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February 25, 2009updated 01 Feb 2016 10:44am

No Lehman is an Island

By Clive Aslet

Who didn’t enjoy watching the unlovable chumps of Bear Stearns and Lehman Brothers getting their comeuppance? Trouble is, we’re all in the same boat now, says Rob Cox

Who didn’t enjoy watching the unlovable chumps of Bear Stearns and Lehman Brothers getting their comeuppance? Trouble is, we’re all in the same boat now, says Rob Cox

At first, there was the schadenfreude. To many New Yorkers — indeed to most of the American public — the March 2008 collapse of the venerable investment bank Bear Stearns looked like a well-merited slap in the face to the greedy bankers of Wall Street.

And it couldn’t have happened to a more deserving firm. Bear was sharp-elbowed and fiercely competitive, as embodied no less through its role as the largest patron of squash competition in the city.

Famously, its cunning, bridge-playing chairman Jimmy Cayne was the one guy in the business who refused to pitch in along with the rest of the securities industry — including Swiss and French banks doing business in the United States — as it came time to rally round, throw down some money and prevent a financial catastrophe when Long-Term Capital Management had blown up ten years ago.

In short, it was easy to dislike Bear Stearns, whether you were a rich banker noosed in a Hermès tie or a Levi’s-clad Joe the Plumber.

Then along came Lehman Brothers. Like Bear, Lehman made itself a nuisance to many and its people never shied away from flouting their material success. The firm, which had managed slightly better than Bear to move further away from its roots in the domestic bond market — expanding in mergers advisory, Asia, equities, European geographies and asset management — was led by Dick Fuld, a fearsome former fixed-income trader, nicknamed the ‘Gorilla’, and a deputy, Joe Gregory, who regularly flew by helicopter from his Long Island estate to midtown Manhattan.

There was no love for these guys either. That much was clear in September, when — months after Bear had imploded, the lessons of its failure clearly unheeded — Lehman found itself in similar circumstances.

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Lehman, which failed to find either a buyer or a helping hand from Washington (Bear was sold to JP Morgan Chase for a song, in a deal financed by the Federal Reserve), had to file for bankruptcy protection.

And that was the end of all that schadenfreude. Suddenly, the thrill of watching the rich and powerful of the money industry collapse was replaced by fears about the health of the global banking system.

Merrill Lynch had to sell itself to Bank of America over the same weekend that Lehman failed to find a solution to its woes. American International Group, once the world’s biggest insurer, was taken into custody nearly overnight by the United States government.

Morgan Stanley narrowly escaped collapse as customers fled and counter-parties feared to do business with the firm that had been spun out of the banking complex founded by the man who single-handedly stopped a financial panic a century before, J P Morgan. Barring the intervention of Washington, with its Troubled Asset Relief Programme, Morgan Stanley, with Goldman Sachs next down the line, would have disappeared.

And the rollercoaster hasn’t stopped since. Citigroup, the financial behemoth cobbled together by Sandy Weill’s twenty-year spree of acquisitions, returned for a second helping of government money in January.

The bank jettisoned its chairman, parted ways with senior adviser and former Clinton White House Treasury boss Bob Rubin, and is now in the process of breaking free of the financial supermarket model by hiving nearly $1 trillion of assets and businesses into a separate entity, or ‘bad bank’, that can sell them off or close them down over the next few years.

Not to be outdone, Citi’s top rival, Bank of America, also went cap in hand, just a few days before Barack Obama took the presidential oath of office, to the US Treasury when it discovered that inside its Merrill Lynch quarry were some $15 billion of bad assets and a load of bonuses that its staff paid itself a month earlier than was the stockbroker’s custom.

Meantime, since the Bear fiasco the stock market has plunged by a third, dragging down the value of nearly every soul’s retirement account. So as the new year began, what some might have remembered as a useful comeuppance for a few greedy Wall Street bigwigs has morphed into a generalised fear — about one’s job, livelihood, savings, children’s education and a myriad of other worries.

Many of those who toasted marshmallows in the embers of Wall Street’s flame-outs just a few months ago are now wishing they had not been so quick to celebrate. Sure, it is now easy to get a reservation at top restaurants in New York, Boston and Chicago.

But many others are closing their doors, unable even to support themselves
on the $19.99 prix fixe lunch specials that popped up as the financial crisis kicked into high gear. Barely used Maseratis are now selling for half the list price in the four-car garages of mansions in Greenwich, Connecticut. But with the markets crashed, fewer people even outside the financial world can afford them.

At the time, it was easy to take pleasure from the disappearance of Bear Stearns and to celebrate the end of the boom and the million-dollar parties for arrogant private-equity barons. A year later, and many Americans — not just those working in the canyon of Wall Street — are beginning to mourn their old friend cheap credit.

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