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loans--as long as Dimon offered shareholders more than the initial offer of $2 a share.

(The offer would be raised to $10, but not before the $2 figure sent panic through the

market.)

On Monday, March 17, Bear Stearns died--and Lehman looked like it might follow the

firm into the grave. Fuld had rushed home from a business trip in India the weekend that

the deal was hammered out under the direction of Treasury Secretary Henry "Hank"

Paulson, who knew that Lehman's exposure to the distressed real estate market was

similar to Bear's. He had also seen Lehman narrowly escape ruin in both the 1995

Mexican peso crisis and the double whammy of the Russian crisis and the implosion of

Long-Term Capital Management in 1998, so he was worried. He wondered, he said later,

whether Fuld was "like a cat with nine lives."

The near-overnight collapse of Bear was stunning. Until that fateful week in March, few

but the most sophisticated investors appreciated the magnitude of the risk inherent in the

prevailing Wall Street business model.

"No one expected an institution that was 85 years old and had relied on wholesale

funding . . . could just vanish because of a run on the bank," said a senior Fed official.

"Everyone was doing business with them--until they weren't."

If Fuld had any doubt as to which firm the market believed would be the next to fall, it

was erased when the market opened at 9:30 A.M. Lehman stock plummeted 48 percent in

the first hour of trading.

That same Monday, the April issue of Conde Nast Portfolio, an issue devoted to "Sexism

in the Workplace," went on sale with a profile of Callan (aka "The Most Powerful

Woman on Wall Street").

Accompanied by a two-page photograph of her stepping out of a gleaming black

limousine in a short dress and high heels, the article seemed wildly inappropriate. "I don't

subordinate my feminine side," she told writer Sheelah Kolhatkar. "I have no problem

talking about my shopper or my outfit." Even during booming markets, this might have

seemed strange, but given Lehman's situation, the article and photograph were

incongruous, bordering on the suicidal. It was no time for flattering and flirting. Lehman

was fighting for its life.

The next day, however, Tuesday, Callan lived up to the hype during the firm's scheduled

conference call to announce first -quarter earnings. She exuded confidence, competence,

and, seemingly, candor. When the call was over, the bearish banking analyst Meredith

Whitney complimented her performance--and Callan got a standing ovation from the

trading floor. The investment bank's net income had fallen by more than half from the

year earlier, but times were tough, and Lehman had still booked nearly a half-billion

dollars in profits. After closing Monday at $31.75, Lehman shares roared back to $46.50

per share on Tuesday. Gregory led the executive committee in a round of applause for

Callan at its next meeting. Like the dinner at La Grenouille, this was unprecedented. But

Callan was a hero. She had overnight become the public face of Lehman Brothers.

Still, some were puzzled. Those earnings just didn't make sense. What about Lehman's

huge exposure in real estate and mortgages?

Chief among the skeptics was Hank Paulson. The Treasury secretary was aware of

Gregory's toxic influence at the firm, in part because he had talked to Lehman's former

fixed income chief, Mike Gelband, who had come to interview at the Treasury after

leaving Lehman. The Treasury team didn't have a job for him, but they were impressed.

They were vaguely aware that Fuld was cut off from people at the firm who had the

intellectual firepower to handle this crisis, says a member of the Treasury team. So, while

Gregory assured his old buddy, Fuld, that the firm would pull through, just as they had

done before, the Treasury secretary was trying to send a different signal. "Hank was

consistent in emphasizing to Dick, ' You've got to have a plan B and C. Hope isn't a

strategy,'