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Gregory talked about the importance of "sticking together" in times like this.

Under the table, McGee typed a two-word e-mail to Jeff Weiss, a banker who was not

present: "I'm dead."

But by now, like a sleeping giant just awakened after a 30 -year slumber, Fuld was slowly

coming to grips with the turmoil inside his firm--and outside. Over the next couple of

days he attended executive committee meetings in different divisions and made it clear

that he wanted to hear the truth. He wanted to know what the troops thought of Lehman's

senior management.

On Wednesday, June 11, he had lunch with the people in McGee's division, and solicited

their opinions. He didn't eat a thing--highly unusual for a man with a voracious appetite-and as he got up to leave, he asked one last question: "What would you say if I wasn't

here?"

Their answer came back as if from a Greek chorus: "You are not listening."

But, for once, he was.

Chapter 17

The Sacrificial Ram

I don't know what you've been told, but absolutely I was not fired.

--Joe Gregory

Late in the afternoon following McGee's executive committee lunch with Dick Fuld,

Tracey Binkley, head of human resources, informed Scott Freidheim that Joe Gregory

was "looking at his stock holdings." The obvious inference was that Gregory was looking

to bail out. At the time, he had over $260 million worth of Lehman stock; records show

that since 2003 he had taken home $40 million in compensation and sold over $260

million worth of Lehman stock ($70 million of which was used to pay taxes on the stock

sales).

How quickly things had changed.

Two days earlier, right after the earnings call, Freidheim's press department was

besieged; there was a rumor that Gregory and Callan were leaving. Was it true?

This was a story Friedheim had never heard before: Joe Gregory leaving the firm? In

shock, Freidheim walked down to Fuld's office and asked if such a thing had even been

considered.

"No," Fuld had said. "It's not under consideration."

Gregory had been even more emphatic. "Absolutely not," he told Freidheim.

But that was before Fuld had gone around the firm, division to division, and heard the

resounding cry: Joe must go!

What actually happened next is known by only Fuld and Gregory, who had a closed-door

conversation.

"Falling on his sword for the good of the firm" was how Gregory would later explain his

abrupt departure, according to sources.

Not many people inside the firm were fooled. "He was fired," Lessing later told people.

But Gregory had one last card left to play. He realized the dramatic media coverage of

the fall of "The Most Powerful Woman on Wall Street" would eclipse his demise.

Erin Callan was manning the phones with analysts and investors, running damage control

on Monday's cataclysmic earnings announcement that Wednesday afternoon, when

Gregory told her he was stepping down and that she was, too.

She was shocked but she dutifully went into Fuld's office and said, "I think I've lost my

relevance." His terse response, a source says, was: "I think you have." Just minutes later,

she was seated in a conference room listening to her mentor, Gregory, tell the executive

committee he was stepping down.

"She's resigning, too," he said, and motioned to Callan. Tears began rolling down her

cheeks.

Later Callan would tell Fortune magazine a rather different story. Had just Gregory

stepped down, she said, "it would have mattered a lot internally, but I didn't think it

would have a big impact on the market" because Gregory "was not known to the outside

world."

Callan characterized her resignation as something she and Gregory had decided to do

together, for the good of the firm. What she did not say was that both of them had

agreements drafted that specified they would be paid until the end of the year. (Gregory

moved to a nearby office on Sixth Avenue to justify the paycheck.)

Gregory had calculated correctly. The resignation announcements went out on Thursday,

June 12. The next day's