American Scandal - Lehman Brothers | The Wolf at The Door | 3

Episode Date: January 27, 2026

As Lehman Brothers teeters on the edge of bankruptcy, Treasury Secretary Hank Paulson summons Wall Street’s most powerful figures for one fateful weekend—their last chance to save Lehman and prevent the collapse of the global financial system.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 early August 2008 at Lehman Brothers headquarters in New York City. Dick Foll, the Investment Bank's 62-year-old CEO, paces back and forth in this office. He can't stop looking at the door, because in a conference room just down the hall, His team is negotiating a deal with a Korea Development Bank, one that could save Lehman. But Fold isn't part of the talks. Lehman's team has convinced him he'll do more good outside the room.

It's a classic negotiating technique. By claiming to need the CEO's approval, the Lehman team thinks they'll be able to push for better terms. But Fold is getting nervous. He hates not knowing what's happening and wonders if the negotiators are rushing the deal or getting the right price. Foll has been at Lehman for four decades and led it as CEO for almost 15 years, so it seems to him ridiculous that he'll have no say in his fate. Finally, he decides he can't take it any longer. He leaves his office and marches down the hall.

Everyone stares startled as Foll bursts in. Oh, please, no one get up. Mr. Sung, good to see you. Fold passes Lehman's stunned negotiators to shake hands with Min-Yus-sung, who sits flanked by his lawyers and advisors. Oh, we were not expecting you, Mr. Fult. I don't mean to interrupt, I'm sorry. I just wanted to see how things were going. Find out what you're doing to my company.

Foll grins trying to pretend it's a joke. He then takes a seat at the head of the table between the two negotiating teams. So what's the latest? Well, I think you'll be pleased, Mr. Foll. Today I received authorization from the Korean regulators to make an initial offer for Lehman. Well, I've heard you're interested in a controlling stake in Lehman, but only if we spin off our real estate assets. Is that right?

That is correct. We're prepared to pay 25% over book value, and we're valuing Lehman somewhere between $20 and $25 a share, a considerable premium over your current share price of $15.50. Your team has driven a hard bargain. Sung directs a respectful nod across the table, but Foll leans forward. Well, that's too low. Your team has agreed to this.

Well, they didn't check with me. It's too cheap. Sung blinks in confusion. Mr. Foll? And another thing, you're making a big mistake. asking us to spin off the real estate. Those assets are undervalued. There are a tremendous opportunity here.

We don't want any part of your commercial and real estate assets. I made that perfectly clear to your team from the start. Well, you should reconsider. Sung straightens up. Unable to hide his irritation any longer. We have negotiated in good faith. Now, you want to rip up our deal? Hey, all right, all right, there's no need to get upset.

Sung looks across the table at the Lehman negotiating team, and their faces are pale. Gentlemen, I'd like to thank you, but I believe our discussions are over. Sung turns to his colleagues and issues a sharp command in Korean. They all get to their feet as Fold Scows. Now, where are you going? We're leaving, Mr. Foll. Well, maybe we can look at 1.4 times book value.

This is not about 1.25 versus 1.4. It's about how you do business. And that is not how we do business. Goodbye. Silence settles over the table as the men file out. Fold throws his hands up in frustration and calls out after them. What? That's it? You're just going back to Korea? No, come back. But the Korean businessman don't come back. As the door closes behind them,

the Lehman negotiating team erupts in anger towards Fold. This was a $5 billion offer that could have saved the firm from collapse, and now it seems dead. When the news leaks, Lehman Brothers' stock plunges 45% and all across Wall Street, investors panic because it's not just, just about Lehman. It's every investment bank. They can all feel it. Time is running out for everyone. 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. Like many other firms on Wall Street, in the early 2000s, Lehman Brothers bet big on real estate. It sank billions of dollars into mortgage-backed securities and other complex debt-based products. But then in 2008, the property market turned. Investment bank Bear Stearns was the first to collapse, and soon Wall Street was asking if Lehman would be next. The company's CEO, Dick Fold, launched a desperate campaign to prove that Lehman was different, but the rot at the heart of its balance sheet could not be concealed forever.

