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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

“THE ONLY ALTERNATIVE WAS THAT LEHMAN HAD TO FAIL”
Miller insisted that there had to be an alternative, because filing for bankruptcy
would be “Armageddon.”  Lehman had prepared a presentation arguing that a
Lehman bankruptcy would be catastrophic. It would take at least five years to resolve,
cost  to  billion, and cause major disruptions in the United States and abroad. 
Baxter told the FCIC, “I knew that the consequences were going to be bad; that
wasn’t an issue. Lehman was in denial at that point in time. There was no way they be-
lieved that this story ends with a Lehman bankruptcy . . . they kept thinking that they
were going to be bailed out by the taxpayer of the United States. And I’m not trying to
convince you that that belief was a crazy belief because they had seen that happen in
the Bear case.” Baxter’s mission, however, was to “try to get them to understand that
they weren’t going to be rescued, and then focus on what their real options were,
which were drift into Monday morning with nothing done and then have chaos break
out, or alternatively file.” He concluded, “From my point of view, first thing was to con-
vince Harvey that it was far better to file than to go into Monday and have complete
pandemonium break out. And then he had to have discussions with the Lehman
Board because they had a fiduciary duty to resolve what was in the best interests of the
company and its shareholders and other stakeholders.” 
“The only alternative was that Lehman had to fail,” Miller testified to the FCIC. 
He stated that Baxter provided no further details on the government’s plan for the
fallout from bankruptcy, but assured him that the situation was under control. Then,
Miller told the FCIC, Baxter told the Lehman delegation to leave the Fed offices.
“They basically threw us out,” Miller said. Miller remembered telling his colleagues
as they left the building, “‘I don’t think they like us.’”
Miller continued:

We went back to the headquarters, and it was pandemonium up there—
it was like a scene from [the  film] It’s a Wonderful Life with the run
on the savings and loan crisis. . . . [A]ll of paparazzi running around.
There was a guy there . . . in a sort of a Norse god uniform with a helmet
and a picket sign saying “Down with Wall Street.” . . . There were hun-
dreds of employees going in and out. . . . Bart McDade was reporting to
the board what had happened. Most of the board members were
stunned. Henry Kaufman, in particular, was asking “How could this
happen in America?” 

The group informed the board that the Barclays deal had fallen apart. The gov-
ernment had instructed the board to file for bankruptcy. SEC’s Cox called. With Tom
Baxter also on the line, Cox told the board that the situation was serious and required
action. The board asked Cox if he was directing them to file for bankruptcy. Cox and
Baxter conferred for a few minutes, and then answered that the decision was the
board’s to make. The board again asked if Cox and Baxter were telling them to file for
bankruptcy. Cox and Baxter conferred again, then replied that they believed the gov-