Lehman Bros Almost Shut Down in 1960s

Daniel Drew,  12/2/2014




   

One person could have prevented your retirement account from being cut in half in the 2008 crash: Roberta Karmel.

In the late 1960s, Karmel was a young attorney at the Securities and Exchange Commission. When Lehman Bros was transitioning from paper files to computer files, they discovered that there was a $128 million discrepancy. That would be noteworthy at a major bank now, but nothing catastrophic. However, back then, it was more than their entire assets of $100 million. It would be like the present day Goldman Sachs saying oops we don't know where that $50 billion went.

Karmel's boss told her to call in Robert Lehman and the other executives for a chat. Then, all of Karmel's senior co-workers bailed out, leaving her to deal with the Lehman bosses. For whatever reason, Karmel didn't shut down the firm. 40 years later, Lehman Bros. did shut down in the largest bankruptcy in history, with $768 billion of debt and $639 billion of assets. This triggered massive selling in markets around the world and was the final push over the edge for the global economy. Most people's retirement accounts suffered losses around 50%.


Mo Grimeh, head of emerging markets at Lehman Bros, described the weekend before the bankruptcy announcement, "Sometime around Sunday, 4 o’clock or 5 o’clock, we started getting e-mails saying the deal is dead: no Barclays. We’re gonna file. And that’s where the panic reached a peak. If the bank was going to file for bankruptcy, we wouldn’t be able to enter the building on Monday morning. That’s really the reason everybody headed back to 745 Seventh Ave: to collect whatever personal items they might have. The trading floor was packed, but people were not working. Some were crying. Some were drinking beer. Some were doing shots of tequila. Most of them were smoking. There was total chaos."

What were you thinking Karmel? A firm that accidentally loses more than 100% of its assets doesn't deserve to be shut down? Karmel explains herself and her 50 year career in a new book called Life at the Center, which was released on October 29, 2014.

Karmel is currently a professor at Brooklyn Law School. She has mediocre ratings on RateMyProfessor.com. Common complaints include excessive reading assignments. These students won't be surprised when they see that her new book is 1,600 pages and cost $93.

Sounds like Karmel had a lot of explaining to do.