Customer Reviews

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

5 star:		(146)
4 star:		(32)
3 star:		(17)
2 star:		(16)
1 star:		(37)

 

 

Two kinds of people are likely to be attracted to this book: the common man in the street who wants to know how a company like Lehman blew up so spectacularly and the financial markets insider who wants to know the inside scoop.

If you are the former, this book is likely to please. It has all the elements of a pot boiler - the breathless accounts of secret meetings, mutiny in the boardroom and the heroic efforts of a few key guys trying valiantly to save the sinking ship. It has the relentless enemy and the arch villain. The only thing missing is the scantily clad woman draped over the hero's arm.

The other side of the barbell is the financial services insider who knows all the acronyms inside and out - CDO, CLO, RMBS, CMBS, SIV who is nevertheless looking for a straight account of what went wrong - like the classic 'smartest guys in the room' on the Enron disaster.

If you are on that side of the barbell, steer clear of this book. It offers no insight into anything, except perhaps the massive ego of a low level trader. By all accounts, Larry McDonald should never have been allowed to place the kind of bets he claims to have made. He was obviously a junior trader on a bond desk that used shareholder money to short everything in sight taking massive short CDS positions on all sorts of names, good and bad. The irony seems entirely lost to him, but his desk was part of the CDS problem - buying protection with no underlying holdings.

Like any gambler, he worships the analyst (Jane Castle) who gave him the hot tip - (Buy Delta, young man!) but is too dumb to acknowledge that Delta could easily have woundup another Eastern, or more to the point, another TWA. The 'hostile' bid from US Airways that made his profit, nearly killed US Airways... but I digress.

Larry does let his political persuasions come through. Clinton is an arch villain for letting Roberta Achtenberg loose on banks 'forcing' them to lend to the huddled masses. 'Easy mortgages were the invention of Bill Clinton's Democrats' he proclaims. Never mind that the CRA ran for over 12 years with nary a problem until the boneheads on Wall Street decided to get in on the action by securitizing it.

Perhaps the most telling passage comes in the tail end of the book and summarizes it quite well:

"All my life, I've been a laissez-faire Ronald Reagan / Margaret Thatcher capitalist, swearing by the market, taking the risks and the devil take the hindmost. But this one time, I was looking for a Givernment rescue and I wasn't going to get it"

This one time. When my stock value is at stake, the principles I held all my life just vaporized. Hank Paulson should have cared more about my stock options in Lehman. That son-of-a-bitch was making an example out of Lehman with *MY* money.

This book is a lousy excuse for a tell-all or even a straight accounting of the events leading up to Lehman;s demise. 'When Genius Failed' this ain't.

The collapse of Lehman Brothers is seen as the pivotal event that led to the economic collapse of 2008 and much press has been devoted to the exact chronology of how Lehman came to fail. But it takes inside knowledge to really get into the corporate psychology, culture and the psyche of the employees and Larry McDonald is that person. A farmer Vice President at Lehman, McDonald has the knowledge and insight to know what led Lehman to take the actions that ultimately led to its demise and McDonald repeats quite convincingly here his central premise as to what led to the collapse; that it wasn't a large number employees, but only eight, including CEO Richard Fuld. It was the investment strategy of this small coterie of employees that overextended Lehman's holdings of credit default swaps, collateralized debt obligations and derivatives that ultimately led to Lehman's desperate need to de-leverage and quickly seek an infusion of capital. McDonald paints a portrait of detached and distant senior executives who created an almost separate lair at Lehman's headquarters that only served to increase their detachment. In turn these leaders inculcated a culture of relentless demand for results led employees to take greater risks and in turn fostered a culture of greed.

McDonald's tale of `mission creep' when it comes to declining ethics is a familiar tale whether it is WorldCom, Enron or Lehman. But at times his premise seems a bit conflicted: if the truly destructive forces at Lehman were limited to these eight employees alone then why focus on the broader culture of declining ethics? Weren't those declining ethics equally responsible for Lehman's collapse? Can someone so close to the situation really be objective in analysis and conclusions? McDonald certainly does seem to have done his homework on the research and there are some genuine bombshells in here, especially the meeting between then CEO Richard Fuld and then-Treasury Secretary Henry Paulson regarding Lehman's de-leveraging. The upshot of the meeting was Fuld sharply criticized Paulson both personally and professionally, and McDonald posits that it was this interchange that likely led to Paulson's decision not to intervene to save Lehman Brothers. Given recent developments with Paulson regarding Merrill Lynch's shotgun marriage with Bank of America the veracity of McDonald's story seems to be increasingly true.