In early September 2008, the firm reported a staggering $3.9 billion loss. Lehman was tumbling toward bankruptcy. Fould clung to the hope that the company would be rescued by the authorities, but there was little appetite either at the White House or among the public for a bailout. As far as the government was concerned, it was time for Wall Street to clean up its own mess. This is episode 3, The Wolf at the Door. It's Thursday, September 11th, 2008, at the Treasury Department. in Washington, D.C.

In a corner office, Treasury Secretary Hank Paulson sits with Federal Reserve Chair Ben Bernanke. The blinds are half-drawn and the last streaks of afternoon sunlight angled down on a conference table covered with papers and reports. Only moments ago, the president of the New York Fed called with grim news.

A bank run is underway on Lehman Brothers. The company's stock price already fell by 42% yesterday, and it's dropping even further today as investors desperately try to unload their shares. Bernanke spent most of his career as an economics professor at Stanford and Princeton universities. He specializes in the history of the Great Depression, and as he considers the news coming out of Wall Street, it all sounds worryingly familiar. Bernanke puts down another gloomy report and turns to Secretary Paulson.

We're going to have to bail him out, Hank. No. Their liquidity is almost non-existent. There's no other option. There has to be another option. intervened with Bear Stearns, and if we bail out every reckless firm on Wall Street, they'll expect us to save them every time. They'll become more irresponsible. So what? You just want to let Lehman fail? Because that's what we're talking about here? Paulson is silent for a moment. Well, what if we did? What's the

worst case scenario? An economic catastrophe. But how do you know that? Because it's what happened in the Great Depression, Hank. The collapse of the banks deepened the crisis and made recovery even harder. But don't we risk simply rewarding bad behavior? I get that the moral hazard is a potential consequence, and I don't want to be handing these people money. But that's not the biggest danger right now. Paulson is silent. Bernanke shakes his head. Is this really the main reason you want to avoid government intervention? Yes, what else is there? Optics? Oh, don't be ridiculous. I don't know. Maybe you don't want to be the ex- Wall Street guy bailing out Wall Street. I don't care about my reputation. Can't you see,

It's not just about this crisis, it's about the next one. Hank, this is not a teaching moment. Let's put out the fire first before we tell the children to stop playing with matches. I cannot emphasize this enough. Paulson stares down at the papers on the table between them. I still think there could be a private sector solution to this. Oh, Hank, there's always interest in an asset at the right price. I can guarantee that.

We'd still need to provide billions in financing. No one's going to want to touch the mortgage-backed securities. All right, sure, but what if that money doesn't come from the government? Oh, what do you mean? We form a consortium. We collect a pool of capital from Wall Street's biggest banks and use that to buy up Lehman's toxic assets and grease the wheels. You want to ask Wall Street's most powerful figures to shell out their own money to help a rival?

Have you met these guys? I am one of those guys, but think about it. Those CEOs all have skin in the game. You said it yourself. If Lehman fails, it'll be a catastrophe. We wouldn't be asking them for charity. We'd be giving them the chance to save themselves. While Hank Paulson and Ben Bernanke planned their rescue mission,

300 miles away at Lehman Brothers headquarters in New York City, the mood is grim. Employees with company stock are watching their net worth evaporate in real time. Almost everyone is convinced that come Monday, they'll all be unemployed. But while morale collapses on the lower floors, up on the executive level, Lehman's CEO Dick Folds still believes he can save his firm. If a buyer can be found, the government will surely help. After all, Washington stepped in to facilitate J.P. Morgan's purchase at Bear Stearns earlier in the year. So when push comes to shove, Folle expects they'll do the same for Lehman Brothers.

The company already has two potential buyers who are examining the accounts, Bank of America and the British firm Barclays. Fold tries to reach out directly to the leaders of both, but he can't get through to Bank of America's CEO Ken Lewis. He does manage to get a hold of Bucle. Bob Diamond, the American CEO of Barclays Capital. Fould knows Barclays has been after a foothold in investment banking on Wall Street for a long time. So now, Fault hints to Diamond that this could be the time to grab a bargain. The two men agreed to meet privately. Diamond suggests the racket and tennis club, a discreet, members-only establishment on Park Avenue.

