Lehman Brothers Goes to War The storied investment bank Lehman Brothers filed for Chapter 11 bankruptcy in the early morning hours of Sept. Overleveraged in vulnerable mortgage-backed securities and at the mercy of short sellers, Lehman's shares had plummeted precipitously during the summer. Later efforts to sell the company failed when the chief executive, Dick Fuld, maintained too high a valuation of the firm even as the real estate chasm opened beneath it. Lehman would become one of several financial casualties of the global crisis of 2008, and it remains the single largest bankruptcy in American history. That's the history of Lehman as we remember it today. Indeed, it's easy to forget that the firm went back over 150 years, with its roots in the antebellum South. In fact, Lehman had been under existential threat before and survived, as the Civil War and Reconstruction threatened to capsize the small brokerage firm deep in the heart of Dixie. The German immigrants Henry, Emmanuel and Mayer Lehman founded Lehman Brothers in 1850 at 17 Court Square in downtown Montgomery, Ala. Originally a general store (specializing in "dry goods, clothing, groceries, hardware, boots, shoes, hats, caps, bonnets, cutlery, flowers combs etc. etc. etc."), the brothers" firm expanded into a cotton brokerage firm during the 1850s as the crop's value began to soar in Britain and France. Despite the death of the eldest brother Henry in 1855, Lehman Brothers continued to flourish in the prewar cotton boom, and as cotton became king, so too did New York City as the commodity's clearing house. A New York office quickly became a necessity for the Lehmans, and Emmanuel shifted his operations to New York City full time in 1858. As Southern states seceded in the winter of 1860-61, Montgomery became not only the Alabama state capital but also the capital of the infant Confederacy, and the Confederate cabinet set up temporary shop within shouting distance of Lehman Brothers. The Lehmans were slave owners, deeply invested in cotton, and it seemed to them that the end was nigh. Alles ist beendet! ("All is finished!") lamented Emmanuel Lehman in his daily ledger in the New York office early in the war. But through a combination of savvy, slipperiness and dumb luck, the brothers survived. The war and subsequent blockade mandated a change in approach. An alliance with a Georgia native named John Wesley Durr, forming Lehman, Durr & Co., injected needed capital. Emmanuel made the most of the cotton that did make its way to New York through the blockade, though it could not meet the demand across the Atlantic and throughout the North. He also opted to pursue an allegedly more stable mode of profit: selling Confederate securities. Traveling to London, he scoured the city shilling bonds - very much in demand in the war's infancy, significantly more so than their Northern counterparts. Emmanuel's efforts in London resulted in an awkward encounter of exchanged pleasantries and suppressed hostilities with Joseph Seligman, a Northern financier selling Northern bonds abroad. But Emmanuel's sales met with dwindling success as the threat of Confederate repudiation cast an ever-looming shadow of doubt over rebel securities. As the war entered its final months, the Lehmans" embattled firm attempted to cement their claim as one of the most loyal banking houses in the Confederacy and in the process score one of the largest sales of cotton in the wartime South. Mayer worked with Alabama's governor, Thomas Hill Watts, to put together a good faith gesture to their northern adversaries: Mayer, acting as an agent of the state of Alabama, would take $500,000 worth of cotton purchased by the state of Alabama - from his firm no less - and travel with it to New York City. The cotton would then be sold to local merchants and the proceeds would be spun off for the purchase of clothing, blankets and medicine for Alabama's sons currently languishing in Northern prisoner of war camps. Mayer and the Rev. Isaac Taylor Tichenor (Mayer's assistant, who provided a sacred and moral window dressing to this otherwise highly capitalistic venture) traveled to Virginia with the hope of meeting Gen. Ulysses S. Grant personally, or at the very least a representative of the Union who would be amenable to the arrangement. An initial meeting with Confederate President Jefferson Davis met with approval for the "humanitarian crusade." Lehman and Tichenor then wrote a lengthy note to the Union commander, appealing to his senses as a "gallant soldier" who "must feel for those brave men who by the fortunes of war are held as prisoners." Their efforts to cross Union lines under a flag of truce were denied, however, and no response came from Grant - even after repeated attempts. Finally, Lehman and Tichenor returned to Montgomery, empty-handed. The Lehmans were out hundreds of thousands of dollars in potential capital and had wasted a great deal of energy on their "benevolent" actions on behalf of the state. Things got worse. As the war drew to a close and Union forces closed in on Montgomery, Confederate soldiers set fire to all the cotton Lehman and Durr had stored up during the blockade. Such a devastating blow would probably have killed Lehman Brothers if not for the intrepid work of Mrs. John Wesley Durr, who had the presence of mind to hide the firms" cash reserve (in the form of gold) under her skirts, assuming that even Union soldiers would not stoop so low as to search there. The gamble paid off, and the funds proved instrumental in Lehman's rebirth in the post-war period. Dick Fuld could have learned a thing or two about survival from his company's creative founders. Sources: "A Centennial: Lehman Brothers 1850-1950"; Harold Woodman, "King Cotton and His Retainers: Financing and Marketing the Cotton Crop of the South 1800-1925"; Stephen Birmingham, ""Our Crowd": The Great Jewish Families of New York"; Roland Flade, "The Lehmans: From Rimpar to the New World A Family History"; The War of the Rebellion: a Compilation of the Official Records of the Union and Confederate Armies. David K. Thomson is a doctoral student in history at the University of Georgia. He is the editor of ""We Are in His Hands Whether We Live or Die": The Letters of Brevet Brigadier General Charles Henry Howard."