The Big Squeeze - 2. Chapter 1 : Deal or No Deal

Chapter 1: Deal or No Deal

 

September 10^th 2008

 

Opening Prices:

                                                                                                                                                                                                                                                                                                

                                                                                                                                                                                                                                                                                                

                                                

Company

Value

Change between Close and Open

                                                

Lehman Brothers' Holding Company (LEHMQ):

$9.15

$1.36

                                                

American Insurance Group (AIG):

$19.17

$0.80

                                                

Morgan Stanley (MS):

$40.11

$-0.29

                                                

JP Morgan-Chase Co. (JPM):

$39.99

$0.52

                                                

Dow Jones Industrial Index (DOW):

11,233.91

3.18

                                                

NASDAQ Composite Index (NASDAQ):

2,232.21

22.40

                                                

S&P 500 index (S&P 500):

1,227.50

2.99

                                                

New York Stock Exchange (NYSE):

7,871.39

0.24

 

 

(Mike’s Perspective, 10:22AM, Washington DC, US Treasury Department Offices)

 

“Holy Shit, it will never work; they’ll be screwed before the thing even gets started,” I screamed at the computer.

 

I’d just finished my analysis of the Lehman Brothers’ plan to spin off their toxic real estate backed securities into a new company. I learned about the Lehman proposal, when I got into the office through a paper memo a few days ago. I was asked to “test” out their plan with various scenarios and models.

 

The US Treasury Department might be a government agency, but it is underfunded and understaffed in critical areas of risk and market analysis. There are bloated departments within the federal government, but Treasury’s market risk group was not one of them. If I had my old team at Goldman, I probably could have finished the analysis within 24 hours. It is another one of those “what-if” scenarios in history. However, I doubt American taxpayers would ever allocate more money to the same US department that also holds the Internal Revenue Service, the group that actually collects their taxes.

 

Despite my constraints, I finished the analysis and the results were horrendous. Even with the best scenario that the investors and market, influenced by CNBC talking heads, will swallow this “accounting gimmick”, Lehman will need at least $5 billion of capital in this spin off and a month to process the spin-off through the legal process. It might sound reasonable to the average trader at first, but Lehman was hemorrhaging cash and the time delay alone would cost them several billion dollars at least.

 

I will try to give you guys an executive summary on the best case scenario I had: Lehman at this point in time intended to spin off $30 billion worth of assets into a new company, mostly real estate based securities. They’re hoping to raise cash from the sale of assets and capital contributions, including lines of credits or other near term liquid capital. While, in a defensive posture, they were hoping to sell 55% of their stake in Neuberger Berman, which would give them a real shot at cash to stabilize Lehman itself; it was coming far too late. The market value of Neuberger Berman Wealth Management Company was distressed and its own clients were drawing their accounts away from Lehman. As for their real estate assets held under this new structure, at that moment, the price of MBS products was distressed and hard assets like Lehman’s stake in Archstone-Smith cannot be made liquid without significant write downs. The proposal clearly states that the new spin off would not be conducting write downs on these assets, so the risk and costs of borrowing would be high for this new subsidiary company. Based on the proposal for “REI Group”, the name that Lehman had given their new spin off, they would not realistically be able to stabilize the new firm without sacrificing potential new capital for Lehman’s own defense.

 

That’s if the investor accepted that proposal at face value. Look, if you remove assets from your company without “writing down” or re-evaluating their value into another company that you own 100% as they had no partners at the moment, where do the asset values go? The answer, they are still in your company. It’s just that you have moved it into the subsidiary line in your balance sheets. I still can’t believe that they would have proposed that and thought the investors or the market would buy it.

 

I had to call someone fast. I couldn’t have stopped Lehman from introducing it at their quarterly conference report; it was too late for that. No, I needed to warn Treasury’s leadership about the failure of this proposal and the need for imminent planning. My job was to evaluate ideas and measure for financial risk, which the red flags for this proposal needed to be waved. In the measure of a few minutes, I had gotten the attention of Michele Davis, Assistant Secretary for Public affairs and Director of Policy Planning for the US Treasury Department after I couldn’t reach David Nason, Assistant Secretary for Financial Institutions and coordinator for SEC and Federal Reserve activities. I preferred reaching David Nason as he was financially literate and knew the stakes with Lehman.

