Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers

Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers

3.8 45
by Lawrence G. McDonald
     
 

ISBN-10: 0307588335

ISBN-13: 2900307588332

Pub. Date: 07/21/2009

Publisher: Crown Publishing Group

The Inside, Untold Story of The Collapse of Lehman Brothers-As It's Never Been Told Before

The CEO and his court . . .

Richard [Fuld] had even turned Lehman's board of directors into a kind of largely irrelevant lower chamber. This was yet another group to rubber-stamp his decisions and collect generous fees. It was not for supplying well-meant and lucid wisdom

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Overview

The Inside, Untold Story of The Collapse of Lehman Brothers-As It's Never Been Told Before

The CEO and his court . . .

Richard [Fuld] had even turned Lehman's board of directors into a kind of largely irrelevant lower chamber. This was yet another group to rubber-stamp his decisions and collect generous fees. It was not for supplying well-meant and lucid wisdom in the current wild marketplace but for agreeing with the monarch, accepting his all-knowing take on the bank's investments. Above all, the board was created not to rock the royal barge as it made its stately way downstream.

What they didn't understand . . .

Later that day, Mike confided to Larry and Alex, "Neither he [Lehman president Joe Gregory] nor our chairman [Richard Fuld] understands the dangers of securitization, the leverage in the system. They cannot understand. And they will never understand. When I beg either of them to listen to what I am saying, their eyes glaze over."

The efforts to turn the ship around . . .

[They] implored Dick [Fuld] and Joe [Gregory] to slam on the brakes, to cut that $ 500 billion debt drastically. They had proposed that instead of being thirty-four times leveraged, we cut back to twenty-five times, which would bring the debt down to $380 billion. Instead of that, we were headed straight up . . .

The coup . . .

He invited his senior colleagues to dinner at a private members' dining club on the Upper East Side on June 5. . . . [T]he Bordeaux played its soothing role in freeing up inhibitions, and it swiftly became apparent that this select gathering had all the necessary qualities to provoke the most thoughtful and genteel of corporate riots. And as academic discussionsbecame intermingled with profoundly held opinions, which were in stark contrast to those on the thirty-first floor, the mood changed. . . . It had become blatantly obvious that drastic action was called for. Either Dick Fuld or Joe Gregory had to go.

Going over the cliff . . .

"The issue is the credit default swaps," said Pete. "There's $72 trillion of them out there held by seventeen banks, and Lehman must be sitting on $7 trillion of them. Likewise, since Lehman is a prime broker, what happens to all the other prime brokerages if Hank [Secretary of the Treasury Paulson] lets Lehman go? Right there, you're talking Armageddon."

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Product Details

ISBN-13:
2900307588332
Publisher:
Crown Publishing Group
Publication date:
07/21/2009
Edition description:
New Edition
Pages:
368