But Fault says he can't leave the office. The press have camped outside for days, and he can't risk being photographed on his way out of the building. So instead, Fult offers to send a car to pick Diamond up and bring him directly to Lehman headquarters. He says the security team will then be able to meet Diamond and sprint him in through the back. Diamond accepts, and after a short drive and a clandestine trip in a freight elevator, the two businessmen are sitting across from each other in Fould's office. Both are tired. With everything that's going on, Folld is hardly sleeping,

while Diamond only arrived in New York from London late the night before. Still, this is too important to let exorkewarm. exhaustion get in the way, so Fold offers coffee for both of them, and they get to it. Neither thinks it'll be an easy deal to do. Diamond makes it clear that Barclays is only interested in Lehman if the terms are favorable. The price will have to be low. They don't want the company's toxic real estate assets, and it will all have to be agreed to before the market's open on Monday morning. Fold swallows, and the knot builds in the back of his throat.

For months, he's fought to stay strong, to not appear weak in front of anyone. But now he realizes that by Monday, Lehman Brothers won't be his anymore. Either it'll be saved by another company like Barclays or Bank of America, in which case he'll have to step aside as CEO, or it'll just collapse. Fault has been at Lehman for nearly 40 years. In one way or another, these are his final days at the firm. Across the table, Diamond can sense the emotional toll that the situation is taking on Fold. So gently, he says that he can tell Fold is a good man.

he clearly just wants the best for Lehman Brothers, and that's admirable. Fold appreciates him saying that. Still, the face-to-face talks between the two men end in conclusively. Diamond is eager to join his team who are in a law office a few blocks away, digging into Lehman's numbers. Promising Fold, he'll be in touch soon, he sneaks out of the building the same way he came. Fold can only hope the Barclays team works quickly. In the meantime, he'll try to get in touch with Bank of America again.

But while Fold pushes for a deal, deal from his end. Across town, Treasury Secretary Hank Paulson's rescue mission is already underway. Paulson has elicited the help of Timothy Geithner, the president of the Federal Reserve Bank of New York. Together they work the phones, asking some of the biggest rivals, enemies, and egos in New York to come together and pool their resources to save Lehman. As expected, they encounter pushback. But their message to the executives is simple. If Lehman Brothers collapses, everyone on Wall Street will suffer. So as nightfalls over lower Manhattan, a stream of executives heads to the Federal Reserve Building on Liberty Street. It's a procession of representatives from the most powerful institutions in finance, Goldman Sachs, Credit Suisse, Deutsche Bank, Citig, Citigroup, Merrill Lynch, and Morgan Stanley.

They all meet in the conference room on the south corner of the building, where Hank Paulson stands at the head of a table. Once everyone's taken their seats, he clears his throat and gets straight to it. There are two potential bidders for Lehman Brothers. While these companies go unnamed, the CEOs scan the room and notice that both Barclays and Bank of America are absent from the meeting. It doesn't take a genius to work out why. Paulson then explains there is a pool of toxic assets on Lehman's books that the buyers won't touch. The group sitting around the table needs to figure out what to do with them. It makes clear that there will be no government money for the Lehman deal.

Wall Street is going to have to finance this themselves. There are scoffs and murmurs around the room. Many of the executives have no interest in helping out either Bank of America or Barclays. Bank of America's CEO Ken Lewis has publicly disparaged some of their firms in the past, and Barclays is a foreign institution that's been trying to break into Wall Street and steal their business for years. But Paulson tries to emphasize that helping out a competitor will be much less unpleasant than letting Lehman fail, but he can already tell that the meeting is in danger of falling into a shouting match. Trying to maintain order, New York Fed President Geithner instructs the CEOs to break into three working groups.

One will try to put a price on Lehman's toxic assets. The second group will design a structure for the shared investment pool, and the third group will prepare for the worst, the lights out scenario. If Lehman is forced to file for bankruptcy, they need a plan to contain the damage. Paulson then closes out the meeting by commanding the CEOs to work with their teams through the night, if need be. they are to gather again the following morning at 9 a.m. sharp. As the stunned CEO shuffle from the conference room, Paulson glances out the window. It's a bustling Friday night in the city that never sleeps.