 

Michele Davis was not as financially literate as Secretary Paulson or David Nason with her background in academic economics, but Michele Davis did her job as well as she could as a communicator operating by the moments. She was the mouth and ears of Secretary Paulson, so I knew if I had to make a reasoned warning about Lehman Brother’s current plans, then she needed to be the one to tell Paulson for the warning bells to sound quickly.

 

Michele Davis was floored by my analysis, “You know their stock is rebounding on the news, maybe your analysis was flawed?”

 

I replied quickly, “Ms. Davis, the markets are seeing a mirage right now, because they haven’t had time to analyze the details of Lehman’s plan. By tomorrow or even late afternoon, their stock price will sink again and we will lose another day of disaster planning. Lehman is losing capital faster than they are able to bring it in. They can’t possibly level themselves in time without additional funding.”

 

Michele Davis tersely with a slight edge asked, “Is this the worst case scenario Mike? I don’t want the secretary to be bothered with a longshot theory.”

 

I was exacerbated, “Ms. Davis, would I be coming to you if this was the worst case scenario with an 11^th hour appeal. The fundamentals of their plan cannot work without money. They have far too much market exposure, too little liquid capital available, and their valuation is fucked up. Pardon me, but the Treasury Secretary cannot blame me for bringing him information about a disaster already in process. Ms. Davis, this was my best case scenario.”

 

There was a pause before she replied softly, “Mike, I want you on call for the next several days. Keep running new models. You’re probably going to get a lot of overtime on everything happening in the markets in the next few days. I am going to inform the Secretary, now. Thank you”.

 

She hung up the phone. I stared at my projections, muttering, “Matt, I hope you’re not crazy enough to be riding on this wave.”

 

My cell phone began to ring, it was Brad. Ironically, I probably had to call him about cancelling our dinner date that night. He had cancelled on me twice in the last week, which I was being less than kind to him about. He was the one that proposed these dinner dates in the first place after our first encounters with the Bear Stearns mess. At this point, I didn’t even know if we were friends with benefits or actually dating at that point. I knew we both liked each other, but our lives just made relationships difficult. Who would have thought that we’d end up married, a year later?

 

With a sigh, I picked up my blackberry, “Brad, what’s up?”

 

There was a lot of loud commotion around Brad, “Hey…Mike…I…umm…”

 

I could barely hear him with that noise, “Brad, can you find a quiet place to talk?”

 

He must have found a quiet spot, because Brad softly replied “Is this better…I am at Newark airport. My firm has been contracted by JP Morgan-Chase to consult on their client, who is facing a cash shortfall of several billion dollars. This due diligence might be the biggest thing that I have ever been involved in and it scares me. I wish I can tell you more, but I am bound to secrecy as you know. This means I have to cancel…again. If you knew the reasons, I think you will forgive me this time. Sorry Mike, I promise you that I will make it up, when we meet up, later. I’m grabbing my bags now and I will try to call you back later.”

 

He hung up. I was incensed at that point. Brad had the nerve to break our dinner date again, right before I could break it off with him at least once. After a moment of contemplation, a question began to reflect on me. Why was he in Newark? What client could be suffering a cash shortfall of several billion dollars?

 

Was it Lehman? No, it couldn’t be. Even though they are running out of money, they still had the Federal Reserve’s lending window, which can provide them with short term money, even if it is not enough to fix their issues. Besides, their cash wasn’t being depleted by that much that quickly to create a shortfall at least from the numbers that they sent us.

 

Only a major financial institution with a run on their accounts would have such a dramatic cash issue, but no name in my head seemed plausible. I pulled up my excel file on all the firms with exposure to Lehman Brothers and I eliminated them from my mental list. When all the financial firms were eliminated, I thought Brad must have been mistaken or the company had really crappy accountants. Then, I saw something on one of the financial disclosures. As Sir Arthur Conan Doyle would say, “If you eliminate the possibilities, what remains however improbable, must be the truth”.

