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A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers
One of the biggest questions of the financial crisis has not been answered until now. What happened at Lehman Brothers and why was it allowed to fail, with aftershocks that rocked the global economy? In this news-making, often astonishing book, a former Lehman Brothers Vice President gives us the straight answers—right from the belly of the beast. In A Colossal Failure of Common Sense , Larry McDonald, a Wall Street insider, reveals the culture and unspoken rules of the game like no book has ever done. The book is couched in the very human story of Larry McDonald’s Horatio Alger-like rise from a Massachusetts “gateway to nowhere” housing project to the New York headquarters of Lehman Brothers, home of one of the world’s toughest trading floors. We get a close-up view of the participants in the Lehman collapse, especially those who saw it coming with a helpless, angry certainty. We meet the Brahmins at the top, whose reckless, pedal-to-the-floor addiction to growth finally demolished the nation’s oldest investment bank. The Wall Street we encounter here is a ruthless place, where brilliance, arrogance, ambition, greed, capacity for relentless toil, and other human traits combine in a potent mix that sometimes fuels prosperity but occasionally destroys it. The full significance of the dissolution of Lehman Brothers remains to be measured. But this much is certain: it was a devastating blow to America’s—and the world’s—financial system. And it need not have happened. This is the story of why it did.
368 pages, Hardcover
First published July 21, 2009
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June 12, 2019
This is just another fantastic book on business. This will let you understand the basic technicality of Lehman Brothers failure. It has shown some methods and some empirical evidence to understand the crisis that has taken the form of the world depression.
October 18, 2014
This to make it simple is a stupid book written, stupidly by someone who very well could be extremely dense.
I have developed in my middle age an addiction to reading books about businesses and the fun stuff they get up to. In general the best of these are written by journalists who know the subject, know the players, are expert in bringing the arcane to life. Examples of excellence in this genre abound Too Big To Fail by Andrew Ross Sorkin was great, The Smartest Guys In The Room by Bethany Maclean Was even better.
I know my addiction is a little sick but I only notice how bad when I subject myself to a buffoon like macdonald. Before going into the why the book was so bad let me say a few (very few words) in his defense
1. The man obviously has a very high regard for himself but that kind of comes with the territory, if you are going to stroll into a country club and convince people to give you money being deluded helps and should not be held against you.
2. While he was a vp and hence a junior employee in the bank he did seem to have access to senior people and yes a view from the floor could have been interesting.
So why so bad.
1. It's full of self important fluff which no one could find remotely interesting. Golf and how good he and his father are at it. Meat sales and how amazing he is at that.
2. He gets small things slightly wrong which in itself not such a big deal but it does lead to a certain erosion of trust in the authors capacities. Michigans Ross business school is not regarded as the best business school in the world. Nor is UBS really based in Basel.
3. Everyone he likes is described in the most gushing of terms "I knew from the first moments I spent with Christine and Jane that I was in the presence of greatness" or " the cleverest, shrewdest, most decisive minds I had ever encountered in my business career ... I saw the snatch victory from apparent defeat, I saw them probe weakness, scent triumph, switch strategy, and lay siege to the unwary". It just seems rather statistically unlikely.
4. The love of hyperbole transcends into farce "just standing there with the great man, sharing a sacred trust, wondering if perhaps we three alone stood square against the forces of evil was an honor I still remember and treasure to this day." this is about the time someone said the market is getting a bit iffy with those mortgages.
5. With all the over excited narration it actually does a very poor job of explaining what actually happened blame is handed out liberally with dick fuld and joe Gregory coming in for the majority of it but the sad truth was that like everyone else in Lehman they thought they were geniuses and like everyone else in Lehman including the author it turned out they really were not. It's not a thriller, it's not an aid to main street it's just rubbish.
Sell for a cent on the dollar and rate it buffonery.
I have developed in my middle age an addiction to reading books about businesses and the fun stuff they get up to. In general the best of these are written by journalists who know the subject, know the players, are expert in bringing the arcane to life. Examples of excellence in this genre abound Too Big To Fail by Andrew Ross Sorkin was great, The Smartest Guys In The Room by Bethany Maclean Was even better.
I know my addiction is a little sick but I only notice how bad when I subject myself to a buffoon like macdonald. Before going into the why the book was so bad let me say a few (very few words) in his defense
1. The man obviously has a very high regard for himself but that kind of comes with the territory, if you are going to stroll into a country club and convince people to give you money being deluded helps and should not be held against you.
2. While he was a vp and hence a junior employee in the bank he did seem to have access to senior people and yes a view from the floor could have been interesting.
So why so bad.
1. It's full of self important fluff which no one could find remotely interesting. Golf and how good he and his father are at it. Meat sales and how amazing he is at that.
2. He gets small things slightly wrong which in itself not such a big deal but it does lead to a certain erosion of trust in the authors capacities. Michigans Ross business school is not regarded as the best business school in the world. Nor is UBS really based in Basel.
3. Everyone he likes is described in the most gushing of terms "I knew from the first moments I spent with Christine and Jane that I was in the presence of greatness" or " the cleverest, shrewdest, most decisive minds I had ever encountered in my business career ... I saw the snatch victory from apparent defeat, I saw them probe weakness, scent triumph, switch strategy, and lay siege to the unwary". It just seems rather statistically unlikely.