People pass by on their way to restaurants and bars. Paulson thinks about how blissfully unaware they must be about what's unfolding a matter of yards away. They can't know that within the walls of the New York Fed are some of the most rich and powerful people in the country. Right now, they hold the fate of the entire global financials. system in their hands. 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 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. It's early on September 13th, 2008, when the Wall Street CEOs reconvene at the New York Fed. Some bring coffee, others donuts. They know it's going to be another long day. But not much has just been.

changed overnight. Both Bank of America and Barclays have told the federal authorities that they are still interested in buying Lehman Brothers. They have teams on standby ready to sign an agreement, but neither company is willing to take on Lehman's toxic assets, and the government is standing firm there will be no federal bailouts to facilitate the deal. So it all depends on the Wall Street executives meeting this morning. But in their discussions at the Fed, they again make little progress. The team examining Lehman's bad assets is having an especially hard time. They can't come to a conclusion about what the assets are worth. The executives are not specialists in analyzing balance sheets,

and they don't even have their computers with them. So by lunchtime, the mood is tense. Out of earshot of federal officials, the bankers gathered around the buffet, mock Hank Paulson's voice and Tim Geithner's motivational mantras like, work harder, get smarter. But behind the jokes, everyone's anxiety is growing. The longer the talks go on without a breakthrough,

the more they all worry that everything will collapse. It's at this point that the CEO of Merrill Lynch, John Thane, slips out of the Fed building in a quiet panic. Merrill shares have fallen over 60% over the past year, and while Thane was locked away with the other executives yesterday, the company's stock tanked again. Because now that Lehman is circling the drain, it looks like traders are coming for Merrill next.

Thane can't entirely blame them. His firm has the same disease as Lehman. Only a few months ago, it sold off more than $30 billion of toxic mortgages at a huge loss, just $0.22 on the dollar. But even after dumping all these assets, Merrill's balance sheet is still riddled with bad debt. So if Thane's company wants to avoid the same fate as Lehman and Bear Stearns, he needs to do something quickly. So after leaving the Fed building on Saturday evening,

he calls Bank of America's CEO Ken Lewis. Lewis is at his home in North Carolina, where he's been ducking calls from Dick Fold all day. But when John Thane calls, he picks up right away. And when he hears what Thane has to say, Lewis promises to be on the next flight back to New York. Only a few hours later, John Thane is heading to Bank of America's corporate penthouse

at one central park. Thane waits for a tense moment outside a corporate apartment until Lewis opens the door. Ah, good to see it, John. Come on in. Thane steps inside. The luxury apartment is austere and characterless, with bare-gray walls and anonymous furniture. It looks like Thane feels, but he's here on a mission.

Well, Ken, thanks for getting to New York so fast. Well, you know how much I respect, Merrill. I want something to drink. You look like you could do with one. No, no, I'm fine, thanks. Well, take a seat. Well, Ken, I'm here because I know you're in talks to buy Lehman. but I want you to forget about that.

I'd like you to explore whether you'd have interest in buying a stake in Merrill instead. I see. I've been looking at Lehman's books all day, and it's just garbage from top to bottom. Well, Merrill has problem assets, too, I believe. That's true, we do. I mean, who doesn't at this stage? But we've also done more than any other bank to purge them. Then why are you so eager to raise capital?

Because I'm a realist. And I know if Lehman goes down, the sharks will come sniffing around Merrill next. But with Bank of America's muscle behind us, With the liquidity you can provide, they'll move on. Lewis says nothing, so Thane leans forward across the table. We employ 16,000 retail brokers. That's 16,000 direct lines to everyday individual investors, a network no other Wall Street firm can match.

Think about how impactful that could be for Bank of America. Well, you know, I've had Dick Fault calling me all day. I've six, seven times. Lehman could be undervalued. Oh, he's desperate. Trust me, you don't want anything to do with them, even at fire sale prices. I've always been interested in Merrill, but you have to understand.