 

I saw one name next to the section concerning financial insurance for credit default swaps. The name came to my eyes with tremendous fear, American Insurance Group or AIG.

 

(***)

 

(Brad’s perspective, 1:17 PM, New York, American Insurance Group Headquarters)

 

Let me just say one thing, in my life, I have never met a more reasoned and non-dramatic man like Mikey. I don’t know if the last bit of his entry really happened, but knowing my partner after these years, I wouldn’t put it past him. He could see links in things that no one else would ever assume even possible. It comes in a pinch for financial issues or for finding car keys.

 

Mike was the analytical one. I was the observer. By the way, if you want to hire a good lawyer, any type of lawyer, you should always make sure they are good observers. While any college kid with a law degree can tell you a great deal about legal environments and applications, you have to be able to adapt to the situation. Learning as much as you can about a client beforehand, planning contingencies for problems, and simply knowing when to speak are the bread and butter of a good lawyer in any focus.

 

Anyway, when I reached AIG with a contingent of senior associates and associates, we were asked to wait in a conference room. I have never worked with AIG before, but like most subscribers to the Wall Street Journal, I had read up on their choppy corporate culture and issues. It seems like they were having a Civil War between their Board of Directors and former CEO Maurice “Hank” Greenberg. The managers were taking sides, some were waiting for the “Return of the King” and others were trying to “Save the kingdom”. You don’t need to take my word for it, look up some of the old articles about their in-fighting from the Wall Street Journal or Financial Times. There were also rumors about Hank Greenberg management style; according to some people, Greenberg would use spy cameras to monitor his staff and hired ex-CIA agents as security to keep a tab on his senior management, who he threatened continuously or replaced with “new” blood. It almost sounds like he was trying to audition for the Broadway sequel of the “Dictator”. After the accounting scandal that nearly took down AIG in 2005-2006, his board of Directors made the moves for a coup.

 

I knew that information before I went to their firm, but I maintained my professionalism and kept it in the back of my mind. Legally, all that stuff was descriptive background and has nothing to do with the job that I was assigned. As any good lawyer can tell you, you should never get involved in the internal power struggles of your clients, but knowing it exists saves your hide.

 

My team sat in the conference room for about 45 minutes before someone came in. The person was none other than Brian Schreiber, Senior Vice President of Strategic Planning for AIG.

 

He looked confused to see us, “Hello, gentlemen, I was not aware that there was another meeting scheduled.”

 

Everyone on my team looked towards me, “Sir, we are here as part of JP Morgan Chase due diligence examination as outside legal counsel.”

 

A flash of anger and apprehension came over Brian Schreiber’s face, “I am sorry gentlemen, but this conference room has been reserved for official corporate business and I was not aware that JP Morgan Chase had any outside legal support. I am sorry, but AIG does not need your assistance.”

 

We were all dumbfounded, but accepted that maybe there was a scheduling mishap between AIG, JP Morgan, and our firm. This is not a rare occurrence for lawyer to be kicked out of their client’s offices due to scheduling issues. We collected our things in the conference room and I prepared to make a call to JP Morgan. Before I could call, a contingent of security personnel had been “assigned” to lead us out of the building, which I found to be bizarre. They held their big night sticks out with expressions that seemed to be, “Get the hell out of here before you get hurt”.

 

I want to note that none of this stuff is really out of the ordinary for lawyers. As Mike described earlier, we are not loved by our clients and I doubt our client’s client felt any better.

 

Once outside, I phoned JP Morgan to get confirmation, “Hello, Steve, we were just told that AIG had no idea that we were supposed to be doing Due Diligence today.”

 

Steve Black, JP Morgan’s Vice Chairman, was a direct guy. He will chew you out if you made mistakes and praise you if you were genuinely good. It is part of the discipline that you might find at JP Morgan compared to Citigroup. Jamie Dimon, Steve Black, and others at JP Morgan’s executive management were formerly executives at Citigroup. Ironically, most of the senior management of JP Morgan left Citigroup almost a decade ago together due to a falling out over management doctrines and personal grudges. In hindsight, most financial insiders would say that Jamie Dimon and his team were on the right side of the discipline game compared to Citigroup, but that’s opinion after the fact.

