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The Lehman Brothers Collapse, 10 Years Later


The day Lehman Brothers closed, Scott Freidheim was a top executive there. He's had 10 years to think over what went wrong. The closing of Lehman raised the possibility that the financial crisis could become economic collapse. Freidheim has mentally replayed the months beforehand, like the day that he and other executives asked Tim Geithner, then a top official at the Federal Reserve, to change the form of the bank in a way that would give it more federal protection.

SCOTT FREIDHEIM: We believed that that was the right message for the marketplace. On that phone call, he said, no. It will send the wrong message. As we all know, what he denied us was precisely what he prescribed and executed for Morgan Stanley and Goldman Sachs one week after Lehman Brothers filed for bankruptcy. And it was the right thing to do to save the financial services industry.

INSKEEP: So why were you told before the collapse of Lehman that it was not possible for the federal government to do what you asked?

FREIDHEIM: Never did the Fed or politicians say that they could not. And I think it's pretty clear.

INSKEEP: Well, in terms of the law, in terms of technical considerations, they could have supported you. But was there a political consideration that made it impossible?

FREIDHEIM: Well, on a couple of things - you said that legally they could have. Ben Bernanke and Timothy Geithner have stated several times that they were legally precluded. Now, I'm not particularly in that camp, but to the point that you just made about politics, I have enormous respect for their talent, the sense of urgency that they had and that they had no other choice, as Timothy Geithner said - before the weekend started and before the competitors started poring through Lehman's books he said, there is no political will in Washington for support. There will be no government money.

INSKEEP: Do you think that bankers were so unpopular because, in a sense, you earned it?

FREIDHEIM: I once said - they earned it meaning?

INSKEEP: Well, here's what I mean. The average person - the average person may well feel like they're getting - even when there's not a financial crisis - feel like they're getting shafted by the bank. And there's some truth to it that, for decades now, people in the middle or on the lower part of the economic spectrum are not making any more money. And they see that people in financial services are making more and more. The people who make the rules of the game somehow seem to be getting a larger and larger share.

FREIDHEIM: I think unquestionably there is a stratification of wealthy and not, and that contributes to the lack of popularity. So I think there are pros and cons of where we are today. And we've made a lot of progress. But yes, I understand that there is that dynamic, absolutely.

INSKEEP: You've laid out why you think the Fed made a mistake with Lehman - why you think that a different course might have led to, let's say, a less-disastrous situation. What was Lehman's responsibility, by which I mean, how was it that your company specifically got into the mess it was in?

FREIDHEIM: The industry was over-levered. And all of us had risk-management tools that simulated every crisis going back 50 years. But as an industry, we didn't take it far enough. And Lehman was one of those. And since we were the second-smallest, once Bear Stearns was gone, we were the focus of the world. And having been one of those participants, we bear the shadow of that cloud for the rest of our lives.

INSKEEP: Scott Freidheim, thanks very much.

FREIDHEIM: Thank you very much. Transcript provided by NPR, Copyright NPR.