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in liabilities and had $34 billion tied up in open derivatives contracts in 22 currencies in

dozens of countries all over the world. Each of those foreign offices were governed by

local bankruptcy laws.

Around 9 P.M. that night, Fuld's team--one by one--came by to give him a hug. In they

trooped: McDade, Lessing, Russo, Freidheim, Goldfarb . . . all of them. It was like a

receiving line at a funeral.

Fuld was stricken, numb. "I think I am going to puke," he said.

Much later, Paulson called. "Dick, you did everything you could," he told him.

Paulson truly believed this; he felt very sorry for Fuld.

"It's a tragedy," Paulson said a year later.

A tragedy that confirmed a view that Paulson had about corporate leadership. "It is not

healthy for a CEO to stay too long. When he is in the job for upwards of 10 years, he can

become set in his ways and it becomes increasingly difficult for a management team to

challenge the boss's decision or to change longstanding policies or practices."

He didn't know that Fuld had tried years earlier to hire Joe Perella for precisely that

reason--and had been blocked.

Chapter 20

Damned Flood?

That week was just nuts. Everything happened so fast. None of us got any sleep. Ian

[Lowitt] was almost incoherent by the end. I even got asked if I needed a doctor at one

point, I was so tired.

--Alex Kirk

While Dick Fuld and his board convened during Lehman's last hours on Sunday, an

exhausted Bob Diamond was walking up Madison Avenue with his wife, Jennifer, and

daughter, Nell, who had been in constant touch with him as the crisis escalated all

weekend. Nell had caught the train up from Princeton to comfort her father, and the three

were walking glumly to dinner when his cell phone rang.

"I don't think I can take another call," he said, half-joking.

"Who is it, Dad?" Nell said.

"It's Bart McDade."

"Dad, answer your phone."

The weekend had taken a massive toll on McDade 's already low tolerance for fools. He

had spent the afternoon at the New York Fed being castigated by various regulators for

the manifold sins of Dick Fuld and Joe Gregory.

He feared that no one in the government seemed capable of grasping the carnage that

would ensue if Lehman filed for bankruptcy on Monday.

Lehman was on one side or the other of hundreds of billions of dollars in trades. It had

hundreds of billions of assets and liabilities strewn all around the world in an

unimaginable variety of investments. If everyone who had done business with Lehman,

as a client or a trading partner or merely a strategic partner, called their lawyers, there'd

be free fall in the markets.

At the very least, McDade needed someone to buy Lehman's New York broker-dealer

operations out of receivership--and he knew Diamond would be interested; it was the

only part of the firm he had really wanted, anyway.

Diamond's answer, of course, was a resounding "Yes."

The men agreed to meet up early the next morning back at Lehman headquarters, because

everyone in London who was needed to sign off on such a deal was asleep.

Hank Paulson flew back to D.C. to explain to the press what had happened.

It wasn't all bad news. Lehman may be filing for bankruptcy, but Bank of America

announced it had taken over Merrill Lynch the night before.

And for the next 24 hours, Paulson would be lionized in the press for letting Lehman go,

for standing up to the Street, for refusing to grease the country's slide to socialism.

"On Merrill and Lehman, Paulson makes the right move," read a typical headline.

But Paulson knew his troubles were just beginning.

He later said he felt that he sounded cavalier the next morning when he said, "I never

once considered putting government money into Lehman Brothers." People thought

Paulson was saying that he never once tried to save Lehman, which could not have been

further from the truth.

"I didn't want to stand up and say, 'Guess what? We' re sitting here