 

Steve was furious, “What do you mean? You were scheduled to look at those fucking contracts, today. Bob had told me, himself.”

 

Bob Willumstad, the new CEO of AIG and an old friend of Jamie Dimon from his Citigroup days, was the picture perfect leader of a traditional firm like AIG. He could have doubled as your elderly and genteel grandfather, which is a good corporate image for an insurance company. The tragedy for him was that he had inherited Hank Greenberg problems and political in-fighting at AIG.

 

I kept silent about what I had guessed was a political issue within AIG, “Steve, we’ll head back to the hotel and I’ll contact my firm. When the conflict has been settled, we can try to get back to work.”

 

Steve screamed, “I’m bringing this to Jamie. Fucking Schreiber is dragging his feet again.”

 

After I entered into the New York Hilton at Midtown, I helped all my guys to settle in and booked rooms for an additional two nights. I thought this would get cleared up one way or another by tomorrow at that point. I had no idea what would happen in the next few days.

 

With the free time, I tried to call Mike to formally apologize and grovel at his feet. The phone went to messaging.

 

I spoke softly and apologetically, “Hey Mikey, I am really sorry. I know this is the third time this week that I cancelled. I promise, when I do get back we’ll spend the entire weekend together.”

 

I hit pound and placed the message with my hotel call back number. I wanted to honor my word, but as a corporate lawyer, I have to live on my client’s schedules.

 

(Matt’s perspective, 5:38 PM, New York, Morgan Stanley’s offices)

 

Well, the fucking day was a bust for everyone, except the bears and hedgers. Luckily, I play both sides in the market. No, that was not an insinuation that I would fuck pussy if it was offered; don’t even go there, Mike.

 

Anyway, it was a so-so day on the market. Financials weren’t great, but they could have done worse. The “Lehman switcheroo” flopped late in trading and would probably be felt in the next trading day even worse. I just wanted to punch out and leave for the day, but I was held up by a few last minute trades to sign off. Then, something strange happened. Thomas Nides, our Chief Administrative Officer, came into my office.

 

“Hey you, when you get those papers signed, come to my office,” Tom Nides said in his usual soft spoken and matter-of-fact voice. I will be honest with you guys; I admired our Chief Administrative Officer; even though, he was a Democrat and a Hilary Clinton supporter. Tom was one of the most personable and honest people that you could know at Morgan other than John Mack, but you didn’t see our fearless leader as often. President Obama made at least one smart choice in naming him Deputy Secretary of State, three years later.

 

When I got all the orders signed off, I went directly to Tom’s office. I didn’t expect it to be anything bad. I had just made the firm about $20 million in hedge trading against our competitor’s financial products.

 

Here’s a lesson from me about modern finance, with the fall in prices due to volatility and speculation, hedging through short sales can be a very profitable business.

 

Here’s an example of a basic hedge strategy, it is like a table game of Baccarat, which ironically has two sides, a Player and Banker. The average gambler will place all his money on either banker or player, when betting on who will have the higher hand. This gives them a 50% chance of success or non-loss event in either choice. For example, you made a bet of $100 on player, but hedge it with a $50 bet on banker. The banker wins with a higher hand. You will lose that $100 placed on player, but you will make $50 from the bet on banker. You have mitigated your losses from what could have been $100 or $150 since you have it, to a loss of $50. Those same principles apply to hedging strategies in securities, stocks, bonds, and derivatives with an added bonus and problem in short selling, which pays out or lose more more than 2-1 in Baccarat.

 

To explain shorts, let me tell you a personal example. My ex-boyfriend borrowed my collectible Yankees baseball cards with a limited edition Babe Ruth card. He promised to give it back to me later after I came home. Well, he sold it for $50,000 after getting a tip from the street; literally he had “connections”. I was out of town and just wanted him to keep an eye on those cards. When i get home, i was expecting to see my cards in their pristine condition. Before I came home, the price of collectible trading cards decreased as more copies of the limited edition were found. My ex-boyfriend goes to a card shop and buys back the entire collection for $10,000. I came home and didn't suspect a thing until he gives me $20k as my cut. Needless to say, I broke up with the asshole, but bought season passes for several years with that haul.