While there is a flood of books on the economic collapse, the best ones more narrowly focus on specific players as it's easier to follow microeconomic stories than macroeconomic ones. "A Colossal Failure..." follows in the tradition of great books such as "Barbarians at the Gate" about the takeover of RJR Nabisco or "The Smartest Guys in the Room" about the Enron fiasco. "A Colossal Failure..." is very well written and well researched, but it is also a chilling look into not only McDonalds psyche, but those of his compatriots on Wall Street. No one wakes up in the morning plotting how to destroy their company that day, but the erosion of ethics is so gradual that many wind up doing things they ultimately come to regret dearly. The damage to their resumes, to their credibility, and their ability to find a new job is often irreversible. To varying degrees McDonald partially succeeds in his argument that it was the gang of eight, who he names in the book, which ultimately brought Lehman Brothers down. But to a larger degree it was many of the employees, himself included, who were the willing participants that changed to corporate culture to one of unbridled greed that ultimately led to the fall. "A Colossal Failure..." is at once a roman a clef and a cautionary tale to all of corporate America; this too could be you if you're not careful!

This book is not a detailed look at why Lehman fell. It is one persons view--a lopsided view from the trading desk. The author spent way too much time talking about his career and brilliant calls, and way too little time on what was happening in the executive suite.

As a former Lehman Managing Director who worked with many of the key characters in this book, Lawrence McDonald excepted, I would strongly recommend potential readers to avoid this poorly written, turgid, self-serving drivel. The author, a relatively junior employee, clearly had no access to most of the protagonists in Lehman's demise, other than a small coterie of New York Fixed Income colleagues. This is an ill-informed rant, which simultaneously attempts to whitewash a select group of individuals. There is a great book out there waiting to be written about the fall of the House of Lehman, but this is not it. If I could rate this no stars, or preferably negative stars, that's what it would get.

This book is mistitled. It should be titled. "A Colossal Waste of Time." It is not an inside story about Lehman Brothers but rather an autobiography of some guy no one has ever heard of or cares about. Substantially more pages are devoted to the author's youth and college years than are devoted to the history of Lehman, a complete bio of the CEO Fuld, or even much about the financial system in which Lehman operated. The author clearly wanted to tell the world his life story. He did so in a poorly written, mistitled cure for insomnia.

The fall of Lehman, including the hubris and mismanagement of Dick Fuld and Joe Gregory, is an important story to be told. However, this book is a colossally painful read. I would wait until future books by journalists come out.

This book is simply a vehicle for McDonald's own ego and hubris, which is ironic given the subject matter. He claims that he is an insider, but he was one of thousands of vice presidents. And yet he deceptively tries to paint the picture that he, Michael Gelband, Alex Kirk, and Larry McCarthy were all at the same table. This, along with lines like "I was the only one who realized..." go to his overall credibility and makes me just roll my eyes.

Everything is black and white to McDonald, but there is much more nuance to this story and that's what I want to read. And the melodrama throughout the book is beyond annoying -- starting with the line "It was probably the worst triple since St. Peter denied Christ." Seriously? And it's like that all the way through the book.

Long story short, the only reason why this book will make any money is because it's the first book out. But it's worth the wait to get the story from an author whose goal is not simply self-promotion and my take-away from this book is that McDonald wrote it more to stroke his ego than anything else.

There will be plenty of books that take the necessary and critical look at Fuld and Gregory's actions, so save your time and money and skip this one.

The book is a tale of the infamous collapse of Lehman Brothers. The author Lawrence McDonald is former vice president of distress debt and convertible securities at Lehman Brothers. He was at the firm for the boom and bust years from 2004-2008.

When I received the book I was very excited to start reading the book, curious about an insider view on the mistakes that caused the collapse of the huge investment bank. I normally am not a very picky person. I like most books if they are informative and decently written. However, the book overall was a big disappointment in my eyes. I was looking forward to a book that would describe in depth the role Lehman brothers played in the sub prime meltdown and the actions of management that led to the biggest bankruptcy in history.

The big is more a biography of the author who only spent four years at the firm, rather than a tale of the inner workings of Lehman Brothers. The first quarter of the book had nothing to do with the firm, instead it was a detailed account of the author's personal life. This included tales of the author's career as a successful pork chop salesperson( I kid you not). Once the book got into details of McDonald's career at Lehman Brothers it was still a disappointment to me. The author tried to make himself to be the hero who attempted to save Lehman Brothers. He claims that he knew for many years that the mortgage department was taking huge risks and he tried to balance that out by shorting stock in lenders, and shipbuilders. He glorifies his department in the distress debt and convertible bond and coverable bonds department for attempting to rescue Lehman Brothers from its mess.