Given the state of the street, the state of Merrill, I'd only be interested in buying 100%. Well, that's not on the table. I'm talking about a small stake to raise market confidence, provide liquidity. Well, I'm not interested in that. Okay, well, maybe we hone in on an exact number. I was thinking around 10%, but we can discuss. John, listen to me. I want to make this clear.

As far as I'm concerned, it's a merger or it's nothing. reluctantly, John Thane agrees to explore the full sale of Merrill Lynch to Bank of America. He and Ken Lewis spend the next half hour discussing strategy. Then Thane heads back to the New York Fed to break the news to Treasury Secretary Hank Paulson. He's dreading Paulson's reaction. Bank of America is one of Lehman Brothers' potential lifeboats, and Merrill Lynch is about to steal it. But to Thane's surprise, Secretary Paulson is thrilled by the news. He is increasingly hopeful that Barclays will step up to buy Lein's.

Lehman, and now Merrill will be safe, too. Paulson's bold plan for a private solution to save Wall Street from itself seems to be coming together at the last moment. The next morning, at around 8 a.m., the exhausted Wall Street CEOs filed back into the New York Fed Building for a third straight day of talks. If no solution emerges before markets open on Monday, only 24 hours away, Lehman Brothers will collapse. Luckily, there's a reason to hope. Barclays is now officially ready to buy Lehman. A term sheet outlining the deal says it would cost Barclays around $3.5 billion to pick up the viable parts of Lehman Brothers business. But to make it happen, the other Wall Street banks must come up with $33 billion to deal with Lehman's toxic assets.

When it's laid out like that, the CEOs initially balk. They still don't want to help out a rival, and especially not a foreign one. But the gravity of the crisis means that one by one, they all eventually sign up. And when their contributions are added together, they are within reach of the $33 billion needed. Hank Paulson is thrilled. He can almost taste victory. But then there's a knock at the door on the conference room, and New York Fed Chair Timothy Geithner quietly asked Paulson to come to his office. Once there alone, Geithner's face immediately drains of color. He tells Paulson they have a big problem. He just got off a call with the chairman of the UK's Financial Services Authority. They're the British Bank.

bank regulators, and they've refused to approve the deal. They claim Barclays would be taking on too much risk. The UK financial system is just as fragile as the American one. The bank run has already taken down Northern Rock, one of Britain's major lenders, and the regulator doesn't want to import any more trouble from across the Atlantic. Paulson reels at this unexpected setback, but he's still sure a solution can be found. He'll phone London and talk to his British counterpart, the Chancellor of the Exchequer, Alistair Darling. That's when Geithner tells him there's more bad news. It's not just the Financial Services Authority standing in the way. British law requires a shareholder vote before Barclays can finalize the purchase of Lehman Brothers,

and that process could take up to 60 days. Paulson doesn't have 60 hours, let alone 60 days. He feels like screaming. He can't believe these issues are only being mentioned now, right before the deal is meant to close. Still, he knows they can't give up. Through the rest of the morning, he and Geithner scramble to save the agreement. Geithner deals with the British FSA and Barclays. Paulson calls Alistair Darling. The two finance ministers don't know each other well, but they've spoken enough in recent months

as the financial crisis has grown. So now Paulson pleads with Darling for the UK government to intervene. They can overrule the FSA, waive the requirement for a shareholder vote, and force the Barclays deal through. But Darling is clearly reluctant. He doesn't believe that Barclays

can possibly have had enough time to examine Lehman's books properly. There could still be nasty surprises hidden in there, and if that destabilizes Barclays in the future, ultimately it will be the British taxpayer picking up the bill. Politely, Darling points out that Paulson is asking him to take on a significant risk, while at the same time, trumpeting his own governments on willingness to do the same. The call ends soon after this, and Paulson can't quite believe it.

He turns to Geithner and tells him the British won't play ball. The deal with Barclays is now, impottenham. And with Bank of America nearing agreement on a multi-billion-dollar deal to buy Merrill Lynch, Lehman is out of options. Its last remaining lifeboat just sank. Paulson and Geithner returned to the conference room. There are smiles and laughter around the table. The Wall Street CEOs are basking in a sense of camaraderie and relief.