4. The love of hyperbole transcends into farce "just standing there with the great man, sharing a sacred trust, wondering if perhaps we three alone stood square against the forces of evil was an honor I still remember and treasure to this day." this is about the time someone said the market is getting a bit iffy with those mortgages.
5. With all the over excited narration it actually does a very poor job of explaining what actually happened blame is handed out liberally with dick fuld and joe Gregory coming in for the majority of it but the sad truth was that like everyone else in Lehman they thought they were geniuses and like everyone else in Lehman including the author it turned out they really were not. It's not a thriller, it's not an aid to main street it's just rubbish.
Sell for a cent on the dollar and rate it buffonery.
February 20, 2011
The author of this book is so irritatingly arrogant and self-aggrandizing that he loses all credibility. His ferocious attempts to constantly include himself so as to appear important and relevant to the story are distracting and unnecessary. I am embarrassed for him. It felt like one of the valets at the White House claiming to be an "insider" during the Monica Lewinsky affair.
Rather than let the incredible events during this period speak for themselves he inevitably tries to shoehorn some personal accomplishment into the account thereby diluting the entire message. He really wants to feel important, but in this particular tale his involvement is incidental. Had he taken the honest approach to writing this tale with his role accurately portrayed, a mere spectator, the book would have been much shorter, thankfully, and more impactful. I was not looking to read about the rise and fall of Larry McDonald. Who cares, really?
I refer the reader who is interested more in the facts of the demise of Lehman to read Too Big to Fail by Andrew Ross Sorkin. He takes a more investigative journalist approach where he had actually interviewed key players and seen documents related to the story.
Rather than let the incredible events during this period speak for themselves he inevitably tries to shoehorn some personal accomplishment into the account thereby diluting the entire message. He really wants to feel important, but in this particular tale his involvement is incidental. Had he taken the honest approach to writing this tale with his role accurately portrayed, a mere spectator, the book would have been much shorter, thankfully, and more impactful. I was not looking to read about the rise and fall of Larry McDonald. Who cares, really?
I refer the reader who is interested more in the facts of the demise of Lehman to read Too Big to Fail by Andrew Ross Sorkin. He takes a more investigative journalist approach where he had actually interviewed key players and seen documents related to the story.
March 20, 2011
Part autobiography, part analysis of the collapse of the Lehman Brothers that led to the collapse of the US economy, this book might serve better as an examination of one person, Lawrence G. McDonald, and his pathologies. McDonald was a broker for Lehman and might be a poster child for cleaning out the whole lot of Wall Street brokers. He's sexist ("The last good decision your wife made was to marry you"), racist (when people find out how bad adjustable rate mortgages are, he suggests they passed the word by "jungle drums"), and elitist (he spends a lot of time mocking the Lehman Brothers policy of diversity; he makes fun of a senior member of Lehman for ordering spaghetti instead of braised tuna).
Raised in some wealth and falling to poverty after his parent's divorce (he was afraid to go outside after they moved), he identifies with the father who spent all of his time on work and golf. Continuing the pattern, he spends more time on the menu when one of his co-workers leaves (most of a paragraph) than to his marriage and divorce. That gets two sentences. He doesn't even mention her name. Oh, he's a scratch golfer.
He rises through the ranks by being a top meat salesman on Cape Cod, and later looks down on those who don't work in the bond market with him. He only worked for the mob long enough to get his broker's license and justifies it by saying he didn't stay long. He only stole what he needed to further his career.
He blames Roberta Achtenberg for the failure of the US real estate market. Achtenberg, who was an Assistant Secretary for HUD from 1990-1993, terrified US banks into giving mortgages to people who couldn't afford them for the next 14 years, despite her absence and a change in administration. He gives less weight to the mortgage companies who paid double commissions to salesmen to create the mortgages they were bailing and selling.
McDonald made over $1 million starting a company that rated bonds and missed the irony that the company he moved to went under on crap bonds.
There's a lot more to make fun of in this book: for example, this arch-capitalist follows his father's investment advice which, oddly enough, is practically a direct quote from Karl Marx. As an example of how his experiences have made him more human, when he passes Lehman's building these days, he has empathy for those who lost millions. Apparently those who lost homes aren't worth his concern.
In the end, Lehman went under despite all their efforts to save it. At one point, George Walker IV, a cousin of George W. Bush, who worked for the firm, tried to save them by making a personal call to the president to get the firm bailed out, but the president didn't take his call. This would be a good time to look up "crony capitalism".
In the end, McDonald's strong personal opinions on the people involved in Lehman, government, etc., makes his judgment on the fall questionable.
I would suggest that anyone interested in the financial collapse take a look at "The Trillion Dollar Meltdown" by Charles R. Morris. It's excellent.
Raised in some wealth and falling to poverty after his parent's divorce (he was afraid to go outside after they moved), he identifies with the father who spent all of his time on work and golf. Continuing the pattern, he spends more time on the menu when one of his co-workers leaves (most of a paragraph) than to his marriage and divorce. That gets two sentences. He doesn't even mention her name. Oh, he's a scratch golfer.