Richard Fuld and Joseph Gregory(the president and COO) were made out to be darth vader like figures aloof from the rest of the firm, and completely naive to the huge risks the firm was undertaking. He claims that Fuld did not have the firms best interests in mind, and actions taken by Fuld such as overpaying to buy leveraged hedge funds were done out of jealousy to the success of Blackstone and Goldman Sachs. I do not know if the way he presented the picture is close to reality or not. However, it smacked of self righteousness, arrogance and an attempt to make himself and his department heroes while making Fuld and Gregory into the bad guys.

The biggest disappointment was the end of the book. I hoped that the end of the book filled with exciting details of the final days before the collapse of Lehman Brothers would redeem the rest of the book. However, the author was laid off by the firm in March 2008 several months before Lehman declared bankruptcy. His details of the final hours of Lehman Brothers were based on his former colleges who were still working at the firm. Although, he was able to provide some good detail into what went on behind the scenes I felt it was inadequate. Being at the firm during those days as opposed to hearing second hand is like the difference between storming the beaches of Normandy on D-Day and being in your unit based in the safety of the US, hearing accounts on the phone from fellow soldiers.

There is a great book to be written on the subject. A tale that focused on Credit Default Swaps, Collateralized Debt Obligations and Lehman's overall role in subprime lending and securitizartion market would be an interesting and informative book for both regular Americans and investors alike. I look forward to that book coming out in the future.

There are some really great things about A Collossal Failure of Common Sense, and some embarrassingly bad ones. What's great about the book is McDonald's passionate belief in his own words, and the fact that he was NOT in charge at Lehman. If you have been reading the major books coming out of this crisis eg. Too Big to Fail, House of Cards, The End of Wall Street, you are pretty used to reading the innermost thoughts of the top guys (emphasis on GUYS btw) or at least you are used to reading the self-serving comments they make about themselves and each other. In fact I have wondered if the phrase "too big to fail," shouldn't be applied to the men in charge of this disaster. Once you become a leader of one of these firms it is completely impossible to be fired.

Larry McDonald was a trader on Lehman's Distressed Debt desk, which is probably the best thing about the book. If you were going to point to the gloom sayers in any organization, the guys in distressed debt would be the first on your list. McDonald's main point, which is that the rules of credit don't change and that bonds are debt, is the mantra of a "vulture" or distressed debt trader. McDonald would probably be the first one to agree that a distressed debt trader who sees too much debt as a disaster waiting to happen, is just doing his job--not a genius. Another thing that McDonald does, which is ridiculously overlooked in many Wall Street crisis books, is stress that the whole thing happened because there was this crazy faith that American housing prices could not go down.

The Distressed Debt desk at Lehman was the logical counterpoint to the team handling mortgage backed securities, commercial mortgage backed securities, credit default swaps and other instruments bound to drive a distressed debt guy up the wall. The most facinating part of McDonald's narrative describes the competition between these groups and the way that the distressed debt team, along with a few analysts saw the growing problem and tried, by sneaking behind management, to investigate the problem. McDonald descibes a visit to a Lehman subsidiary in California where he and a colleague visited and went to bars to talk with the mortgage salesmen who were selling risky loans. What's amazing is that not only did they have to keep their mission secret from the mortgage company, they also had to keep it secret from the mortgage backed trading team at Lehman, which would have been furious that anyone questioned their judgement.

Another good thing about the book is McDonald's use of plain English. He understands that calling debt "leverage" is a way of psychologically distancing yourself from the problem of owing too much money. He states again and again that bonds are debt, not because the reader doesn't know, but because otherwise smart people often forget that basic fact.

On the downside, McDonald's viewpoint is unfortunately as narrow as a trader's. In the first few pages of the book he appears to blame the entire problem of bad mortgage underwriting on the Clinton Administration, forgetting that when bankers don't have to worry about loan defaults (because the mortgages are sold and packaged as mortgaged backed securities) you have a recipe for disaster regardless of what the government says.

McDonald is absolutely maudalin about Lehman waxing on and on about its history and the courage of the traders and trading managers around him. He's so inured to overblown Wall Street compensation that he doesn't see how ridiculous these packages are to others. There is one point where an analyst, a young woman who, in just eight years, has made enough money at Lehman to support herself and her family for the rest of her life, decides to leave because "if you aren't going to make money, what's the point of working?" McDonald sadly agrees, sorry to see her go.

