I first worked for Lehman Brothers as an intern in London in the Summer of 2005, when I was halfway through a graduate degree in economics. I rented a room in Imperial College London student housing, which meant a long daily commute between South Kensington and Lehman’s imposing steel and glass office tower in Canary Wharf. But I didn’t care about the practicalities. I was just excited to get some experience in the capital markets, and to live in London for a few months.
And it was exciting. I was one of a large cohort of interns, all of us figuring out whether we were cut out for finance jobs and, if so, whether we’d make the cut to join Lehman, a top U.S. investment bank. The atmosphere in the group was sociable and high-spirited, but there was also an unmistakable undercurrent of competition, of sizing one another up; after all, only some interns would receive offers to return as full-time analysts. The company encouraged this competition, including by running a trading game which simulated with brutal clarity just how well — or poorly — groups did at managing a fictional stock portfolio. (Poorly in my group’s case, if you must know.)
It seems hard to believe now, but at that time — the mid-2000s — investment banking was a glamor industry. It attracted many of the brightest students. It was a ticket to an intellectually stimulating and potentially lucrative career. Going for it meant choosing to work hard and play hard, very “Bright Lights, Big City.”
My internship seemed to confirm this. I was challenged by it. I enjoyed it. It was thrilling to be on that enormous trading floor, surrounded by the clamor of dozens, even hundreds, of colleagues engaged in virtual battle with the market, banks of brightly colored monitors, lines of prices soaring ecstatically upwards or plunging vertiginously downwards. At one point Dick “the Gorilla” Fuld, the long-time CEO, loomed over us on a giant screen connecting him from New York, and declared, “It’s about my people!”
At the end of the summer, I was offered a permanent analyst job for the next year. I was chuffed to have made the cut. I would be one of Dick’s people.
In retrospect, and had I not been so naïve, that internship included some harbingers of what was to come. I spent the first half of the summer working on what amounted to the tax arbitrage desk. The game was to shift clients’ assets around different tax jurisdictions, and lend out or borrow stock on their behalf, timed perfectly around dividend payments or other corporate actions, to evade — sorry, avoid — their taxes. It was legitimate in the letter, but hardly in the spirit, of the law.
Did this mean that Lehman and the other investment banks were dicey, powered solely by greed, and destined for their comeuppance? I didn’t know, and I rationalized any concerns away. After all, the second half of the summer had been awesome. I had worked on the emerging markets research desk with solid economists and whip-smart currency analysts, speaking the language of international economics, feeling like a part of the real world of international capital flows, putting some of the dry textbook learning I had focused on for so many years at university into action.
As it turned out, I didn’t join Lehman the next year, because I decided to do a PhD first. (I know — so many poor decisions!) But Lehman HR agreed to extend my offer until after I had submitted my dissertation. That turned out to be the summer of 2008.
Again, this seems difficult to believe now, but at the time — even just a few months prior, when I joined the firm — Lehman’s collapse seemed highly unlikely. In October 2007, the New York Times had even published a feature on Lehman Brothers titled “The Survivor.”
I had my concerns and I expressed these to friends — all of whom, every single one, assured me that I was being paranoid, that joining Lehman as a senior associate was a great opportunity, and that the absolute worst case scenario was that it might be bought out by a bigger player. After all, this is what had happened a few months previously, when Bear Stearns, the fifth-largest investment bank in the U.S. (to Lehman’s #4), was bought by JP Morgan, the #1.
So off I went to Lehman Brothers. And for the first two months of my for-real-now, finished-with-university professional life, I was an entry-level deckhand on the good ship Lehman Brothers as she crashed straight into a reef and sank. Here are some things I remember.
Flying to New York for joint training and corporate indoctrination with the other associates there. Sitting in the giant auditorium listening to a presentation on corporate strategy by some up-and-comer (ex-McKinsey). Looking at his bar chart showing $60 billion in commercial property assets and thinking that this was a bit odd, since Lehman was supposed to be a client franchise, not a big taker of directional risk on its own book. This balance sheet composition seemed rather more . . . speculative?
Sitting in another auditorium, this time back in the London office, being shown a slide full of alarming news headlines about Lehman “teetering on the brink,” “about to implode,” “facing bankruptcy.” The presenter’s punchline? Those headlines were from back in 1998, when the collapse of Long-Term Capital Management, a hedge fund, had jeopardized Wall Street. The chumps! Lehman always bounces back!
Being told soberly by someone at the top of the London office hierarchy that his main advice to us new joiners was to get a tax advisor. I get that wealthy people use tax advisors, but this suggestion struck me as perverse; surely if anyone could afford to pay their taxes, it was finance professionals earning high salaries?
I shared a house with five good friends. The jokes about Lehman going under and me not pulling my weight with the rent began tapering off, or at least seemed to become less uproariously funny to everyone, as the news headlines darkened through August and early September.
We finished training and prepared to be assigned to desks. This process involved a matching process, starting with interviewing with some desk managers, rotating through some desks of interest, and being placed according to supply and demand. Even though it was becoming obvious that things were going very wrong with the company, HR continued to act as though it was business as usual. I interviewed with the manager of the central bank sales desk, who at one point put his head in his hands. Perhaps I was interviewing particularly badly, but I think he may have had bigger concerns on his mind. I shadowed some equity analysts to a client meeting. The client apologized and explained wryly that he had been dealing with “all the trouble being caused right now by your institution.” Everyone laughed, a little too loudly.