 

That's shorting in a nutshell. He borrowed my stuff, he sold it, and he replaced it with the same thing while making money. He was an ass for doing it, but he knew his market and kept his promise to return those cards. I think he works as a fund manager for the team, now.

 

Basically combining those two ideas together, while our firm bought financial products hoping that they will appreciate in value like any investor; we shorted other similar products with higher risk in the same market just in case they went bad and we could mitigate the loss or gain from a massive market correction. This sounds fishy to a lot of people outside of finance, but it really is normal and we are still doing it today. In normal market conditions, hedging is a risk management function that actually cuts into our profit margins, so some firms don’t like hedging too much.

 

Maybe you’re outraged at my claim of innocence, if you watched The Inside Job and heard Matt Damon talk about the conspiracy theory that people like me had somehow been betting against the housing market and wanted you guys to lose your homes. Well go fuck off, I did my job and made good choices. I don’t know what the guys at Lehman, Merrill, or Goldman were doing, but I did my job and my team did their job. I hate bastards like Damon, who pontificate their views about finance without even a scant knowledge of how the system really works or the people working in them, but people just like to hear good bullshit that makes their world simpler. We’re bad guys, because we don’t fit into the American dream that they try to sell through half-baked Hollywood “documentary” films.

 

Anyway, sorry about the rant, I went into Tom’s office, with some customary New York swagger, “Hey Tom, so am I getting promoted, again? Made a clean 20 million in the last second you know”.

 

He laughed it off, “You’re gunning for my job. You’re one of the best operators we have. Hell, in a few years, you’re probably going to own a large hedge fund of your own,” he paused and let the silence balance off the jovial mood, “I got an assignment for you from John and the other execs along with a small crew from valuation will be part of it. What you are doing tonight needs to be completely secret, you understand?”

 

I switched on my business expressions and nodded, “What is the job?”

 

Tom shook his head with a personality shift, “You’re the right man for this job, alright. We’re going to meet up with Lehman’s senior management in Walid’s apartment for a late night review of their assets and liquidity for a possible purchase.”

 

That puzzled me a bit, “From what I heard, didn’t we already go through that song and dance with them in July or something, Fuld wanted us to pay him to run his company and screw us at the same time, Why are we helping them?”

 

Tom concurred, “I don’t think this will work out either, but Mack is good friends with Fuld. Fuld might be an arrogant prick, but he’s out of options. Mack thinks we can get a cheap deal on this or pick up some good assets before the wolves start gnawing at Lehman’s corpse.”

 

I agreed, because despite how bad the markets were, Lehman might still have operating value. Remember, what I said earlier about a company’s operations, not matching its stock price. Same thing is true about their assets. However, I still had my doubts and I was surprised Tom would ask me to go. While financial operations might be involved in buying and selling, I do not touch valuations; even though, I started out doing valuations. It was a good field of work and the pay wasn’t bad, plus huge consulting bonuses.

 

Then, I guessed his move, “You want to put me into the valuation group?”

 

Tom nodded, “The markets are a mess and we need our best people on the frontlines. You’ve been a good performer and your picks have been spot on. There’s been strategic management choices across the board for our best people” he paused again with a solemn look, “I am sorry, but you are the best person to be in valuation.”

 

I knew what that meant, layoffs were coming, but the “performers” were being moved to other spots that might need shoring up. You could call it a promotion, but the best way to describe it was staff re-allocation. For a young guy like me to break senior manager level before I hit 30, it was a neon sign for horizontal movement to another department, instead of vertical movement or promotion. I felt bad for my team. If they don’t get re-assigned like me, they would likely be gone soon. It happens in my profession, but I learned to live with it a long time ago and tried to inspire my guys to do their best despite the sword above our heads.

 

As Tom filled me on the details about the meeting and my new office assignment, I kept wishing that my first potential client didn’t have to be Lehman Brothers on life support.

