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humbling of Wall Street's most senior female executive. In a typical headline, the London

Independent wrote: "Wall Street's Leading Woman Pays Price for Lehman's Losses."

Gregory was scarcely mentioned.

Now Fuld needed to do something he had never done before. He needed to hire a new

president, and for the first time since becoming Lehman's CEO, he had to choose ability

over loyalty. He had to hire someone shrewd and powerful enough to protect his life 's

work, even if that person might very well unseat him. In one of life's most bitter ironies,

he realized he needed Chris Pettit--12 years too late.

There was an obvious successor: Bart McDade. The former boss and business school

roommate of Mike Gelband was the dissidents' favorite to replace Gregory.

A veteran of the fixed income market who had chaired the bond market association, he

was, thanks to Gregory's eccentric human resources maneuverings, now also an expert on

the stock market; he had the chops.

No one doubted that McDade, who had joined the firm in 1979 as an intern, bled Lehman

green. If he lacked for anything, he perhaps lacked Pettit's charisma. But he was, in the

words of one colleague, a "businessman's businessman."

McDade was quietly, fiercely intellectual. "He had the brilliance of being able to look at

things complicated, break them down in a way and reimagine them imaginatively, and

move the business forward in a way that makes sense," says one colleague. "One

example: It's now common on the Street for everybody to do equity transfers--CSAs,

commission sharing agreements. Bart came up with that idea, pioneered it with Fidelity."

Basically, CSAs allow the transfer of commissions on a trade from a broker to a third

party.

He kept his body and his mind sharp. He worked out religiously, and when not at client

meals, he ate Special K for breakfast, lunch, and dinner. He was extraordinarily thin and

he dressed in sharp suits. He had a military bearing, which was enhanced when he

suddenly--surprisingly--shaved his head upon hearing that he'd been appointed president.

On June 12, Fuld called the executive committee and announced that McDade was his

man. The committee approved heartily of the choice, as did most of the people at

Lehman, past and present. When Tom Tucker read about it, he e-mailed McDade

immediately. "I hope you can right a great wrong," he said.

One of the few who objected to McDade was Jeremy Isaacs. Echoing the complaints

about Pettit, Isaacs considered McDade a "Marine" type.

When McDade got the job, Isaacs handed in his resignation, but Fuld pleaded with him to

stay. He knew that losing Isaacs so soon after the jettisoning of Gregory and Callan

would play disastrously in the press and in the market. Isaacs agreed to stay on to help

see through a merger with the Korea Development Bank (KDB), a Korean government

bank that had expressed interest in purchasing Lehman. But in all but name, Isaacs was

quietly replaced as head of Europe by the young German Christian Meissner and Benoit

Savoret.

By Friday, June 13, as news of the shakeup hit the press, Fuld was ready to move on.

McDade's appointment was officially announced to the firm the next Monday at the

Sheraton Hotel, close to Lehman's midtown offices on Seventh Avenue, where both Fuld

and McDade made a grand "do the right thing" gesture by announcing that they would

forgo their bonuses that year.

Fuld had told McDade he wanted to have Gregory attend the ceremony, as if he were

passing the torch. McDade objected--he wanted all traces of the man many blamed for

Lehman's reckless risk taking expunged as swiftly as possible.

In fact, when he was shown Gregory's office--where most assumed he'd take up

residence--he declared that it had bad "feng shui." Instead he moved into Tom Russo's

office and had it professionally redecorated. He quickly installed an oriental figurine he

called "the Money God," which he'd always kept for good luck. Russo moved into

Gregory's