We’ve known for a couple of years now that Lehman Brothers didn’t have to die, and that killing it was a political decision made almost unilaterally by the Treasury Secretary, Hank Paulson. But it wasn’t just political: It was an opportunity for Paulson to exact a little revenge.
You see, almost exactly 10 years before telling Lehman CEO Dick Fuld to drop dead, Paulson was the newly-minted co-CEO of Goldman Sachs. And one of the first things he had to deal with in that role was the Federal Reserve Bank of New York going cap-in-hand around Wall Street to save the global financial system from a little collapsing hedge fund called Long-Term Capital Management. This was especially annoying as a week earlier, Goldman, AIG and Berkshire Hathaway had offered to buy LTCM outright for $250 million, but Paulson and Jon Corzine did their part and ponied up $300 million, as did almost every other major player. But when the Fed got to Dick Fuld’s office, he told them to get fucked.
Well, according to the guy who got to clean up Fuld’s mess a decade later, Paulson couldn’t resist the chance to return the favor.
It didn’t help that in 1998, when Long-Term Capital Management needed bailing out, Wall Street got together and everyone kicked in, except Mr. Fuld’s Lehman.
Now’s a good time to point out that Fuld wasn’t actually the only bank chief to decline to do his part in the LTCM bailout. Jimmy Cayne at Bear Stearns also refused to put up a cent, mostly because it already had a great many cents at risk as LTCM’s clearing agent, although on the other hand it was also the proximate cause of the LTCM collapse in the first place. This did not stop Paulson from bailing Bear Stearns out a few months before refusing to do the same for Lehman, but there are other factors at play. Like the fact that Dick Fuld is an asshole and Jimmy Cayne was and is a lovable pothead.
“Paulson simply didn’t like Dick Fuld, and he had run out of patience.”