June 2008: Hillary Clinton called quits on her presidential campaign, Michael Phelps was en route to Beijing. Bear Stearns had collapsed in March, and Lehman’s pre-announcement of $2.8B in second quarter losses shook the ratings companies out of slumber. Lehman CEO Dick Fuld sent treasurer Paolo Tonucci seeking mercy:

“This seems extreme,” Tonucci wrote in an e-mail on June 12 to Moody’s executive Blaine A. Frantz. “Is there any way to appeal?”

It’s funny now, when Moody’s action—it placed a negative outlook on Lehman’s debt on June 9, and put the bank’s A1 rating on downgrade watch on June 13—looks anything but extreme. Even Fitch, which took a stronger stance when it downgraded Lehman to A+ from AA- on June 9, would seem restrained three months later, when Lehman’s debt was slashed to junk status following the firm’s disastrous third quarter.

Well, the story from there has been told and retold. What we read in documents from the Lehman Chapter 11 is a company in middle stages of desperation: If Fuld and Tonucci couldn’t convince the ratings companies, at least the executives might convince themselves.

Again from the desk of Tonucci, this time to Fitch managing director Eileen A. Fahey, after receiving a draft of the press release announcing the imminent downgrade:

And to Fahey again, 38 minutes later:

Lehman’s reasoning, espoused in the document Tonucci sent Fahey: The firm’s $6 billion capital raise, better trading conditions and reduced commercial real estate exposure—the firm noted it was holding onto primo assets such as Orange County waterfront property in view of market recovery—put the bank in a “very strong liquidity position.”

Fahey’s response:

[Photo by Chip Somodevilla/Getty Images]

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