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Did Wall Street Arrogance Lead to the Fall of Lehman Brothers? Just Read the Emails

It’s no secret that Wall Street is a sketchy place. And that was made all the more obvious recently when the law firm Jenner & Block LLP decided to release a package of Lehman Brothers documents.

When Lehman Brothers collapsed in 2008, CEO Dick Fuld would have had the world believe that he and his fellow executives were unaware of the impending doom. But the newly released trove makes it clear that was not true. Not only were they aware of the danger the firm faced, but they were so blinded by their own conceit that they were just plain complicit.

At a board meeting in the fall of 2007, they were told that “the initial tremors were felt at the end of 2006, when the poor loan performance of sub-prime borrowers began to be a cause for concern…it became apparent that the performance problems in mortgage loans was not going to abate”. But the warning had no bearing. It was business as usual for Lehman. Instead of thinking about raising capital, executives were too busy convincing themselves that they everything under control: “During the last downturn (2001-2002), the firm outperformed its competitors”, according to management. And while other firms were trying to shore up capital, for Lehman, “aggressive capital raising is not necessary” because the firm was “strongly capitalized”.

Fuld did, however, acknowledge in an email that the firm could use a hand…but only with a good measure of machismo added, “I agree we need some help…but the Bros always wins!!”. Not exactly insightful.

And for his lack of foresight, Fuld was paid handsomely. In the years leading up the firm’s collapse (2000 to 2007), he was paid in the neighborhood of $500 million. And recently released documents from the firm’s bankruptcy reveal just how much other executives were paid; all told, the top 50 employees were paid $600 million the year before the firm collapsed:

Robert Millard, managing director in the global trading strategies group, was the highest paid, earning $51.34 million. He earned $44.5 million in 2006.

Marvin Schwartz, managing director in asset management, came in second, with a salary of $31.42 million. He was paid $27 million in 2006.

The lowest salary among the top 50 employees was $8.2 million. And only six of the top 50 employees saw their pay reduced in the year before the fall.

The Lehman documents are a reminder of what kind of damage a lack of leadership sprinkled with a little unbridled Wall Street hubris can do.


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