He rises through the ranks by being a top meat salesman on Cape Cod, and later looks down on those who don't work in the bond market with him. He only worked for the mob long enough to get his broker's license and justifies it by saying he didn't stay long. He only stole what he needed to further his career.
He blames Roberta Achtenberg for the failure of the US real estate market. Achtenberg, who was an Assistant Secretary for HUD from 1990-1993, terrified US banks into giving mortgages to people who couldn't afford them for the next 14 years, despite her absence and a change in administration. He gives less weight to the mortgage companies who paid double commissions to salesmen to create the mortgages they were bailing and selling.
McDonald made over $1 million starting a company that rated bonds and missed the irony that the company he moved to went under on crap bonds.
There's a lot more to make fun of in this book: for example, this arch-capitalist follows his father's investment advice which, oddly enough, is practically a direct quote from Karl Marx. As an example of how his experiences have made him more human, when he passes Lehman's building these days, he has empathy for those who lost millions. Apparently those who lost homes aren't worth his concern.
In the end, Lehman went under despite all their efforts to save it. At one point, George Walker IV, a cousin of George W. Bush, who worked for the firm, tried to save them by making a personal call to the president to get the firm bailed out, but the president didn't take his call. This would be a good time to look up "crony capitalism".
In the end, McDonald's strong personal opinions on the people involved in Lehman, government, etc., makes his judgment on the fall questionable.
I would suggest that anyone interested in the financial collapse take a look at "The Trillion Dollar Meltdown" by Charles R. Morris. It's excellent.
October 4, 2018
Though such interests are not common in the field I explore, I am sometimes interested in understanding the market. This is one book that I randomly picked in an old book market in Patna and believe me, it certainly is a book worth reading! Amazing analysis!
May 2, 2010
Lawrence MacDonald, a former VP at Lehman Brothers, recounts his rise within the broker profession and the precipitous fall of Lehman brothers which he blames almost entirely on just eight people, including Richard Fuld. They were the ones promoting over-leverage and investment in risky investments such as CDOs and CDS's
It's interesting, because intentionally or not, we are given insight into MacDonald's mind and watch the erosion of ethics of his own behavior and that of those around him. No one sets out to destroy a company, yet the shift from interest of the investor to personal self-interest at the expense of the company has the same result. One could see this mind-set reflected in the faces of the Goldman Sachs boys during the recent hearings.
MacDonald got his start as a meat salesman who wanted to move to the big money on Wall Street. He and a friend had a brilliant idea: take prospectuses from companies issuing bonds, put them online and make them available to people with sensible advice about those bonds. Using some clever PR and a savvy programmer, the three of them created a company, Convertabond.com, at the height of the tech boom, that was soon the talk of the financial world. It also pissed off some of the bond traders because they were providing honest and candid advice about bonds. Morgan-Stanley was particularly angry because Convertabond was calling some of their bond releases for the junk they were. So Morgan Stanley bought them out and closed the site to the public. Their website now reads: "For more information on convertible securities, and current offerings, please contact your Morgan Stanley representative." Now, of course, we have congressional investigations revealing emails from both Goldman Sachs and Bear Stearns of employees at the firms disparaging the products they were selling to their clients.
MacDonald talks a lot about corporate culture, big companies filled with people who often don't know their heads from their asses and who's major skill is covering their butt. It's not a pretty picture. Basically a bunch of guys making decisions they know nothing about. After they were bought out, his partner, unable to handle the daily bullshit (meetings to prepare for meetings and hiring consultants to perform tasks requiring months which formerly the two had done in a couple of days,) quit.
The along cam the Commodities Futures Modernization Act and the repeal of Glass-Steagall, two political decisions intended to deregulate the market, but instead laid the groundwork for a repeat of 1929. MacDonald's father predicted it. "It's all crap," he told his son. The bonds which had prevented investment houses who bet with other peoples money from getting access to the funds of banks were cut. That and the CFMA's deregulation of CDOs (collateralized debt obligations,) spelled trouble. His father also saw the signs of a classic bubble. CDO's (basically a form of insurance in case a corporation should go bankrupt) were sold and collected by investment houses earning them and the banks huge fees, but also putting them on the hook for hundreds of billions should a company like CountryWide (see Chain of Blame for more detail) go belly-up. Since Countrywide's entire business plan rested on the assumption that real estate prices would continue to grow, their failure was inevitable.
And not just real estate. MacDonald became concerned when he saw that Cisco had a market capitalization of $500 billion making it the largest in the world. Their P/E ration was 160, or meaning that if they were bought out at current prices, it would take 160 years for the buyer to earn his money back. Remember, this was just before the tech bubble exploded. Soon he was a bear, shorting companies he knew were over extended, ironically using the convertible bonds he had become expert in, to acquire more capital (and debt) in an effort to stay afloat.
Then came Alan Greenspan and cheap money. Consumers embarked on an orgy of borrowing. With interest rates falling below 1%, investors had almost no choice but to not save and to look for high yield bonds. Wall Street was ready to oblige and invention of new ways to securitize debt exploded.
