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September 15, 2008

On Friday, September 13, 2008, I was working in a wirehouse, and a broker a few rows ahead of me was imploring a client to buy stock in Lehman Brothers, as a deal with Barclay's Bank was in the works to rescue the firm. The stock closed at $3.59 a share that afternoon, and the share price even firmed up slightly in the aftermarket. The client bought the shares. I remember driving home from the office and wondering to myself why would Barclay's want to buy Lehman at a prearranged price when they could just let it fold and pick up the assets at auction? In any case, I wouldn't go near such a thing. It had been a hard year for the market, and although the portfolios I managed certainly took their lumps, I was glad I came from a Fixed Income background. Most of the other brokers at this shop didn't know a thing about bonds, municipal finance, or basic credit metrics. Every holding they had was an equity, not an obligation. But most of the market, despite the tumultuous year, went home for the weekend figuring a little duct tape and a few arranged shotgun marriages would stop the descent, all would be well again, and maybe we could find some bargains.

With such clarity, I still remember picking up my Blackberry from my night table as I woke up Sunday morning to see the news that the Chancellor of the Exchequer forbid Barclay's from buying Lehman, there would be no rescue, and I knew Monday would be an absolute hell. But nothing prepared me emotionally for what was to come.

The broker who sold the Lehman shares never did come back to work. The shares were worthless, having dropped 96% at the open. My Thompson screen wasn't just a sea of red- it was column after column of double and triple digit share declines. Nothing held up. There was a strange feeling in the pit of my stomach I remember experiencing only once before. And then I recalled it was precisely the same tense nausea I felt when I saw the second plane crash into the World Trade Center. This was going to be a hard time, and no one could tell how far things were going to go down and how things were going to end up, or if it was an “end.”

The following weeks were a horror of national depression and anxiety.

As we entered into the Fall, odd things were happening all over the country. House pets were found roaming the streets as owners no longer had the money to care for them. Driving around town, one was greeted by block after block of vacant retail storefronts. I usually listened to sports radio at night before retiring. ESPN was left with three advertisers: a debt collection relief agency, a firm that negotiated IRS settlements, and a “male enhancement” pill that was guaranteed to work. These three ads were repeated with each and every commercial break for hours on end. Neither Coors, Anheuser-Busch or Ford Motor Company bothered to place any ad dollars. They knew you weren't buying, and they weren't going to budget a penny even trying to get you to. There was another odd phenomenon I noticed that I didn't figure out until years later: I had seen at least a dozen cars in my neighborhood left in their driveways with their license plates removed. I thought this was just a coincidence until I realized this was a way to save money. The owners canceled their auto insurance, mandating that they turn in their plates, and under New York law, you're not allowed to park an unregistered vehicle in the street. This is hardly a poor neighborhood, but even here, they did without. This was remarkably common, and it showed how far reaching this was.

All asset prices shriveled. After a few weeks of this turmoil, I managed to collect myself and realized there were some stone cold bargains out there that people were ignoring. I sent out a stern e-mail reminding people that the earth was still turning, and the world wasn't coming to an end. I put out an offering of Yankee Stadium PILOT bonds that had declined so far in price, they were yielding over 10%, before figuring tax exemption. No one bought them. I realized it wasn't because they reasoned the Yankees would cease to exist, but people were just too scared. They wanted to be liquid in case “anything” happened, and I couldn't blame them. I did manage to sell some water authority bonds very cheaply, as some shrewd investors realized residents of Long Island's North Shore would not stop showering. I had spotted an item that in the worst depths of the turmoil, Ara Hovnanian was scooping up his own company's bonds at around 20 cents on the dollar. Months later, I offered some HOV debt at $66.00 per bond, as housing was finding its feet. No one wanted them. Later still, when they jumped to $88.00 a bond, and were still yielding well into the double digits, clients loaded the boat. All were eventually called at Par. That was a good lesson in market psychology.

I must have read a dozen books on the crisis, and perhaps tens of thousands of words in articles and analysis. Perhaps the best of the genre is Joe Nocera's and Bethany McLean's “All the Devils Are Here.” All of the books recall the same history, but this particular book arranges the personalities and events in a way that brings a fuller meaning of the crisis to the reader. Sadly, most Americans still have little or no idea what caused this to happen, and like Pearl Harbor, the Atomic Bomb and September 11th, it will shape (or warp, if you will) our country's perception of itself. We are still not past it.

It took years for the country to get some of it's economic confidence back, and it was a slow and grinding process. The recovery has not been evenly distributed by region, and a good deal that was lost can never be regained. This has caused a great deal of anger and resentment, and regrettably, no policy will change this. The passage of time will, as a new generation roots itself in the scarred economy the Great Financial Crisis left behind.

For me, there did come a moment a couple of years later when I realized the day had come when the crisis was truly over: My neighbors were planting mums again. That was it. We were back.

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