 

First, I went to my office to do some research and preparations, but I will freely admit that I am no genius. This meeting was probably doomed, which is why I was allowed attendance. I began packing for the meeting tonight. I had 2 thumb drives, a laptop, and 3 pairs of pen for red, blue, and black.

 

After fighting standard New York traffic and hunting for parking, I arrived at the destination, Walid Chammah’s apartment, probably around 8:25 PM. Walid Chammah, Co-President of Morgan Stanley at that time, lived on the Upper East Side just off of Fifth Avenue. Despite my own personal bonuses and investments placing me in the millionaire’s club, Walid was definitely light years ahead of me. I know most people will say that Wall Street guys are all the same, but there really are differences based on level. His apartment was spacious and very well decorated with an open kitchen big enough to be a living room and a living room big enough to be a decent loft.

 

I lived in Mikey’s townhouse in Flushing at that time. Despite the money I made, real estate had gone berserk in New York, New Jersey, and Connecticut areas bordering New York City. Mikey bought his home through some kind of distressed sale in 2004, ironically, the home was owned by someone who couldn’t pay off their mortgage. When Mikey went to Washington, he didn’t want to sell the townhouse, so he asked me to house sit, rent free, but I had to pay the utilities. I was paying about $20K a month for my midtown apartment before other fees, so Mike’s offer was appealing despite the traffic problems. He probably could have made a good deal more money just renting the place, but that’s my brother.

 

Walid Chammah had gotten a good spread of finger foods set up around the kitchen counter: mini-sandwiches, assorted cheeses, carrots, and hummus. Some of us grabbed a small plate of food. I avoided the sandwiches and cheeses. Yes, I am a Vegan; you got a problem with that.

 

Other than Chammah, James Gorman, the other current Co-President of Morgan Stanley, had also arrived at the scene. From what I knew of him, he was a business oriented strategic thinker, who had an eye for a good deal if there was one to be made.

 

As the entire Morgan Stanley team had arrived, Walid Chammah delivered the facts of this meeting, “Let’s at least go through the motions,” pausing slightly for emphasis, “but acknowledge that this meeting wouldn’t likely lead to anything”.

 

Everyone around the room nodded our heads; Chammah had given us the marching orders.

 

It was around 9 PM, when the Lehman guys came in. They all looked pale, unshaven, and desperate. I could see the black rings under their eyes from sleepless nights, the wrinkles in their younger managers from fears of financial ruin, and even Bart McDade, Lehman’s new COO, looked like he had been in a car accident on his way in. These were guys, who made millions of dollars in stock option bonuses, now valued in the single digits from $60 only 9 months ago. Lehman Brothers’ outstanding shares were 30% owned by their employees, nearly two hundred billion dollars at its peak in market value.

 

I know the average American won’t feel sorry for them or their troubles, because they had lived the high life of Wall Street. Yet, when I looked into the despondent faces of these people, there was no fucking way to avoid feeling sympathy. It could be me and my firm one day.

 

Chammah began pouring out glasses of Tenuta dell’Ornellaia 2001, an exquisite Bordeaux wine with a fair market value of $180 per bottle in 2008. It’s now worth about $275 per bottle in 2012.

 

McDade without touching a drop of the wine began speaking with his best effort to sound friendly, “It looks like déjà vu. Most of us, excluding a few notable people and including a few new faces, were here discussing the possible merger of our two great firms” he paused and his tone turned sour, “Now, several months later, we are back with a new set of realities. I want emphasize this time though that “social issues” will not be the reason for ending this discussion. If you guys are open to buying Lehman straight up, we are open to all and any terms from Morgan Stanley. If you don’t want to buy our company straight out, you can look at some of our assets and offer up prices. If you guys want us around, we can stay around. If you don’t want us around, we can leave. This deal is no longer about us. it’s about our firm and our employees.”

 

Bart McDade was probably the right man for the job of COO, but it came far too late for Lehman. I’ve read up on Lehman in the last few years and remembered his opening words from that night. I truly do believe he cared about his firm and his people.

