Too Big to Fail [201]
A Lehman bankruptcy, Cox argued deliberately, stiffly, as if he were reading off a script, would help calm the market. It would be in the best interests of the nation, he said. He then introduced Tom Baxter, general counsel of the Federal Reserve of New York, who told the directors that the Fed and the SEC were in agreement that Lehman should file for bankruptcy.
One of Lehman’s outside directors, Thomas Cruikshank, who had led the oil services company Halliburton through the 1980s oil bust before anointing Dick Cheney his successor as CEO, was the first to speak.
“Why is it so important,” he asked, with a slight air of umbrage, “for Lehman to be in bankruptcy?”
Cox repeated that the markets were in turmoil and that the government had taken everything into consideration. Others followed up with variations of that same query, but Cox and Baxter stayed on message. The directors grew increasingly and visibly frustrated by the vagueness of the two men’s answers.
Finally, Cruikshank stated point-blank: “Let me see if I understand this. Are you directing us to put Lehman into bankruptcy?”
For several moments there was silence on the other end. Then Cox said, “Ah, give us a few moments, and we will get right to you.”
After one of the lawyers reached over the table and pushed the mute button on the speakerphone, the Lehman directors erupted with questions. Is the SEC telling us to file? Is the Fed? What the hell is going on here? To the best of anyone’s knowledge, the government had never ordered a private firm to declare bankruptcy, essentially hanging the Going Out of Business sign on the door itself.
Ten minutes later, Cox, clearing his throat, got back on the line. “The decision on whether to file for bankruptcy protection is one that the board needs to make. It is not the government’s decision,” Cox said in the same steady, methodical tones. “But we believe that in your earlier meetings with the Fed, it was made quite clear what the preference of the government is….”
John Akers, the former chief executive of IBM, interrupted. “So you’re not actually directing us?”
“I’m not saying anything more than what I just said,” Cox replied before ending the conversation.
The directors looked around at one another dumbfounded as Fuld sat impassively, his head buried in his hands.
Tom Russo, Lehman’s chief legal officer, stood and outlined the board’s responsibilities under securities laws. As he spoke, some directors talked quietly among themselves. Bankruptcy seems inevitable. Do we file now? Next week?
The government, they all knew, had plenty of leverage. If they did not do what Cox wanted, who knew what the consequences could be? The Fed, which had agreed to lend money to Lehman’s broker-dealer unit to allow it to fund trades, could just as easily close it and force Lehman into liquidation. There was a motion to vote on filing for bankruptcy.
Henry Kaufman, an eighty-one-year-old former Salomon Brothers economist who headed the Lehman board’s risk-management committee, haltingly stood up to speak. Known as “Dr. Doom” for his downbeat outlooks in the 1970s, Kaufman had been sharply critical of the Fed earlier in the year, accusing the central bank of “providing only tepid oversight of commercial banking.” Now he again took aim at the government for pushing Lehman into bankruptcy.
“This is a day of disgrace! How could the government have allowed this to happen?” Kaufman thundered. “Where were the regulators?” He went on for another five minutes without stopping, and when he finally slumped into his seat the other directors could only look on in sadness.
As midnight approached, the resolution to file was put to a vote and passed. Some of the directors had tears in their eyes. Fuld looked up and said, “Well, I guess this is good-bye.”
One of the bankruptcy lawyers, Lori Fife, laughed. “Oh, no. You’re not going anyplace,” she said. “The board will be playing a pivotal role going forward.