MacDonald describes complex financial instruments in very clear terms. For examples, a CDO, collateralized debt obligation, originated in the sale of a mortgage. The preferred were those with adjustable rates because they were very attractive to the buyer, but promised large rewards a couple of years down the road when the interest rate went to 8% or 9%. The broker could care less whether the homeowner could pay or not because the mortgages were sold to mortgage houses which then packaged them into large bundles; say 1000 mortgages of $300,000 each, or $300,000,000. Lehman Bros. would borrow money on the short-term market to buy the package. It was now a mortgage backed security, a CDO. Lehman would slice this into 300 bonds at $1,000,000 each. The rating agencies who were paid enormous fees to help design the bonds and then give them AAA ratings help t provide assurance to buyers that they were getting solid bonds backed by strong mortgages which would begin paying at 8-9%. At each step along the way, everyone collected fees and made piles of money. Of course, it meant that ultimately the mortgage on a house in California might be owned in part by an Eskimo in Iceland. Original mortgage salesmen soon realized that all they needed was a signature. No one else cared because the mortgages would be traunched up anyway. It didn't matter if the system didn't run smoothly because any complaints would get lost since the hedge funds which bought the CDOs could be on the other side of the world from the mortgagee. Presumably bad mortgages would be spread across a larger number of good loans, evening things out. Real estate had never lost more than 5% of its value in a given year since the depression. The psychology of a bubble says that this time things will be different. They weren't. Housing prices fell and soon the CDOs became junk. But insurance companies (AIG) had been brought into the picture with credit default swaps and now they were on the hook for trillions. And the house of cards fell apart.
MacDonald describes a world and culture that thrived on cheating and lying. Lawyers and accountants making millions a year inventing new "products" (remember Blankheim talking about synthetics in the hearings?) did battle obfuscating the truth as they rang rings around civil service regulators making $120,000 per year. It was an unfair fight.
William Isaac, formerly of the FDIC, in an interview I heard the other day, said that the financial "regulation" being considered is a mere band-aid and that systemic change is needed to avoid periodic economic disasters. Since the repeal of depression era regulations, we had suffered major economic calamities on average about every 10 years. That, he says, has to stop. We now have a situation where six large banks control more than 60% of the nations wealth. Too big to fail?
References: http://www.washingtonpost.com/wp-dyn/...
13 Bankers: The Wall Street Takeover and the Next Financial Meltdown
Chain of Blame: How Wall Street Caused the Mortgage and Credit Crisis
House of Cards: A Tale of Hubris and Wretched Excess on Wall Street
Given the recent report in the NYTimes detailing how Lehman and its accounting firm (always adhering to those wonderful Generally Accepted Accounting Principles, i.e. help hide everything you can) managed to hide some $50 billion in bad loans from its books, I thought this might be a good time to read this book. If there is any justice in the world Ernest & Young will go the way of Enron's accounting firm, Arthur Anderson. "Charles Perkins, a spokesman for Ernst & Young, said in an e-mailed statement: 'Our last audit of the company was for the fiscal year ending Nov. 30, 2007. Our opinion indicated that Lehman’s financial statements for that year were fairly presented in accordance with Generally Accepted Accounting Principles (GAAP), and we remain of that view.' "
From the report: "Colorable claims exist that Ernst & Young did not meet professional standards, both in investigating Lee's allegations and in connection with its audit and review of Lehman's financial statements."
Reference: http://www.nytimes.com/2010/03/12/bus...
It's interesting, because intentionally or not, we are given insight into MacDonald's mind and watch the erosion of ethics of his own behavior and that of those around him. No one sets out to destroy a company, yet the shift from interest of the investor to personal self-interest at the expense of the company has the same result. One could see this mind-set reflected in the faces of the Goldman Sachs boys during the recent hearings.
MacDonald got his start as a meat salesman who wanted to move to the big money on Wall Street. He and a friend had a brilliant idea: take prospectuses from companies issuing bonds, put them online and make them available to people with sensible advice about those bonds. Using some clever PR and a savvy programmer, the three of them created a company, Convertabond.com, at the height of the tech boom, that was soon the talk of the financial world. It also pissed off some of the bond traders because they were providing honest and candid advice about bonds. Morgan-Stanley was particularly angry because Convertabond was calling some of their bond releases for the junk they were. So Morgan Stanley bought them out and closed the site to the public. Their website now reads: "For more information on convertible securities, and current offerings, please contact your Morgan Stanley representative." Now, of course, we have congressional investigations revealing emails from both Goldman Sachs and Bear Stearns of employees at the firms disparaging the products they were selling to their clients.
MacDonald talks a lot about corporate culture, big companies filled with people who often don't know their heads from their asses and who's major skill is covering their butt. It's not a pretty picture. Basically a bunch of guys making decisions they know nothing about. After they were bought out, his partner, unable to handle the daily bullshit (meetings to prepare for meetings and hiring consultants to perform tasks requiring months which formerly the two had done in a couple of days,) quit.