On Wednesday, September 10, 2008, we bailed from our classroom in the basement and up to the trading floor to listen to the quarterly earnings call, which had been rushed forward ahead of schedule in a doomed attempt to convince the market that the company was going to survive. The CFO announced a $3.9 billion quarterly loss, the failure to find an investor willing to inject fresh capital, and the rest was noise. The trading floor fell silent. Even so, some modicum of work continued through the end of that week, even as the company’s share price kept sliding. Many staff just didn’t know what to do other than act as if it was business as usual. By the end of the week, for the first time, there was open talk that something really was going to have to give. But not once did I hear the word “bankruptcy” mentioned. Instead, the focus of discussion was whether Lehman would be bought by Bank of America (good for the London office) or by Barclays (bad for the London office).
I woke up on the morning of Monday, September 15, 2008, to the news that Lehman Brothers had just filed for bankruptcy protection in New York. The news wasn’t a complete surprise, but it was still hard to believe. Receiving no guidance on what to do, I and most of my incoming associate colleagues wandered into work.
After all, there were some things to take care of. Vending machines and catering services in the building used a prepaid card system. My card balance needed to be spent, and quickly. Pretty soon, vending machines had been emptied of everything except year-old cheese curls. My membership in the building gym needed to be cancelled. The cancellation form required me to fill in my reason. I wrote “company in liquidation” and added my form to the pile.
The trading floor looked like a party venue on the morning after. Small groups of people commiserated, generally quietly but with some occasional acting-out, pathetically echoing the outbursts of triumphant machismo — a big trade! — that had frequently marked this space.
Mid-morning at the busy bar across from the building, a grizzled Lehman veteran approached our subdued little associates group. He sympathized, "Man, this is a terrible situation for everyone, but I especially feel sorry for you new guys. I mean, you're new, you're excited, you come into the markets and . . . the bear sits on your head." That summed up about as well as anything how it felt.
Our HR minders were angry and upset. Far-removed from the financial front lines of the company, they had had no real clue that the company had been sliding towards bankruptcy for months. They had carried on their staff recruitment and on-boarding duties as normal, and now they felt like fools. They were embarrassed that they were as bewildered as we were. Some were so upset that a few of us ended up trying to console the very HR professionals who had sold us the chimera of joining this fine Wall Street investment bank.
The calls from the liquidators informing us all that we were redundant came a couple of days later. This was followed a few weeks later by the letters we had all been bracing for. Lehman Brothers had paid its incoming associates sign-on bonuses, but in the form of loans that would be forgiven one year after joining. This gave the company recourse to claw back the bonus if a new joiner bailed for a competitor in under a year, or otherwise just didn’t work out. Now that the company was bust, however, these forgivable loans were a company asset that the liquidator was obliged to recoup. With interest.
And what’s more, the loans were denominated in U.S. dollars but had been paid to those of us in the London office in pounds sterling. Thanks to the financial crisis, the dollar had surged in value, inflating what we had to pay back by around £8,000. The letter amounted to saying: “Thanks for joining Lehman Brothers two months before it went bankrupt. You idiot. That will be £8,000 by Friday, please.”
I understand, of course, the contempt that people have for Lehman Brothers, and the investment banks in general, due to the financial crisis. By all accounts, they partied like there was no tomorrow, and when the bill came due and they couldn’t pay it, they somehow put everyone else on the hook for it, and everything went down. There is a lot of truth to this, but it is not the whole story.
The banks like Lehman and other institutions were culpable, but their failings were also a symptom of other major problems. Massive surplus savings from emerging economies, mostly in Asia (because policymakers there were traumatized by the 1997-98 Asian crisis into doomsday prepping for the next one), interacted with loose monetary policy in the U.S. Regulatory and intellectual failures were rife, especially the widespread, hubristic belief that the business cycle was dead, and that brilliant economic policymaking had ushered in a new era of stability, a “great moderation.” Not to forget, really at the heart of all this was the simple greed of many players, triggered by the U.S. property boom, with all the attendant grotesque distortions that come with such manias.
I am not defending Lehman Brothers, but at the same time it should not be turned into the bogeyman of the whole financial crisis. It was merely the weakest, smallest investment bank left standing as things intensified in the second part of 2008. It deserved to fail, but unfortunately when it did, the collateral damage from this — the largest corporate bankruptcy in history — proved impossible to contain.
As for me, I was lucky. Being caught up in the Lehman debacle taught me to be more critical and careful, and more willing to question authority, even when dressed up with corporate gloss. More importantly, it taught me that you can’t always control major outcomes in your life, a realization which made me a less neurotic person. (To my wife Sarah, if you’re reading this: it’s all relative, honey.)
I’m glad too that I was immunized, ultimately, to the allure of investment banking. Maybe if everything had worked out, I would have loved it, but I do doubt that. I continued working in banking for some years — I wanted more commercial experience and opportunities were limited for a while following the crisis. But today I work for an international organization, contributing in a small way towards furthering the goals of an institution which is flawed, no doubt, but is also regularly inspiring, has a worthwhile purpose which I believe in, and which chimes with the reasons I got into economics in the first place. And I met my wife at the job I took after Lehman failed. Had Lehman not collapsed, I guess I would never have met her, which seems inconceivable to me now.
Some others in that 2008 associates class with whom I have kept in touch are also doing fine. Alison is still in finance and seems happy. Dan, who declared that Dick Fuld was his hero after that Big-Brother-like appearance on the big screen in London, now has a Facebook feed dominated by his laughing young children. Richard, who wanted to be an algorithmic trader, now helps couples become parents through surrogacy. It would be nice to know how others in our class of around 30 are doing, but we don’t really keep in touch. A reunion would be weird, perhaps because no one really wants to be reminded of being part of the Lehman Associates Class of 2008. Everyone makes mistakes, but some are more public than others.