The arrogance of this statement from an employee, who has risked no capital herself, and made a very hefty amount of money from her employer, boggles the mind, and reminded me of Warren Buffet's disgust when, after handing out millions in bonuses at Salomon found that he was being treated like public enemy #1 because the traders felt that they were not being fairly compensated for what "they" had made for the firm. Well, HELLO, they didn't make a dime for the firm. They were employees who had the opportunity to help the firm make money--nothing more, nothing less.

Lastly McDonald's overromanticism of Lehman and life on the desk has him using words like "courage," over and over again. In some circumstances there was courage here, and a lot of the time there was just nerve, and a lot of smarts. McDonald feels that traders make money because of the huge responsibility they carry--but like so many traders and Wall Street people he has nothing to compare it to.

Courage? We have thousands of men and women serving in Afghanistan and Iraq right now and many make less in a year than a trader team spends having dinner at Nobu. A 25 year old Marine squad leader, who may be trying to figure out who in a village is getting ready to blow up a school, has an immense responsibility so far beyond that of a Wall Street trader that it can't be measured. And, he is usually very happy to have enough deployment pay to buy a late model used car when he comes home.

But there is a lot to be said for getting a "worm's eye view," which is what McDonald says this is. McDonald doesn't claim to know the big guys really well. He tells you what it was like to be a trader in distressed debt at a firm that went under for very stupid reasons. I'm glad I read it.

I worked at Lehman for a long time. There's some factual content is this book, but on the whole it's comical. A friend told me this guy spends every interview he does justifying his qualifications - because he has none. I've almost finished another Lehman book called "The Murder of Lehman." It's also written by an insider who despite hiding behind a pseudonym comes across as totally genuine. Looking at the reviews for this book, it seems the high ratings are from people who don't know much about finance and are seduced by a book co-authored with a thriller writer. For all you finance guys and anyone else who gave just 1 star or maybe 2, The Murder of Lehman should be a far more satisfying read. I'm thinking five stars so far. Of course, the bar has been set very low. Still, I've got to say that the prologue is brilliant and is a story I did not know. And the chapter on Lehman after 9/11 could only have been written by someone who was there. I was, and found the chapter stirring. The Murder of Lehman Brothers: An Insider's Look at the Global Meltdown

A silly book written by someone with a "colossal ego".

It's telling the author dedicates more pages to his former web-company that he co-founded than he devotes to the Federal Reserve or the Treasury. There is one reference to the PDCF -- the liquidity facility created after Bear Stearns' collapse. But no discussion of why (or how) Lehman didn't access it.

It's amusing to think his life's ambition was to work at Lehman Brothers -- as if it were some elite club. He (or his ghost writer) use such purple prose you almost laugh out loud -- describing for instance how Tom Humphreys passed around some "rich, vintage, port" after a dinner meeting. Or how Dick Fuld's office was filled with antiques -- like "Sotheby's". Or how every day he walks by the former offices at 745 7th Avenue and looks up to the 31st floor and wonders.

Much of the first 100 pages or so of the book read like he has a chip on his shoulder -- against the type of students and schools that Lehman traditionally recruited from. And he constantly reminds us that 'his resume would stack up against any of the other traders' on the desk. Unsurprisingly, he insists on telling us how much money he made for the firm and he revels in the reflected glory of his boss, Larry McCarthy, who clearly was the brains behind that desk's profits.

While railing against the hubris of Dick Fuld and the Lehman executive committee, he is too blind to reflect on his own arrogance. Here's a 40-something VP, hired outside of the regular recruiting channels, who asks his boss when he will get to meet Dick Fuld himself -- shortly after being hired. As it has been stated elsewhere, Lehman had literally hundreds of VPs in Fixed Income. It's like a Senator's aide asking when he'll meet the President. His bio on the dust jacket of the book states that he was "vice president of distressed debt" at Lehman -- but neglects to mention how many other vps worked at the firm, or frankly on that same desk.

The author is completely unsympathetic -- even when he is called to the 24th floor in March 2008 in a round of layoffs. As much as I tried to feel sorry for him, he ruins the feeling by asserting that he wasn't surprised to be laid off -- after all he was part of the old guard at the firm warning senior management about the imminent disaster waiting in the wings from deals like Archstone and CMBs. Funny, I don't recall hearing him on CNBC or frankly hearing about him at all before this book came out.

The author goes through the same tired olds saws: that Lehman was done in by a cabal of hedge funds, that there was bad blood between Paulson and Fuld, etc. However, he uncovers no new evidence on this -- just the same unconfirmed anecdotes in the popular press.

Frankly, I'm hoping the books due out later this fall have more fact than a collection of second and third hand anecdotes. And perhaps a bit more modesty on the part of the author.