The along cam the Commodities Futures Modernization Act and the repeal of Glass-Steagall, two political decisions intended to deregulate the market, but instead laid the groundwork for a repeat of 1929. MacDonald's father predicted it. "It's all crap," he told his son. The bonds which had prevented investment houses who bet with other peoples money from getting access to the funds of banks were cut. That and the CFMA's deregulation of CDOs (collateralized debt obligations,) spelled trouble. His father also saw the signs of a classic bubble. CDO's (basically a form of insurance in case a corporation should go bankrupt) were sold and collected by investment houses earning them and the banks huge fees, but also putting them on the hook for hundreds of billions should a company like CountryWide (see Chain of Blame for more detail) go belly-up. Since Countrywide's entire business plan rested on the assumption that real estate prices would continue to grow, their failure was inevitable.
And not just real estate. MacDonald became concerned when he saw that Cisco had a market capitalization of $500 billion making it the largest in the world. Their P/E ration was 160, or meaning that if they were bought out at current prices, it would take 160 years for the buyer to earn his money back. Remember, this was just before the tech bubble exploded. Soon he was a bear, shorting companies he knew were over extended, ironically using the convertible bonds he had become expert in, to acquire more capital (and debt) in an effort to stay afloat.
Then came Alan Greenspan and cheap money. Consumers embarked on an orgy of borrowing. With interest rates falling below 1%, investors had almost no choice but to not save and to look for high yield bonds. Wall Street was ready to oblige and invention of new ways to securitize debt exploded.
MacDonald describes complex financial instruments in very clear terms. For examples, a CDO, collateralized debt obligation, originated in the sale of a mortgage. The preferred were those with adjustable rates because they were very attractive to the buyer, but promised large rewards a couple of years down the road when the interest rate went to 8% or 9%. The broker could care less whether the homeowner could pay or not because the mortgages were sold to mortgage houses which then packaged them into large bundles; say 1000 mortgages of $300,000 each, or $300,000,000. Lehman Bros. would borrow money on the short-term market to buy the package. It was now a mortgage backed security, a CDO. Lehman would slice this into 300 bonds at $1,000,000 each. The rating agencies who were paid enormous fees to help design the bonds and then give them AAA ratings help t provide assurance to buyers that they were getting solid bonds backed by strong mortgages which would begin paying at 8-9%. At each step along the way, everyone collected fees and made piles of money. Of course, it meant that ultimately the mortgage on a house in California might be owned in part by an Eskimo in Iceland. Original mortgage salesmen soon realized that all they needed was a signature. No one else cared because the mortgages would be traunched up anyway. It didn't matter if the system didn't run smoothly because any complaints would get lost since the hedge funds which bought the CDOs could be on the other side of the world from the mortgagee. Presumably bad mortgages would be spread across a larger number of good loans, evening things out. Real estate had never lost more than 5% of its value in a given year since the depression. The psychology of a bubble says that this time things will be different. They weren't. Housing prices fell and soon the CDOs became junk. But insurance companies (AIG) had been brought into the picture with credit default swaps and now they were on the hook for trillions. And the house of cards fell apart.
MacDonald describes a world and culture that thrived on cheating and lying. Lawyers and accountants making millions a year inventing new "products" (remember Blankheim talking about synthetics in the hearings?) did battle obfuscating the truth as they rang rings around civil service regulators making $120,000 per year. It was an unfair fight.
William Isaac, formerly of the FDIC, in an interview I heard the other day, said that the financial "regulation" being considered is a mere band-aid and that systemic change is needed to avoid periodic economic disasters. Since the repeal of depression era regulations, we had suffered major economic calamities on average about every 10 years. That, he says, has to stop. We now have a situation where six large banks control more than 60% of the nations wealth. Too big to fail?
References: http://www.washingtonpost.com/wp-dyn/...
13 Bankers: The Wall Street Takeover and the Next Financial Meltdown
Chain of Blame: How Wall Street Caused the Mortgage and Credit Crisis
House of Cards: A Tale of Hubris and Wretched Excess on Wall Street
Given the recent report in the NYTimes detailing how Lehman and its accounting firm (always adhering to those wonderful Generally Accepted Accounting Principles, i.e. help hide everything you can) managed to hide some $50 billion in bad loans from its books, I thought this might be a good time to read this book. If there is any justice in the world Ernest & Young will go the way of Enron's accounting firm, Arthur Anderson. "Charles Perkins, a spokesman for Ernst & Young, said in an e-mailed statement: 'Our last audit of the company was for the fiscal year ending Nov. 30, 2007. Our opinion indicated that Lehman’s financial statements for that year were fairly presented in accordance with Generally Accepted Accounting Principles (GAAP), and we remain of that view.' "
From the report: "Colorable claims exist that Ernst & Young did not meet professional standards, both in investigating Lee's allegations and in connection with its audit and review of Lehman's financial statements."
Reference: http://www.nytimes.com/2010/03/12/bus...
May 25, 2012
Too much of the book is spent puffing up the author,
yet one more wall street hooligan who thinks he's worth $1,000,000 plus a year just because he's so...
nothing really.
He claims to be an insider because he worked a couple of years as a trader, but he had no access to upper management either while working for the firm or when writing the book.