After hours of often bitter talks, they've just successfully pulled together $33 billion to save Lehman brothers. The Paulson and Geithner's bleak expressions quickly sour the mood. When Paulson explains what's just happened, the CEOs explode in protest. They have the money now. There must be a way to salvage the deal. But Paulson insists they've done all they can't. Bank of America no longer wants to do a deal for Lehman, and Barclays can't. There's bewilderment on the faces around the room.

Surely the federal authorities will have to step in, but Hank Paulson repeats what he said at the beginning. The U.S. government will not be right. to the rescue. Without a private buyer, the only remaining solution will be to nationalize Lehman, and that's not happening. So all their work has been for nothing. Secretary Paulson's plan is in tatters, and Lehman Brothers will be bankrupt by morning. It's the afternoon of September 14th, 2008 in New York City. It's a historic day in the world's leading financial center. Earlier this morning, Wall Street executives put aside their differences and raised tens of billions of dollars to rescue a rival

from complete destruction. But the deal to save Lehman Brothers has now fallen apart at the last moment. As exhausted bankers, lawyers, and government officials quietly tried to prepare their companies and the markets for the fallout, a trio of Lehman's top executives are called into the Federal Reserve Bank in lower Manhattan. They're still expecting to hear confirmation that the deal with Barclays has been signed. Instead, Treasury Secretary Hank Paulson gives them the shocking news that the agreement has collapsed entirely. Now it's up to these men to relay that information to Lehman's CEO, Dick Fould. The executives pile into a car for the five-mile journey back to the company's headquarters in Times Square. As they drive up Westside Highway, they're silent for a few minutes.

Each of them just stares out the window at the passing buildings and cars consumed with disappointment and doubt. Then one of them sighs takes out his cell phone and dials. Dick Folle picks up almost immediately. Yeah, what's the news? Where are you? Where are you driving? Yeah, we're on our way back. Already? What is it? Is it done? Why didn't you call? I'm going crazy here. Well, Dick, you got to sit down. Why? What's happened? Got bad news. Horrible news, actually. It's not happening. Not happening. What the hell do you mean not happening? Supposedly, the FSA turned the deal down. The UK government won't allow Barclays to do the deal.

The UK what? When did this happen? Just this morning. Chancellor Darling isn't happy about taking on the risk. I don't know. What risk? They're getting a bargain. Well, I think after what happened to Northern Rock, they've just become ultra-cautious. So what? What's it really got to do with him? Jesus. Have you spoken to Bob Diamond? Anyone else at Barclays? No, no, we've literally just heard this ourselves, Dick. Oh, my God. Oh, my God. Barclays is a private company. Do they need Darling's permission to take a leak as well? What kind of cowards are they? Dick, look, we'll be back in 15 minutes. We'll talk next steps then.

No, no, I'm going to call Hank. I can fix this. Well, he's the one who told us, Dick. He said it's over. Nobody's saving us. You understand? The men in the car wait for a characteristic meltdown from Dick Fold. But what they hear on the line is even more disturbing than screaming and cursing. Only complete silence. Fold is at a loss for words. They drive on through the Manhattan traffic, and although it's a Sunday afternoon, financial firms across the city are a hive of activity. An investment bank as big as Lehman Brothers has never collapsed like this before. No one really knows, what the consequences will be. So to try and soften the blow, the authorities have allowed an emergency two-hour trading session, giving banks a chance to unwind their dealings with Lehman and protect themselves as best they can before the bankruptcy goes through. But while other traders

desperately tried to cut their ties with the failing bank, at Lehman headquarters, the company's employees watch with mounting anxiety. As panic spreads through the building, there are more desperate attempts to rescue the firm. The head of Lehman's investment management unit, is a second cousin of President George W. Bush. He gets several calls from his colleagues begging him to reach out to the president and fix this somehow. He's hesitant to make the call,

but under pressure, he caves and ends up leaving a voicemail with the White House switchboard. It goes unanswered. So by the time the sun sets in Manhattan, the lights are still blazing at Lehman headquarters, but hopes of a miraculous rescue have faded. On the executive floor,

