When Lehman’s filed bankruptcy at 1:45am on Monday, September 15, 2008, the New York Times already had the scoop. In a story “put to bed” hours before, Times reporter Andrew Ross Sorkin told the fascinating story of Lehman’s final weekend. (http://nyti.ms/17NfR8C). His later book on the events, “Too Big to Fail” (http://bit.ly/2wBuDv) became an HBO movie (http://imdb.to/gmSbHv) with many big stars in the cast, such as Ed Asner playing Warren Buffett. 
The events of the fateful weekend leading up to the Lehman filing have come back to mind on its fifth anniversary. There was the high-drama bankers’ summit Friday night, called by Treasury Secretary Hank Paulson after the market closed. Bank CEOs walked from their Wall Street offices, without aides, to the fortress-like headquarters of the New York branch of the Federal Reserve, which, among other things, holds around 7,000 tons of gold in a basement vault I had the pleasure of visiting once, back in the 1970s, when one could still do such things.
Paulson told the titans of banking that the time had come to lay self-interest aside, stand together, and buy Lehman’s “troubled” assets for the good of the country. By such sacrifice, the remaining “good” assets could be acquired, presumably with an expectation of profit, by Bank of America and Barclay’s. Lehman would continue as a going concern, meet its obligations, and everybody at the meeting would be better off, though some might be more better off than others. The bankers considered this but soon quarreled over the allocation of risks and rewards in the deal. Each presumably saw itself as advantaged by taking its chances with a Lehman default, and no one wanted B of A and Barclay’s to have all the fun. Besides, by forsaking collective action, each bank bestowed upon itself a truly golden gift of inside information – Lehman was toast, but the rest of the world wouldn’t know it until sometime Monday morning. A scramble ensued to exploit the situation as best as possible. John Thain of Merrill Lynch, most notably, agreed on Sunday to sell his storied firm to Bank of America rather than face Monday morning’s sh*tstorm all by his lonesome.
The feeling of Awesome Significance no doubt was strong among the players that weekend, but what happened was quite predictable, as shown in the game of the “prisoners’ dilemma.” Two prisoners are interrogated separately. If they both stay mum, both walk. If one rats out the other, the rat gets leniency but the silent one is screwed. Hence each rats out the other and both are screwed.
Hank Paulson, born in Palm Beach, a Dartmouth and Harvard Business School grad and reliable country club Republican, evidently had the notion that Stewards of High Finance would conduct themselves differently from the two common criminals of the prisoners’ dilemma. They would listen to their better angels, and all of them, and the nation, would prosper.
Five years later, it’s clear he was very very wrong.
Following the Evidence 