BUT, the book does have several fine points.
1. Yet one more example of how an incompetent corporate leader claws his way to the top and is impossible to remove.
2. At no time during the crisis of June to Sept 2008 were investors told that Lehman had 3/4 of a TRILLION DOLLARS OF SHORT TERM DEBT.
That's 750 BILLION DOLLARS, for a small investment bank.
Investor equity was at best about $12 BILLION,
so you can see the insane leverage.
Plus many of their investments were in derivitives that had their own leverage.
The author claims Lehman could have/ should have been "saved".
And who would pay?
And why should the taxpayer bail out over paid employees who had half of their annual bonus locked into Lehman stock.
The author thought he was making well over a million dollars a year,
but half was in Lehman stock he couldn't sell for several years.
And ended up worthless because the firm wasn't bailed out.
He cried all the way to the end of the book about HIS loss.
After Enron, Congress pass the Sarbanes/Oxley act,
which was suppose to end fraudulent accounting.
The Lehman collapse shows that law to be worthless.
So far no one has gone to prison for the crimes committed here.
The book convinces me that investment banks should not be allowed to do trading.
This is just gambling where the employee can win and the stockholders and America lose.
This trading business is relatively new.
Investment banks should go back to what they were intended to do:
Raise funds for corporations by selling new issues of stock or bonds, or doing IPO's.
And helping with takeovers, spin offs, and sales of part of a company.
The traders think they should get 5% of any profit they make,
and the stockholders take the losses.
This is just naked greed allowed to run wild.
Update 23 May 12
Just read in another book that in the 6 months before bankruptcy,
Lehman expanded its debt by 50%.
That was an attempt to make Lehman "too big to fail".
Totally reprehensible behavior.
Fuld should go to jail.
yet one more wall street hooligan who thinks he's worth $1,000,000 plus a year just because he's so...
nothing really.
He claims to be an insider because he worked a couple of years as a trader, but he had no access to upper management either while working for the firm or when writing the book.
BUT, the book does have several fine points.
1. Yet one more example of how an incompetent corporate leader claws his way to the top and is impossible to remove.
2. At no time during the crisis of June to Sept 2008 were investors told that Lehman had 3/4 of a TRILLION DOLLARS OF SHORT TERM DEBT.
That's 750 BILLION DOLLARS, for a small investment bank.
Investor equity was at best about $12 BILLION,
so you can see the insane leverage.
Plus many of their investments were in derivitives that had their own leverage.
The author claims Lehman could have/ should have been "saved".
And who would pay?
And why should the taxpayer bail out over paid employees who had half of their annual bonus locked into Lehman stock.
The author thought he was making well over a million dollars a year,
but half was in Lehman stock he couldn't sell for several years.
And ended up worthless because the firm wasn't bailed out.
He cried all the way to the end of the book about HIS loss.
After Enron, Congress pass the Sarbanes/Oxley act,
which was suppose to end fraudulent accounting.
The Lehman collapse shows that law to be worthless.
So far no one has gone to prison for the crimes committed here.
The book convinces me that investment banks should not be allowed to do trading.
This is just gambling where the employee can win and the stockholders and America lose.
This trading business is relatively new.
Investment banks should go back to what they were intended to do:
Raise funds for corporations by selling new issues of stock or bonds, or doing IPO's.
And helping with takeovers, spin offs, and sales of part of a company.
The traders think they should get 5% of any profit they make,
and the stockholders take the losses.
This is just naked greed allowed to run wild.
Update 23 May 12
Just read in another book that in the 6 months before bankruptcy,
Lehman expanded its debt by 50%.
That was an attempt to make Lehman "too big to fail".
Totally reprehensible behavior.
Fuld should go to jail.
July 15, 2021
A bunch of guys who think they are way smarter than they are make a long series of mistakes during the 2008 financial crisis. They completely fail to deal with the situation, and the 4th largest investment bank in the US is left in ruins after being in business for 158 years.
September 28, 2021
This book read like a gossip rag, and I love it. He is so bitter (even though he says isn’t). I think the sense of righteousness that permeates this book is greatly rooted in hindsight. Regardless, I am along for the ride and I was eagerly waiting for the ultimate crash and the satisfaction of vindication.
May 14, 2015
Ok, until the last chapter I would have said that I did not like the tone of the book, full of arrogance, despise for enemies and brownnosing to friends, but then I read that this was not really the work of the trader, but of Patrick Robinson, ghost writer (and best seller writer) for him.
About the content: It could be much much shorter. No need to repeat everything thrice. No need to repeat in every chapter how awful the CEO and President of Lehman Brothers, and how correct but helpless McDonald and his friends were. Not everything (especially the financial products) were clearly explained (I had to read in Investopedia to get a grip on some subjects). I still don't understand how the financial manouvers of the investment banks multiplied the amount of "money" in existance. Because it was not clearly explained.