Table of Contents

Prologue 1

1 A Rocky Road to Wall Street 9

2 Scaring Morgan Stanley to Death 34

3 Only the Bears Smiled 57

4 The Man in the Ivory Tower 81

5 A Miracle on the Waterway 106

6 The Day Delta Air Lines Went Bust 131

7 The Tragedy of General Motors 156

8 The Mortgage Bonanza Blows Out 182

9 King Richard Thunders Forward 210

10 A $100 Million Crash for Subprime's Biggest Beast 241

11 Wall Street Stunned as Kirk Quits 266

12 Fuld, Defiant to the End 296

Epilogue 327

Acknowledgments 341

Index 343

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Colossal Failure of Common Sense 3.8 out of 5 based on 0 ratings. 45 reviews.
Anonymous More than 1 year ago
While the book does provide some helpful background on the meltdown, overall the book is too painful to read to be worth it. First, the author bills himself as an insider and would like people to think he was right up there with Kirk, Gelband and McCarthy. He was not and that goes to his overall credibility. Lehman has thousands of vice presidents and a VP is the bottom (the jobs that 20-somethings have). McDonald provides no nuance. Everything is either black and white and written in such an over dramatic fashion. He has such a high regard for himself (even to the point of saying absolutes like "I was the only one who saw this") and is so completely unlikeable that you suffer through the book with every page. Because he's not a journalist, he takes liberties with quotes and attribution and some of his facts are just plain wrong. In short, save your money and time and wait until the new books by real journalist come out.
Anonymous More than 1 year ago
This is an inside account of the failure of Lehman Brothers investment bank by a relatively low-level bond trader. While he has something of an axe to grind with the firm's leadership, so do all of us taxpayers. His analysis of the failures of management and strategy by the firm have the ring of truth. Certainly a lot can be learned about the internal politics of the firm from this account. It is reasonably well written. Early on there is a lot of biographical material about the author, which isn't as interesting, but it does illuminate his point of view, and describe his rather unconventional path to the investment banking industry. Not the only book you should read about the financial crisis, but a very interesting one.
sickofpollytics More than 1 year ago
Excellent book - easy to understand. Author provides down-to-earth explanations for the many derivative products he discusses in the book. I found the book to be a very interesting read and highly recommend.
Berkley More than 1 year ago
I have been involved in the professional money management business for more than 30 years. I recall names on the "street" such as E.F. Hutton, Kidder Peabody, Bache, Shearson and Salomon Brothers. The demise of Lehman is another in a long line of blowups on Wall Street driven primarily by leverage and the miscalculation of risk. This book is a great read in the long-line of this type of story, but this book may indeed go down with Barbarians At the Gate as a Wall Street classic. Anyone who is a student of the capital markets may indeed enjoy this read.
Anonymous More than 1 year ago
Lawrence McDonald does an excellent job of tracing the roots of the financial meltdown of 2008-09, all the way back to the repeal of Glass-Stegall combined with a well-meaning policy change designed to encourage home ownership among Americans. He similarly traces his own history in finance and marketing, and confesses his dream was always to work at Lehman Brothers, one of the smaller but more historically prominent investment banks on Wall Street. When he puts the two together, and begins to show the decisions and actions that put Lehman on the road to ruin, the book gets so compelling it's hard to put down. He has several candidates for primary cause of Lehman's collapse, but it's safe to ascribe the collapse to a combination of greed, envy, poor management strategy, and poor execution. While the bulk of Lehman continued to operate profitably and earn record or near-record profits, the sub-prime and Alt-A mortage business, along with CDOs and derivatives, and a hugely overpriced commercial real estate portfolio, combined to tip it into bankruptcy. Well written, well researched. Fascinating book.
Oops_Pumpkin More than 1 year ago
I was quite interested in reading the book due to recent history. However, I found the author to be extremely annoying how he knew this and that and yet did nothing about it. The title is a misnomer, it should be a lesson in failed leadership at his level and above. I didn't feel any sympathy who worked for Lehman, $30 million dollar bonuses in paper and so forth for employees who retire in their early 40s. Like it was nothing and now to only have $3 million. Boo hoo. If anything his rationale was the reason the federal government should not have bailed out Wall Street but let it survive on its own. Most CEOs seem to be like Mr. Fuld, seeing their company as fiefdom instead of the greater good. Perhaps Congress will finally wake up and start taxing paper profits into absolute submission along with increase regulation that traders have the actual funds available to back up their purchases. And anyone who believes in paper profits needs to wake up and realize it's not real until it's in your banking account. I recommend business students read this book as part of their undergrad or graduate program and understand that what you do really does affect everyone.
harunari More than 1 year ago
Lawrence G McDonald is a little full of himself, but there is no doubting his passion and despair over the demise of Lehman Brothers. With the help of writer Patrick Robinson, he lays out in great detail, what went wrong at Lehman Brothers, why it went wrong, and what some of the managing directors of the company tried to do to save the company, albeit, too late. His pre-Lehman career is also interesting, he was the greatest pork chop salesman on earth, he snuck into brokerage firms disguised as a pizza deliveryman in attempts of being hired as a broker, and he crashed Boston country club golfclubs in order to obtain member mailing lists so he could call them up and sell them securities. Impressively, he and a fellow broker, Steve Seefeld, launched the website, Convertbond.com, which they ended up selling to Morgan Stanley for seven figures. In addition to learning the nuts and bolts of the securities business on Wall Street, we also learn about the personalities on Wall Street, Good, Bad, and...well, I don't think there are any inbetween. Suffice to say, it was the selling of mortgage backed securities around the world that contributed to the worst Recession since the 1930's and brought down Lehman Brothers and so many other firms. "A Colossal Failure of Common Sense" is well worth the read.
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Neil_Jackson More than 1 year ago
Richard Fuld's bias for bigness, greed even in disaster, and righteousness in failure distorts the realities of human failure and moral absence. These weaknesses have been captured in Mr. McDonald's fascinating account that won't let you put the book down. The story is compelling, honest and scary. It is more than the realization that greed left unchecked once again destroys more than those involved in its acts. Mr. McDonald's book is a significant accomplishment for current and future generations and should be required reading for all Board of Directors, Director's Colleges, Executive Education forums and College Business courses. Mr. McDonald was at the right place, at the right time, did the right things and now tells us how wrong overcame right and hurt so many, so quickly. I saw a board of directors at Lehman Brothers that is a sad and truthful reflection of many companies. Their lack of action to reign in Mr. Fuld forces the reader to wonder where corporate governance really exists. It forces an incredible inside examination of the reader's courage. It challenges you from the beginning by placing you in the rooms, seeing the walls, visualizing the tenseness, being on the phone calls, hearing the stress, being in the meetings, witness to un-tempered power, seeing the indicators of abuse, deception and fraud, reporting your concerns and smelling the dung excreted from those entrusted to lead. You know it is real, you feel the forces of being dismissed as a person, and know that Mr. McDonald is right that common sense is absent as well as common dignity. Fuld and his team of cronies including the Board should be seeing each other today through bars. You also see and feel passion, love, respect and friendship and trust that Mr. McDonald received first from his parents and then gave to those he served with and for. There are usually, and understandably, multiple reasons and systemic causes for a total collapse like what happened at Lehman Brothers and Mr. McDonald's account addresses them all openly, honestly and educationally. I received back more value than the cost of the book in the first chapter. Each reader should come away bound by renewed moral principals that ensures where they end is in line with where they began; innocent of corruption, unwaivered by greed and focused on what is right in their success and the success of those they are entrusted to serve and lead. May Mr. McDonald be blessed forever with the strength received from his family, friends and his entrusted readers. Buy this book, keep it near you for your entire career, read it regularly and remember why it is important to be honorable to all relationships and finish where you want. Neil Brereton Jackson Board Risk Consultant XCEO Inc.
Truthguy More than 1 year ago
McDonald places himself amongst a group of the best and the brightest, working long hours and employing clever strategies to make huge profits. He makes it sound as if the investment banker is key to economic prosperity, yet no investment bank has ever made a nickel. He is amongst a group that simply redistributes the wealth created by others. People like Edison, Ford, Carnegie, and more contemporary folks like Jobs, Gates, Hewlett, are the creators of wealth, taking raw materials and intellect and producing products and jobs. He and the people he admires spend their energy concentrating wealth in the hands of a few at the expense of millions. They devise clever schemes to take money out of pension accounts and 401Ks and put it in the bank accounts of people like Dick Fuld. I sometimes think about what this world would look like if the brilliant people feverishly working to move the money around, redirected their efforts to actually do some good, perhaps in medicine, engineering or education.
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