 

Lehman had brought several of their own guys. One of whom was a familiar face, Billy. He was a good friend and voracious fucker. It was almost two weeks, since the last time we hooked up. At his peak, he was a solid stallion; thick-well trimmed black hair, strong core muscles, a great tan, and a piece of meat that was always ready for action. He had lost weight and seemed lethargic even two weeks ago. Now, he looked like a gust from a New York taxi could flip him over.

 

Billy did notice me among the group, but instead of speaking, he merely grimaced with a pleading look. I could sense the desperation in the air from their corner as the papers began to roll out concerning Lehman’s assets. The paperwork was well-documented to standards of the time with projections for earnings and values of the securities. Tom Nides had told me to focus on the CDOs, or Collateralized Debt Obligations, exposure on their books as that was probably where the skeletons were hidden. I think everyone at that point knew that the CDO’s were screwed by MBS and subprime housing issues, so I knew Tom’s suggestion was just to ease me into the role without too many knowledge issues.

 

However, like any good finance guy, I am not a one trick pony. I noticed something else that was fuzzy about their asset valuations that I remembered from looking up our books just a few hours earlier to compare. When time came to ask the question, everything seemed to be going well for a sale of some commercial real estate assets from Lehman to Morgan Stanley until the questioning reached me.

 

I asked a simple question, “What is your commercial investment write-down valuation based on the current market volatility and risk?”

 

As neither McDade nor Hugh “Skip” McGee, head of Global investment banking at Lehman, could answer immediately, my friend Bill did, “We are estimating a 10%-15% write-down based on current market conditions in these values.”

 

Chammah and Gorman both looked at me with appreciative nods, the deal was dead with my question. At that time Morgan Stanley had begun writing down almost 30-40% of our values in similar assets. They were not subprime mortgages turned into securities like you keep hearing from books and reporters. They were just your run of the mill commercial and equity investments, like a company owns an office building and uses it for a line of credit. However, due to the depreciating values, most bankers will start estimating write downs in values. 10-15% was just far too small of a write down, when fair market prices had nearly doubled that in value depreciation.

 

After further review of the other assets, Gorman made the final note, “I don’t think we can do a deal in time Bart. We will need our board to approve any deals between us and that could take weeks to accomplish. We would need to spend too much time on studies of your assets. Since you need capital quick, I advise that you seek other prospective buyers.”

 

McDade and McGee in defeat gathered their paperwork and left without speaking a word, heads hung low. Billy gave me one last look before he left with their group. I won’t ever forget that look. There were tears in his eyes. He knew his honest answer had probably sealed the fate of his firm.

 

Things would only get worse from that day. Tens of thousands of people will lose their jobs soon without ever knowing the truth behind what was happening. They would be joined by millions more in the US and tens of millions around the world as time passed.

 

This is not a story about good guys versus bad guys, rich versus poor, or Wall Street versus Main Street. All three of us, Mike, Brad, and me, want to tell you what happened and the people without rose tented glasses from media, politicians, or economists with their own personal views. I freely admit that I am a Republican, if you didn’t get it from my words. Brad is a Democrat, but I don’t hold it against him. Mike doesn’t align with either party anymore. None of the politics matter as every side had our heroes and villains, who made mistakes and grand sacrifices.

 

This story is about the people, who fought the greatest financial crisis in over 80 years. We weren’t prepared for it, we didn’t want to fight it, and we were not sure what we were doing was right or wrong. However, like soldiers fighting for a cause greater than ourselves, we had no choice as the alternative was the end of all human civilization.

 

Closing Prices:

                                                                                                                                                                                                                                                                                                

                                                                                                                                                                                                                                                                                                

                                                

Company

Value

Change from Open to Close

                                                

(LEHMQ):

$7.25

$-1.90

                                                

(AIG):

$17.50

$-1.67

                                                

(MS):

$38.92

$-1.19

                                                

(JPM):

$39.40

$-0.59

                                                

DOW:

11,268.92

35.01

                                                

NASDAQ:

2,228.70

-3.51

                                                

S&P 500:

1,232.04

4.54

                                                

NYSE:

7,957.26

85.87