In the end, McDonald was a shark, more like a vulture. He made money when a company got broke (he specialized in "shorting" companies). That is legal, ok, and part and parcel of the investment market. But then he praised his friends Mike Gelband, Larry MCarty and Alex Kirk for trying to rescue Lehman after years of mismanagement. How was this (failed) rescued had to have worked? By dumping the billions of fraudulent CDOs and Subprime mortgages on some other unsuspecting patsy (a Korean bank almost) and by selling at high inflated prices the huge amount of real estate Lehman Brothers owned. Hardly something that should be ethically praised. The sheer amount of metaphors and analogies in this book, some piled on top of each other, was visually tiring, though that was obviously the work of the ghost writer, not of McDonald.
In short, this is a so so book. If you want to really understand the 2008 crisis, I guess another book might be better.
One last comment: bu huu huu Lawrence, for your millionaire friends who did not get their extra millions in Lehman stocks. You certainly made very obvious that you cared more about them than about the thousands of people who lost their homes because they were conned into getting a mortgage on fraudulent terms: resetting interests that shot through the roof. Maybe they could never have aforded a mortgage realistically. But still, they were the real damages of the collapse of the subprime mortgage engine, not your millionaire friends.
About the content: It could be much much shorter. No need to repeat everything thrice. No need to repeat in every chapter how awful the CEO and President of Lehman Brothers, and how correct but helpless McDonald and his friends were. Not everything (especially the financial products) were clearly explained (I had to read in Investopedia to get a grip on some subjects). I still don't understand how the financial manouvers of the investment banks multiplied the amount of "money" in existance. Because it was not clearly explained.
In the end, McDonald was a shark, more like a vulture. He made money when a company got broke (he specialized in "shorting" companies). That is legal, ok, and part and parcel of the investment market. But then he praised his friends Mike Gelband, Larry MCarty and Alex Kirk for trying to rescue Lehman after years of mismanagement. How was this (failed) rescued had to have worked? By dumping the billions of fraudulent CDOs and Subprime mortgages on some other unsuspecting patsy (a Korean bank almost) and by selling at high inflated prices the huge amount of real estate Lehman Brothers owned. Hardly something that should be ethically praised. The sheer amount of metaphors and analogies in this book, some piled on top of each other, was visually tiring, though that was obviously the work of the ghost writer, not of McDonald.
In short, this is a so so book. If you want to really understand the 2008 crisis, I guess another book might be better.
One last comment: bu huu huu Lawrence, for your millionaire friends who did not get their extra millions in Lehman stocks. You certainly made very obvious that you cared more about them than about the thousands of people who lost their homes because they were conned into getting a mortgage on fraudulent terms: resetting interests that shot through the roof. Maybe they could never have aforded a mortgage realistically. But still, they were the real damages of the collapse of the subprime mortgage engine, not your millionaire friends.
December 6, 2010
1. If you are a member of a group, that group counts as one and only one adviser. If you want many advisers, they can't be members of the same team. It doesn't work. You get groupthink and exile of naysayers.
2. "Post Hoc, Ergo Propter Hoc" is the eternal financial fallacy. X has never happened so we don't need to worry about it happening. In this case, real estate has never fallen more than a small percentage so it never will. Regarding the status quo as self-explanatory is the road to perdition.
3. Wall Streeters are mostly amazing idiots. We are led and run by morons. Their decisions are driven by all sorts of personal issues (ambition, rivalries) that have nothing to do with making rational decisions.
4. Money really does make people drunk.
5. There is a twin dynamic to a bubble. The attractiveness of the "investment" and the failure to find anything else to do to make one's money grow.
6. Greenspan is revealed as the ultimate cause with real estate and subprime mortgages just being the most convenient fire pit in which to burn all the money. Greenspan's lowering interest rates not only attracted people to where the new money was appearing as profit, but it destroyed the incentive for conventional savings. The mattress gave as good a return as the savings account.
7. The person who destroys himself with the most hubris (Fuld of Lehman Brothers) can be a convenient scapegoat, but the lead bull in a stampede is not the source of all the damage.
8. The Fed Reserve does not create price inflation by itself. It requires the cooperation of other players in the economy--the banking system. But when the bubble pops it destroys their willingness to "do their part." Thus Bernake's frustration trying to make something happen with QE series and not seeing any real results.
9. We've had our massive inflation and now suddenly perhaps $70 trillion has vaporized. Bernanke can't fill the black hole no matter how much QE he does. It seems much more likely that deflation is ahead.
2. "Post Hoc, Ergo Propter Hoc" is the eternal financial fallacy. X has never happened so we don't need to worry about it happening. In this case, real estate has never fallen more than a small percentage so it never will. Regarding the status quo as self-explanatory is the road to perdition.
3. Wall Streeters are mostly amazing idiots. We are led and run by morons. Their decisions are driven by all sorts of personal issues (ambition, rivalries) that have nothing to do with making rational decisions.
4. Money really does make people drunk.
5. There is a twin dynamic to a bubble. The attractiveness of the "investment" and the failure to find anything else to do to make one's money grow.
6. Greenspan is revealed as the ultimate cause with real estate and subprime mortgages just being the most convenient fire pit in which to burn all the money. Greenspan's lowering interest rates not only attracted people to where the new money was appearing as profit, but it destroyed the incentive for conventional savings. The mattress gave as good a return as the savings account.
