On 10 June 2008, Dick Fuld, the soon-to-be infamous CEO of a soon-to-be infamous investment bank, Lehman Brothers in New York, assembled his executive committee in response to a second-quarter earnings report registering nearly $3 billion in losses. The purpose of the meeting was for everybody in Fuld’s inner circle to weigh in on a single question. The question was not: ‘How do we restructure the company in order to spin off our most toxic assets?’ Nor was it: ‘How can we increase our liquidity to address ballooning debts?’ Nor even: ‘With whom could we merge if it becomes necessary to avoid bankruptcy?’ All these questions would be asked with increasing urgency during the coming weeks. But, as far as Fuld was concerned, the more pressing question was: ‘How do we restore confidence?’
If, like me, you happen to be a masochistic consumer of post-mortems of the subprime-mortgage crisis that climaxed nearly a decade ago, you will regularly encounter variations of this anecdote, often with little further commentary – since confidence is among the most common and least interrogated terms in finance and economics. When I first read Andrew Ross Sorkin’s Too Big to Fail (2009) shortly after publication, I fixated upon this passage because I was simultaneously working on a Masters thesis about Herman Melville’s The Confidence-Man (1857). Like Melville, I had begun obsessively cataloguing the diverse contexts in which the word confidence was invoked; the tortured ambiguities created by those invocations; and the ways in which confidence’s often contradictory connotations could be used to confuse and deceive. As the scene from the Lehman Brothers boardroom all too clearly demonstrates, we often skip past the question of what confidence is, to ask how it can be manipulated.
To Fuld, confidence was the endgame of a hypothetical publicity campaign designed to persuade the rest of the world to accept his version of reality. It became commonplace to characterise Fuld as a delusional recluse, who sabotaged Lehman’s chance to get ‘bailed out’ like every other US investment bank by stubbornly refusing to admit how desperate the situation had become. This is how James Woods plays him in the 2011 TV adaptation of Sorkin’s book. But the villainisation of a few powerful individuals in the aftermath of a crisis is a common way we avoid reckoning with a more troubling conclusion: there might be systemic flaws in the structure of our financial system.
Fuld’s plan to solve Lehman’s problems by carefully massaging public perception was not the product of crackpot magical thinking, but the conventional wisdom of the profession. He was right to insist that any difference between Lehman’s exposure to toxic mortgage-backed securities and the exposure of their competitors was marginal. It was the disproportionate amount of media attention that distinguished Lehman from the rest of the industry. Such coverage was, in Fuld’s opinion, orchestrated by hedge-fund managers such as David Einhorn who, by short-selling Lehman’s stock, positioned themselves to profit from public panic surrounding the bank. Lehman was being persecuted for misdemeanours afflicting every bank.
While Fuld was likely right that ‘hedgies’ had suppressed Lehman’s stock price with smear campaigns, his own team used analogous tactics to prop it up. The largest single-day gain in the company’s history came on 18 March 2008, following a highly publicised quarterly earnings report. Erin Callan, who delivered the report via conference call to more than 10,000 investors and journalists, remembers realising that ‘the fate of Lehman Brothers might hang in the balance’. As with Einhorn’s speeches, Callan’s statement revealed little that wasn’t a matter of public record. Rather, subjective aspects of her demeanour – her easy tone, the casual way she handled pressing questions, her ability, in short, to disguise her awareness of what was at stake – were what interested the analysts. ‘If I could communicate the facts clearly and confidently, we would be fine,’ she recalls thinking: ‘The idea that my voice and my words were so important to these multitudes was mind-boggling.’
Such episodes explain why Fuld, in the ensuing months, doubled down on the strategy to ‘restore confidence’, repeatedly calling upon the most attractive, charismatic member of his management team to feign optimism in the face of skeptical reporters and, whenever possible, cable news cameras. Callan describes herself as ‘a star, young female performer’ who realised too late that she’d been given a ‘role’ that required her to ‘Just tell the story. Communicate the message. That’s it.’ Lehman’s calculated publicity barrage presented her as one of the most powerful women on Wall Street and the face of the company. It also made her a ‘lightning rod for Lehman criticism’, so that, as things grew more desperate, one of Fuld’s final attempts to build confidence involved having her theatrically ‘fired’ (in fact, she resigned).
Finance is theatre. Both require the collective voluntary suspension of disbelief. When we buy stocks, or even so much as make a bank deposit, we implicate ourselves in the illusion that a few slips of paper, a few drops of ink or a few lines of code are interchangeable with bushels of wheat, parcels of land and weeks of labour. Pretending that the Prince of Denmark speaks in English verse, or that French police inspectors sing harmony, is a petty achievement of collective imagination compared with currencies and securities....MUCH MORE