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that of her peers.

When, in 2006, BusinessWeek spotlighted the enterprising work of Lehman's finance

solutions team in an article on the boom in so-called hybrid securities--complex securities

blending attributes of stocks and bonds so as to maximize tax benefits and minimize the

appearance of risk--the magazine quoted only one executive at the firm: Erin Callan.

Only one executive's photograph appeared in the magazine: Callan's. The decision was,

of course, BusinessWeek's, but the rest of the team took it as a slight. To them, the real

innovator on the team was John Curran, who left for Deutsche Bank the month before the

story appeared.

After the BusinessWeek article appeared, Callan was promoted to run Lehman's hedge

fund group, where she threw herself into the high-profile initial public offerings (IPOs) of

the hedge fund Fortress Investment Group and a bond offering for the hedge fund Citadel

Investment Group. A June 2007 Institutional Investor profile depicts Callan pitching

Citadel founder Ken Griffin on the $500 million debt issuance as a cautionary measure

she encouraged after expressing "amazement" that Citadel, like most hedge funds (and

indeed, like the very firm that employed her), relied so heavily on overnight loans that

"banks could pull at a moment's notice."

Callan had the ideal blend of fancy and scrappy credentials when she joined Lehman in

1995. Raised in Queens, she was a New York City cop's daughter and a product of the

Catholic school system--but she was also an alumna of Harvard, New York University

Law School, and the prestigious corporate law firm Simpson, Thatcher and Bartlett. And

she was family--she'd been married since 1991 to Michael Thompson, a former Lehman

investment banker, who now trades for himself. The couple made extra money renovating

and flipping houses. She used to refer to her husband as "my CFO."

Unlike Callan, who found her passion at the bank and truly "bled Lehman green,"

Thompson was miserable at work. "I was struggling to find what I wanted to do while she

was zooming ahead," he says.

Callan used to ask her husband why he wasn't happier at the firm. "I think she found [my

uncertainty] very frustrating," he says. He filed for divorce in 2007, but the two remained

on friendly terms until 2008, when he told people, "She's cut me dead."

Before the divorce, Thompson says, she'd worn pretty much one designer: Chanel. But

Callan underwent a gradual makeover after the split.

The hair became blonder, the gym routine intensified, and what she considered suitable

work attire increasingly played up her femininity. She occasionally came to work in an

ensemble that "would have been fine for a cocktail party but not for the office."

"She really played on the fact that she was a woman," says one member of Lehman's

executive committee. "She always wore low-cut dresses and short dresses, and she was

always very flirty and almost girly. And I always thought it was pretty inappropriate."

"The whole time I knew her, she was always a sharp dresser," another colleague says. "I

had heard that she would occasionally show flashes of poor judgment--see-through

things, leather things . . . but the really far-out, flashy stuff really happened after she

joined the hedge fund group--when she was single."

Callan's new look was often the subject of morning interoffice e-mails, until suddenly

there were infinitely weightier matters to discuss. The markets had started to turn. For the

first time in 20 years, the housing market looked like it might crash.

Since 2006, it was clear to most observers that home mortgages had become

preposterously easy to get, with millions of Americans moving into luxury housing they

couldn't afford and millions more using the bubble-addled housing prices to turn their

homes into personal ATMs by doing cash-back refinancings and taking out home equity

loans. Yet for a full year, Wall Street continued to make mortgage-backed securities the

hottest