Vachon: Our good friend and former economist Clément Gignac was sitting with us at the credit committee. And Clément said the U.S. will let Lehman go. I said, ‘You’re out of your mind.’ He said, ‘No, I think they are going to let them go; they are in the mood of making an example.’ And guess what? Clément was right.
Carney: I spoke with Ben Bernanke [Fed chairman] several times during the weekend and as specific situations worsened. He was incredibly open and communicative.
Dickson: I learned about the Lehman development on Sunday [Sept. 14], the day before Lehman filed, as information was being shared among global regulators and central bankers so that we could be ready. I had just landed at the Ottawa airport when I got the message, having taken a quick trip to Halifax for my in-laws’ 50th wedding anniversary.
Leech: I think they worked through the entire night – our whole finance department and fixed-income department and legal department – … just trying to figure out what our various exposures were to the various Lehmans. … I remember them actually overnight creating the demand notices, and we actually put people physically on airplanes to Switzerland and various jurisdictions to file our claim on the bankruptcy at various different Lehman entities.
Vachon: I remember sitting in front of the computer at home, with my kids, showing them The Wall Street Journal on the Internet saying ‘Lehman files for bankruptcy.’ And I said ‘Watch this kids, that’s going to be in your history books.’
Denison: I get up early in the morning, I’m a 4:30 in the morning riser, so that first day I go down as I do, turn on CNBC and I do my stretching before I go out running and turned it on to hear that Lehman was in bankruptcy.
Donald Guloien, Manulife Financial Corp.:
I was speaking to some employees in Boston … about some of the fundamental principles that have kept us out of trouble: Don’t rely too much on modelling; do your due diligence; don’t be ashamed to ask the dumbest questions because those are often the best; be curious. … Right as that was happening, I was getting signals at the back of the room … that something is transpiring with Lehman and I need to get off the stage. … It’s very ironic: You’re talking about these principles, and then you quickly learn that some of the biggest, best institutions in the world violated, in some cases, virtually all of the principles.
Leech: In the middle of that Lehman filing, the next day we have an emergency evacuation drill at Teachers. How symbolic.
Lehman’s bankruptcy filing on the morning of Sept. 15 sets off a new stage in the crisis. Fears of financial contagion start to spread. Investors fear that if Lehman can go bankrupt, no financial institution is safe. American International Group Inc., a major insurer of mortgage-backed securities, emerges the biggest worry.
Large investment funds also start to wobble. The Reserve Primary Fund is a massive short-term investment fund whose historical value is $1 a share. But the fund owned large amounts of Lehman’s debt, and in mid-September it ‘breaks the buck,’ or drops in value, for the first time in more than a decade. That adds to the panic.
Cohen: I’m sitting there knowing Lehman is gone, with unforeseeable consequences. AIG is teetering and will need government assistance or else it will go. The situation at Wachovia is deteriorating. The situation at Morgan Stanley, while not as desperate, will need to be resolved. And if those institutions go, who knows what else will happen.
Nixon: I remember saying at the time, publicly and privately, the problem with the financial services industry is there’s no such thing as the last man standing. Just because you’re stronger than everybody else doesn’t mean you can survive. So after Lehman went, the issue was, what’s going to happen with Merrill, with Goldman, what’s going to happen with Citi, what’s going to happen with AIG. Everybody was trying to figure out the long-term consequences.