to the press on the steps of the Treasury Department, he calls the legislation a vote to protect the American people and pledges to get TARP up and running as quickly as possible. But despite Paulson's optimism, the program soon runs into trouble. Buying the bank's toxic assets proves just as complicated as the skeptics and the Treasury Department feared. Faster solution is needed, so Paulson abandons his original plan and opts to loan the money directly to the banks instead.

As the money is distributed, the stock market starts to stabilize. The volatile swings and share price that have been the hallmark of this crisis begin to disappear, but that does not diminish the public's anger. The federal government is spending billions to prevent the financial system from collapsing, but many Americans want to understand how it's come to this, and they want someone to blame. Since the bailouts, former Lehman brother's CEO Dick Fold has spent weeks drifting through his Greenwich home. Sometimes he goes into the empty office on Times Square. Sometimes he takes calls from former employees.

Many of his old colleagues are now angry and grieving. Fold himself swings between those two emotions. Even in public, he struggles to contain his bitterness over what happened to Lehman. And now that he's no longer the gorilla of Wall Street, Foll has had to economize. In August 2009, he and his wife Kathleen put their New York City home on the market. It's a stunning 16-room penthouse on Park Avenue. They bought it just before the crisis started for $21 million, but now they're having to sell it for millions below their asking price.

As movers streamed through the empty rooms with boxes and furniture, Fault looks out the panoramic window, down at the city streets below. He hears the footsteps of his wife behind him. That's bittersweet, huh? She walks over and joins him by the window. Well, at least we'll make some profit off of it. I should have gone for closer to asking. They're getting a bargain from us, and you know I hate that.

Yeah, but... But what? I hear the real estate market's really bad now. Foll gives a pain, smile. Well, at least we could have listed it publicly. And have every busy buddy in the country looking at our home? No, thank you. The lawyers were right.

It was better to keep it discreet. I don't know. I just hate having to hide like this, though. Even my old employees think I screw them over. Oh, come on. Lehman's in the past now. You have to let it go, just like this place. I won't ever forgive them, you know, Paulson and Bernanke.

I know. She loops her arm around his and leads him away from the window. Come on. Let's let the movers do their work. Dick Fold is far from struggling. As they turn off the lights and close the door on their Manhattan home, he and his wife have a choice of where to go next. They own property in Connecticut, Vermont, Florida, and Idaho,

and they have millions of dollars in the bank. But Dick Fould still feels mistreated, though. He blames men like Hank Paulson for saving everyone except Lehman. As a result of the 2008 financial crisis, 89 banks and nearly 1900 hedge funds collapsed in the United States. Giant corporations like General Motors, Chrysler, and nearly 150 other public companies filed for bankruptcy, and a similar situation played out in economies all around the world.

It was ordinary people who suffered the, most, though. In the United States, 8.8 million jobs were lost, and unemployment surged to almost 10 percent. Retirement accounts were gutted. Property values crashed, and nearly six million families lost their homes to foreclosure. A troubled asset recovery program was just the first step in turning the economy around. Under the administration of President Barack Obama, a huge $800 billion fiscal stimulus bill was quickly passed by Congress, and by the second quarter of 2009, the recovery was underway. But the crisis spurred a national debate about the nature of capitalism and the role of the government in managing free markets. To this day, a small

minority still argues that the Bush administration should have allowed Wall Street to purge itself, that Lehman Brothers should have been followed into bankruptcy by AIG, Morgan Stanley, and all the rest. The broader consensus, though, is that this approach would have been even more painful. As it was, the government acted too slowly and did too little, and the resulting recession was far longer and deeper than it could have been as a result. Now, as the global financial crisis recedes into history, some question whether any lessons have been learned, whether Wall Street and the men and women who move the world's money have really changed their ways since 2008. The names may be different. Dick Fold and Hank Paulson are now both in their late 70s, and when the next financial

crisis hits, they won't be in charge and they won't be getting the blame. But whatever happens, they are still very rich men, and they will not be the ones paying the price. From Wonder E, this is episode four of our series on Lehman Brothers for American Scanning. In our next episode, I speak with Stanford Business Professor Anat Admati about the roots of the financial crisis, how it could have been prevented, and the consequences we're still dealing with today. If you'd like to learn more about Lehman Brothers, we recommend the book Too Big to Fail by Andrew Ross Sorkin, a colossal failure of common sense by Lawrence G. McDonald and

Patrick Robinson and The 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 Shazib, sound designed by Gabriel Gould, music by Thrung. This episode is written in research by Olivia Thomas, fact-checking by Alyssa Jung Perry, managing producer Emily Burr, development by Stephanie Jen. Senior producer Andy Beckerman.

Executive producers are William Simpson for airship, and Jenny Lara Beckman and Marshall Louie for Wonderry. Wondry Plus subscribers can binge American Scandal early and ad-free right now. Join Wondery Plus in the Wondry app or on Apple Podcasts. If you enjoy American Scandal, be sure to give us a five-star rating and leave a review. I read every one of them. I also have two other Wondery podcasts you might like,

American History Tellers and Business Movers. Follow American Scandal on the Wondry app. Amazon Music, or wherever you get your podcasts. You can binge all episodes of American Scandal, early and ad-free right now by joining Wondry Plus in the Wondry app or on Apple Podcasts. And before you go, tell us about yourself by completing a short survey at Wondry.com slash survey. And to find out more about me, including my other podcasts, go to not thatlindsaygram.com.

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