the board of directors gathers to confirm the bankruptcy. There's bitterness and anger that it's come to this. They feel pushed into the decision by the government, but they have no choice. Lehman is out of money and out of time. So finally, at near midnight, the resolution is put to a vote and passes unanimously. The company's lawyers then get to work,

and a few hours later, at 1.45 a.m. on September 15th, Lehman Brothers, officially files for bankruptcy. When the bank's employees arrive for work a few hours later, the world's press is waiting for them. Gusty winds blow through the city, remnants of a recent hurricane that struck the United States. But in New York, it feels like the storm has barely begun. Even now, hours after the bankruptcy filing, Dick Fold refuses to believe that it's truly over. He paces the floor of his office, clutching his phone, insisting there must be something he can do,

some way he can reverse the decision. He calls the president of the Federal Reserve Bank of New York, Timothy Geithner. And when Geithner answers, Fold's voice trembles with Dickens. desperation. He pleads Gaitner to undo the bankruptcy filing. There must be another path. Geithner can't believe what he's hearing. He tells Fould that the company has already gone, but Fould keeps pressing, arguing there could still be deals to be made. Finally, Gaitner's tone hardens. He says Lehman has filed bankruptcy. It's over and it's time for Foll to let it go. Then he hangs up. By now, on the lower floors of the Lehman building, the bank's employees have given up on any

hopes of the company surviving. But they aren't ready to forgive and forget. On the company's now defunct trading floor, they create a 100-foot-long wall of shame. It features a photo of Dick Fould and the firm's former president Joe Gregory grinning in tuxitos. They're labeled dumb and dumber, and all throughout the day, as employees pack up their things, more and more of them adds scrawled insults to the growing mural. They target the company's executive team. It's bored. Even Hank Paulson is not safe from mockery. He's added to the wall depicting sitting on Fold's head. The image is captioned, we have a huge brand with the Treasury, something Dick Fold said in an email back in the spring. He was trying to reassure the

company that the Treasury had their back, but the words ring hollow now. But while he faces ridicule at Lehman, Secretary Paulson is given a far warmer reception when he returns to the Treasury Department in Washington, D.C. He is lauded by colleagues in the administration for taking a stand against Wall Street greed and protecting the interests of the American taxpayer. But Paulson can't afford to bask in praise. His phone hasn't stopped ringing since he got off the plane, and every call seems to herald a new emergency. The Dow Jones is tumbling, and now that Lehman Brothers is gone,

the market seems fixated on the next potential victim of the crisis, the insurance giant AIG. Its shares are plummeting down over 50% so far just today. The failure of an investment bank like Lehman is devastating. enough, but Paulson knows the collapse of a global insurance firm would be even worse. AIG is a far larger and more complex company than Lehman. If it fails, banks and other institutions all across the world will be at risk of collapse. So shutting the door to his office, Paulson takes a moment to think. He gazes blankly out the window at the Washington Mall.

After the weekend he's just had, he's exhausted, and he can't help being afraid of what might come next. He feels like everyone is looking to him for answers, but he doesn't have any. This is an unprecedented situation. He has had to make what feels like an impossible choice. Paulson clenches his jaw. He never meant to let Dick Fold or Lehman Brothers down, but he can't dwell on that now. Lehman's bankruptcy may be the largest in history,

but it could be only the beginning. The markets are in freefall. AIG is a ticking bomb, and confidence in the global financial system is eroding by the minute. So Paulson takes it to be a bit. breath and turns back to his desk. There's no more time to hesitate. His phone is ringing again, and a new crisis is about to begin. From Wondery, this is episode three of our series on Lehman Brothers for American Scandal. In our next episode, after letting Lehman go bust, Treasury Secretary

Hank Paulson must decide how far the government will go to stop a crisis that seems to deepen by the hour. If you'd like to learn more about Lehman Brothers, we recommend the book Too Big to Fail by Andrew Ross Sorgant, 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 Shazi, sound design by Gabriel Gould, music by Throne. This episode is written in research by Olivia Thomas, fact-checking by Alyssa Jung,

Managing producer Emily Burr. Development by Stephanie Chans. Senior producer Andy Beckerman. Executive producers are William Simpson for Airship and Jenny Lyar Beckman and Marshall Louie for Wondery. 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.