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domain, his project.

Over at the Wall Street Journal's offices, Craig got a call from Fuld telling her "she was

"no longer considered a friend of the firm."

Startled, Craig phoned Kerrie Cohen in Lehman's press office. "I just got off the phone

with Dick," she told Cohen. "You tell Erin to call me immediately."

Meanwhile, Andrew Gowers, the Financial Times veteran who now was a senior PR

executive for Lehman, quietly went behind Fuld's back and put in a call to his buddy,

Robert Thomson, the managing editor of the Wall Street Journal. The two men had a

long history together, since Thomson had preceded Gowers as editor of the Financial

Times. "I told Robert to ignore what Sue had been told. I 'd make sure they had access,"

Gowers says. "I felt, at least from my narrow corner of the thing, that proprieties were

preserved, no matter what idiocies were being pronounced from the top floor [of

Lehman]."

But tensions in and around the press department spilled over into George Walker's

wedding. As they danced to the band, Skip McGee found himself in a heated discussion

with Freidheim--there with his pretty French fiancee, Isabelle Dufour--over Lehman's

recent press. McGee had not agreed with a recent decision to fire a press officer, Hannah

Burns, whom others had felt to be too "emotional" when dealing with the press.

In fact, McGee hadn't agreed with much he'd seen recently, and he was dreading the

earnings results.

The next morning, Sunday, the day before the earnings announcement, McGee walked

into Fuld's office, shut the door, and insisted that Gregory, who was sitting there, leave.

McGee then told Fuld that Gregory had to go. The market needed that much; Fuld had to

fire him. "You need to do this," he said.

Fuld told him, "I' ll never do that. We've been partners for 30 years."

On June 9, Callan released her earnings report. As insiders feared, the market was

horrified by the mammoth losses. Immediately, Lehman stock started to free-fall from

$30, falling 7 percent by Tuesday evening and another 14 percent on Wednesday.

Everybody was anxious and unhappy. On Tuesday, June 10, in an executive meeting,

Fuld asked everyone at the table to take a turn airing their suggestions about "restoring

confidence." McGee spoke first, at Fuld's behest, in part because McGee had received-and forwarded to Fuld--an e-mail dated June 9 from Benoit D' Angelin, a former Lehman

employee who had left just months earlier for the hedge fund Centaurus Capital. It read:

Many many bankers have been calling me in the last few days. The mood has become

truly awful in the last few days and for the first time I am really worried that all the hard

work we have put in over the last 6/7 years could unravel very quickly. In my view two

things need to happen very quickly.

1. Some senior managers have to be much less arrogant and internally admit that some

major mistakes have been made. Can't continue to say "we are great and the market

doesn't understand."

2. Some changes at senior management level need to happen very soon. People are not

and WILL not understand that nobody pays for that mess and that it is "business as

usual." We also need to hire a few very senior guys VERY quickly to bolster confidence.

Sorry to be so blunt but a serious shock is needed to allow the firm to rebound quickly

and aggressively.

Keep it up and good luck.

At Fuld's prompting, McGee summarized the contents of the e-mail.

He told his fellow executives, "Morale has never been worse. . . . "Somebody in very

senior management has to be held accountable. I think we' re supposed to stand up and

say that we've made mistakes, and we' re going to change things. . . . "

Gregory glared at him. McGee knew that some people sitting around that table agreed

with him--he'd spoken to McDade, among others--and he was hoping that one of them

would back him up. No one did.

The meeting continued, almost as if he had not spoken. If anything, he was