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business and separate it from the Shearson Lehman business, so he took a write-down of

$1 billion on Amex.

Meanwhile, Shearson Lehman, which was worth $400 million, was bleeding $60 million

a month and Robinson had to recapitalize it with $1 billion. Given those cash flow

problems, he didn't see why he needed to pay Lehman people their bonanza bonuses.

The job of schooling him fell to Gallatin, who patiently explained the situation at

Robinson's lavish penthouse apartment in the Museum Towers (near the Metropolitan

Museum) one night in late fall (bonus conversation time).

"It was my job to help Jim explain to his board that even if Shearson Lehman had lost

$650 million, they had no choice but to pay Lehman bonuses on what they'd made," says

Gallatin.

The two men sat in Robinson's spacious living room, tired but eager to find a resolution.

Robinson, who was from Atlanta, looked at Gallatin and said, in a charming Southern

drawl that belied his exasperation, "What are you talking about, paying a bonus? You lost

money."

"I said to him, 'No, Jim, Lehman made money.' They, Shearson, had lost money. We went

back and forth--and he's one of the nicest gentlemen you' ll meet in your life--but

eventually I said, ' Fine, you don't want to pay the bonuses. But I'm going to go down in

the elevator now.'

"And he looks at me and he says, ' What are you doing? ' It was one o'clock in the

morning. He says, 'Of course you' re going to go down the elevator. You' re not going to

walk down the stairs.' I said, 'Jim, you don't get it. I' m going down in the elevator.' He

may think the capital of the firm was the balance sheet, but the real capital of the firm is

the people. And if he wasn't going to make the bonuses, tomorrow the key Lehman

people are going to [go] down the elevator."

Meaning that Robinson would be encouraging his best people to leave if he didn't pay up.

Lehman employees got their bonuses paid that year.

On January 30, 1990, Robinson forced Peter Cohen to resign and replaced him with

Howard L. Clark Jr., or "H," whose father, Howard Sr., had been Robinson's predecessor

at American Express. Cohen had lost his power in part because of the RJR Nabisco and

E.F. Hutton deals, and was undermined further by impressions that followed the

gratuitous purchase of a $25 million ski lodge and conference center in Colorado. "There

were just excesses," Lessing later wrote of Cohen and his cronies: "They took their eye

off the ball. We kept working and taking on more power. Eventually we ended up

running both firms."

The Lehmanites did not hide their joy at Cohen's firing. They made a satirical short film,

which was shown at the 1991 holiday party at the Museum of Natural History. Entitled

"The History of Lehman Brothers, Part One," the film mocked Cohen using the tune from

"If I Only Had a Brain" from The Wizard of Oz. The lyrics went like this:

I could while away the hours

Conversing in the towers

Consulting with the lame.

And my head I'd be scratching

While my schemes they'd be hatching

If I only had a brain.

I smoke a big cigar

My deals are quite bizarre.

So what if KKR took RJR

We got first cap

So it was crap.

Oh some day I' ll find a way, sir

To make this business pay, sir

And though it sounds insane

With the stuff I' ll be struttin'

I could give back E.F. Hutton

If I only had a brain.

At the end of the video LCPI traders dance and sing Billy Joel's "We Didn't Start the

Fire."

"H" Clark immediately saw the extraordinary energy and spirit that bonded LCPI and

tried to utilize the passion so that it had a more constructive purpose. He had reorganized

Shearson Lehman's management, starting with the elevation of Fuld, who became coCEO of Lehman with Tom Hill. Chris Pettit was their COO. Lehman Brothers was also

allowed to officially be called "Lehman" again, since "H" recognized that it now had

superior brand recognition to Shearson.

The three Lehman leaders immediately got to work on their plans to dominate