A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers
A review for Ijustfinished.com:
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"A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers"
Author: Lawrence McDonald
Rating: (4)
ISBN: 9780307588333
Lawrence McDonald was a vice president in distressed debt and convertible securities trading at Lehman. This is his story as a “third floor” trader. The nasty stuff that led to Lehman’s bankruptcy took place with mortgages on the fourth flour and the incompetent leadership of CEO Richard (“King Richard”) Fuld and President Joseph Gregory on the thirty-first floor. McDonald has no particular insight on Fuld (although a vice president of the firm, apparently he never met Fuld) and only limited discussion on how the fourth floor worked. Having said that, it offers a good look at the inter-workings of firm trading. Interestingly, the leaders in trading and investment banking became well aware of the problems with mortgage securitization as the market started to collapse and gave strident warnings to both the 4th and 31st floor people, all to no avail (and they usually left the firm shortly after). The traders did analyze the problems and bet against the mortgage market by shorting the stock of mortgage finance companies and home builders and buying credit default swaps on various subprime bonds. Being in distress debt, McDonald was active in this endeavor. Another interesting part of the story is the mad rush into commercial real estate and leveraged buyout deals that Lehman jumped into at the top of the real estate bubble. This is the part of the story that suggests that Fuld was out-of-touch and delusional. [Portfolio Magazine later named Fuld the worst American CEO of all time.] McDonald was fired shortly after the Bear Stearns collapse and discusses Lehman’s collapse and bankruptcy as an outsider.
A Colossal Failure is McDonald’s story and he doesn’t get to Lehman until page 81 of the book. Overall this is an interesting read from the unique perspective of a Lehman insider. His discussion of the workings of mortgages and other elements that brought down the firm, however, don’t really have that insider perspective. For all its limitations this is an interesting read and I recommend it to anyone interested in the details of the current subprime debacle.
