Sunday, September 15, 2013

Lehman Brothers Wasn't Always the "Bank of Evil"

Emanuel Lehman, co-founder of Lehman Brothers

Since 2008, September 15 has become a day that lives in financial services infamy. It's the day the fourth largest bank in the United States filed for Chapter 11 bankruptcy protection, the largest bankruptcy filing in US history. The announcement caused the Dow Jones Industrial Average to lose 500 points (the largest single point drop ever at the time), and spread financial panic throughout the world. At the time of its filing, Lehman Brothers had  $768 billion in debt and $639 billion in assets.

As the Lehman crisis unfolded, the Wall Street Journal reported that executives at a Lehman subsidiary Neuberger Berman (acquired in 2001) sent an e-mail suggesting that the Lehman top brass forgo multi-million dollar bonuses to "send a strong message to both employees and investors that management is not shirking accountability for recent performance."

Lehman Brothers Director George Herbert Walker IV (cousin of George W. Bush) shot down the Neuberger proposal. According to emails released by the House Committee on Oversight and Government Reform, he wrote to his executives "sorry team. I am not sure what's in the water at Neuberger Berman. I'm embarrassed and I apologize."

Reports like these made Lehman a symbol of the financial crises, recklessness and greed; the quintessential "Bank of Evil" (as depicted in Despicable Me).

It wasn't always so. Lehman Brothers began as a dry goods store in Alabama in 1844, founded by three sons of a cattle rancher. They capitalized on cotton's high market value be accepting raw cotton as payment for merchandise, eventually becoming a successful commodities trading business.

After the Civil War, they moved to New York City and helped found the New York Cotton Exchange (today part of the IntercontinentialExchange).

Throughout his life, founder Emanuel Lehman was known as a great philanthropist, especially to the most disadvantaged members of society. When he died in 1907, his gift of $150 thousand ($3.750 million today) established a school for "the crippled children of the ghetto," according to the New York Tribune.

According to the New York Times, on his 70th birthday he gave $100 thousand ($2.8 million today) to the Hebrew Orphan Asylum of New York. Upon receiving the gift, the trustees of the Asylum went to Mr. Lehman's home to thank him:

"We have come tonight to congratulate you on your birthday and to tender you a token of our regard by presenting you with a loving cup. Bright and untarnished as its metal is your reputation, in business and social life. Beautiful as it lines and shape are your known qualities as father, brother, and friend in the family circle and in the larger world. 

The depth, width and size of the cup, however, are entirely too small to hold a scintilla of the love, affection, and esteem your family, colleagues, friends and neighbors harbor for you."
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Flannery O'Connor

You shall know the truth and the truth shall make you odd.