Lenny Messina, now pastry sous chef at Pier Sixty at Chelsea...

Lenny Messina, now pastry sous chef at Pier Sixty at Chelsea Piers in Manhattan, recalled the gilded lifestyles of the Lehman executives he served. Credit: Bryan Bennett

The collapse of investment bank Lehman Brothers on Sept. 15, 2008, catalyzed the most severe financial crisis and economic downturn since the Great Depression.

For Lenny Messina, a former executive pastry chef for the investment bank’s top executives, the turmoil was personal.

“It was devastating,” the Farmingdale resident said.

The Chapter 11 bankruptcy filing left the 19-year company veteran unemployed, disrupted his son’s college plans and devastated his retirement account, which was loaded with company stock. “If I were still at Lehman, I would have been retired by now,” the 56-year-old said.

The Lehman Brothers bankruptcy rippled far beyond the company’s Seventh Avenue headquarters in Manhattan. As millions of subprime mortgage borrowers defaulted, which was at the root of Wall Street’s crisis, it stripped thousands of Long Islanders, and millions of Americans, of their jobs and homes.

It became a global crisis as well.

“Spain had a huge housing price bubble,” said Juan Carlos Conesa, chairman of the Department of Economics at Stony Brook University, who was teaching at the Universitat Autònoma de Barcelona at the time. When the bubble burst, unemployment and corporate bankruptcies spiked in Spain.

Elizabeth Rose, a specialist with Lehman Brothers MarketMakers, at her...

Elizabeth Rose, a specialist with Lehman Brothers MarketMakers, at her post on the trading floor of the NYSE on Sept. 15, 2008. Credit: AP / David Karp

One defining element of the financial crisis was that few saw it coming.

“Everybody thought the economy was in great shape in 2007,” said Mitchell O. Goldberg, president of Melville-based investment company ClientFirst Strategy Inc.

The roots of the crisis could be traced to a cavalier attitude about risk and extensive use of borrowing by investors ranging from Wall Street banks to homeowners.

In the United States, many real estate brokers were peddling adjustable-rate mortgages to unqualified home buyers — so-called subprime mortgages. Goldberg said some were “ninja” loans: “No income, no job, no assets.”

A man leaves Lehman Brothers headquarters in Manhattan on Sept....

A man leaves Lehman Brothers headquarters in Manhattan on Sept. 15, 2008. Credit: AP / Mary Altaffer

Instead of being held by the banks making the loans, those mortgages then were combined and bundled into exotic securities that were sold to institutional investors.

Lehman “went aggressively into mortgage-backed securities without having a clue,” said Anoop Rai, a professor of finance at Hofstra University. Adding to the problem, it borrowed heavily, he said.

And when then-U.S. Treasury Secretary Hank Paulson was unable to sell Lehman, lenders declined to renew the loans the bank depended on, dooming the company, Rai said.

“It becomes a question of liquidity at that point,” he said. “If the market senses trouble, nobody is going to lend short term.”

Jojo Granoff, a Baldwin resident, worked in investor relations with Lehman’s private equity unit and recalls the atmosphere leading up to the bankruptcy as “surreal,” filled with confusion, uncertainty and fear. “It’s like waiting for the other shoe to fall,” she said.

Despite the bankruptcy filing, the private equity unit was insulated from creditors because of its structure. Granoff said the funds simply found new sponsors and continued operations.

Still, the Lehman stock that accounted for about 12 percent of her annual bonus in her eight years at the company fell from more than $80 per share to pennies. “I never sold any of my Lehman stock,” she said.

Ultimately, Washington moved to bail out the economy by providing billions of dollars to keep other banks afloat after Lehman’s collapse. And the Federal Reserve bought billions of dollars worth of Treasury debt — a practice known as quantitative easing — to lower interest rates, increase the money supply and promote lending.

Messina, now pastry sous chef at Pier Sixty at Chelsea Piers in Manhattan, recalled the gilded lifestyles of the Lehman executives he served.

“My pastry shop was on the 19th floor, right behind the CEO’s private barbershop,” he said. “My job was to make desserts and pastries for the top 100 executives and their clients.”

He recalled one instance when an executive with a house in Connecticut sent an air-conditioned limousine to pick up two flourless chocolate cakes on a hot summer’s day.

“My cakes are in the back of a limousine as I’m getting on a subway,” he said. “The whole way home on the Long Island Rail Road, I’m thinking about my cakes. Until the end, they were living large.”

Correction: Lehman Brothers was headquartered on Seventh Avenue in Manhattan when it filed for bankruptcy in 2008. An earlier version of this story gave the wrong location.

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