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A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers Paperback – October 12, 2010
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—Michiko Kakutani, The New York Times
“Highly readable…A Colossal Failure of Common Sense largely rings true. It expresses the anger that many former Lehman employees still feel toward Mr. Fuld. And it convincingly characterizes the investment bank as a house divided against itself, between the bears who had foreseen bubbles and the bulls who wrongly believed that this time was different.”
“... describes a CEO acting as if his firm was too big to fail.”
—Wall Street Journal
“...poignantly told...from an insider [who] witnessed, often in amazement and disgust, the corporate dysfunction and hubristic leadership that led to [Lehman’s] demise.”
“...engaging and even funny.”
From the Hardcover edition.
About the Author
PATRICK ROBINSON wrote Lone Survivor with the U.S. Navy SEAL Marcus Luttrell.
From the Hardcover edition.
Top Customer Reviews
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.
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 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.