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his ego was tied up with the company, with the price of the stock," Paulson said. "He was

very focused on the price of the stock."

On the other side of the Atlantic, Peregrine Moncreiffe ran into a friend who worked for

hedge fund king John Paulson. "Fuld told us he' s deliberately going to keep the balance

sheet big," he told Moncreiffe. "He thinks that this way, the government will have no

choice but to save him."

Chapter 18

Korea's Rising Sum

One problem with the Korean deal was that Dick forgot

E. S. Min was not still his employee. He treated him as though

he was.

--Lehman executive committee member

There were only a handful of potential buyers strong enough to purchase Lehman. The

list included the United Kingdom 's HSBC Holdings PLC, Germany's Deutsche Bank

AG, Japan's Nomura Securities, and Spain's Banco Santander SA. There were also the

sovereign wealth funds in China and the Middle East that had invested billions in

Citigroup and Merrill Lynch earlier in the year. But the Chinese were still smarting from

some major losses its state - owned China Investment Corporation had taken investing in

the crew of ex-Lehman guys who founded Blackstone Group. Negotiations in the Middle

East went nowhere.

Behind the scenes, the U.S. government was contemplating that if the worst happened,

there might be two major buyers. One was Bank of America, which, Paulson felt, might

be interested in acquiring an investment bank. That was his first choice. In the back of his

mind there was the British investment bank BarCap, the investment arm of Barclays

PLC, which Paulson would not have thought of were it not for his friend Bob Steel, the

outgoing undersecretary for domestic finance at the U.S. Treasury (who would later

briefly helm the ailing Wachovia until its speedy government-brokered takeover by Wells

Fargo at the end of 2008).

In May, Steel had told Paulson that Robert "Bob" Diamond Jr., the CEO of BarCap,

wanted to move back to the United States from London. "I suggested to Hank that

Barclays was an excellent route to go; they wanted a much bigger U.S. business. Bob

Diamond knew investment banking and capital markets cold, was an excellent leader, and

was keen to return to the U.S.," Steel says.

But Paulson was skeptical. "When Barclays came to me the first time, I was thinking,

first of all, do they know how to complete a deal? They'd lost out to RBS and ABN

Amro."

Meanwhile, Lehman had spent the summer hoping to pull a rabbit--and its corporate

backside--out of a hat with "Project Blue."

The Korea Development Bank (KDB) 's Capital Corporation was interested in purchasing

a minority stake in Lehman to give itself a global platform. Lehman took this seriously,

and the executive leading KDB's talks was a former Lehman employee--their chairman

and CEO, Min Euoo-sung (E.S.).

In late July, Fuld, McDade, Isaacs, Russo, McGee, Kunho Cho, and Bhattal flew to Hong

Kong to meet with Min, a passionate and bright financier. The deal they imagined was a

"significant but non-controlling investment . . . coupled with three joint ventures," says

someone with knowledge of the discussions, and included various agreements to possibly

integrate Lehman's and KDB's investment banking operations in Asia.

Min clearly wanted to make a deal, but he had to contend with a continually shifting

backdrop. The South Korean currency was beginning to crumble in the summer of 2008.

By summer's end, the South Korean won had lost nearly 20 percent of its value since the

start of the year, and reached a four-year low. There were serious issues concerning the

South Korean current account deficit (which had reached $12.59 billion between January

and August), South Korea's dollar reserves, and the general state of its domestic

economy. Further, because KDB was owned by the South Korean government,

government officials, according to a source involved, from "various agencies and

political factions . . . wanted the ability