7. The person who destroys himself with the most hubris (Fuld of Lehman Brothers) can be a convenient scapegoat, but the lead bull in a stampede is not the source of all the damage.
8. The Fed Reserve does not create price inflation by itself. It requires the cooperation of other players in the economy--the banking system. But when the bubble pops it destroys their willingness to "do their part." Thus Bernake's frustration trying to make something happen with QE series and not seeing any real results.
9. We've had our massive inflation and now suddenly perhaps $70 trillion has vaporized. Bernanke can't fill the black hole no matter how much QE he does. It seems much more likely that deflation is ahead.
Read
February 28, 2010I just read the prologue of this book, and I'm sick of it already. In the first three pages he actually posses the idea that the feds decision to let Lehman Brothers fail may have been because of a personal beef between Lehman’s CEO and Paulson early that year. Then he says it might have been Bushes fault for not allowing Lehman to file chapter 11. Then he spends the next few pages blaming Bill Clinton for repealing Glass-Steagall(Which is partially true) Funny how he hasn’t pointed the finger at the most obvious and biggest problem in the entire system; the bankers themselves.
He actually has the audacity to say on page two.
“If only Chairman Fuld had kept his ear close to the ground on the inner workings of the firm-both it’s triumphs and its mistakes. If he had listened to his generals, met people who formed the heart an soul of Lehman brothers, the catastrophe might have been avoided.”
I don’t think I need to say why this makes me think the entire book is an invalid, self-serving pile of crap.
I will try to read more, but.....
It's about three months later. I couldn't complete this book.
In a nut shell the book is poorly written and self serving. I feel for the co-writer Patrick Robinson because each page must have been a struggle. The book is littered with cliched writing.
He actually has the audacity to say on page two.
“If only Chairman Fuld had kept his ear close to the ground on the inner workings of the firm-both it’s triumphs and its mistakes. If he had listened to his generals, met people who formed the heart an soul of Lehman brothers, the catastrophe might have been avoided.”
I don’t think I need to say why this makes me think the entire book is an invalid, self-serving pile of crap.
I will try to read more, but.....
It's about three months later. I couldn't complete this book.
In a nut shell the book is poorly written and self serving. I feel for the co-writer Patrick Robinson because each page must have been a struggle. The book is littered with cliched writing.
September 21, 2009
This was a good read and described how Lehman Brothers, an investment bank that has been around for over 150 years, collapsed and declared bankruptcy. It was mostly due to the two men at the top who stopped leading and did what they wanted to do, disregarding good lending practices and earning easy money. They took these bad practices to the extreme. It was quite similar to what happened at Enron and was totally avoidable, but due to the pride of the leader at the top, the company collapsed and hundreds of people lost their jobs. I recommend this book to anyone who is interested in understanding our economy and the world of high finance better. The author explains things in an easy to understand way.
August 31, 2009
"A Colossal Failure of Common Sense," though seen thru the lens of Lehman Bros. excesses, a great read for those who believe Capitalism need not = greed. Getting beyond the narrator's narcissism and only adequate writing, is well worth the effort. Makes an upside down value system of celebrity models and multi-million athletes seem quaint. Making $ billions off of puffed up securities based on mortgages sold to railroaded poor, and then when the house of cards falls, blaming the poor and receiving hugh bailouts is beyond the pale. Woe to us if we don't insist on some regulatory backbone to balance these pirates who will simply move on to the next scheme.
October 10, 2009
Wow. A real-life techno-thriller, made even more horrifically fascinating because we all lived through these bewildering events. McDonald uses plain English to describe the murky financial instruments upon which the world's biggest economic bubble was based, and offers clear answers to the question "What the hell went wrong?" Required reading for anyone who owns stocks or bonds.
November 20, 2009
Excellent description of the market and what caused the collapse of 2008. I know more about securitizations and credit default swaps than ever before. The author is also a very good storyteller. It's easy to read and entertaining. Highly recommend.
December 4, 2014
Everyone on Wall Street, including the author of this book, is a huge asshole.
March 15, 2021
Entertaining, to a point. But, it drags on and you already know the climax. Larry McDonald is a pretty good writer and has lived a very interesting existence in the Wall Street world. After reading so many books about the sub-prime meltdown, this one lacked a bit of the substance of others.
By 1/2 way in, it devolves into a story-telling ramble and idolization of the authors close circle (even though the people he mentions positively are truly tops in their fields), and a scathing excoriation of Dick Fuld and Joe Greggory (even though that diatribe is very much justified). I have better books to spend my time with waiting in the wings to get so sucked into this staid hindsight viewpoint. So, I began to skip read a bit to finish.
By 1/2 way in, it devolves into a story-telling ramble and idolization of the authors close circle (even though the people he mentions positively are truly tops in their fields), and a scathing excoriation of Dick Fuld and Joe Greggory (even though that diatribe is very much justified). I have better books to spend my time with waiting in the wings to get so sucked into this staid hindsight viewpoint. So, I began to skip read a bit to finish.
September 26, 2021
So, Larry McDonald wants you to know he was a GREAT salesman and a scratch golfer. He mentions the scratch golfer thing a LOT.
If you look past that, you see a book that's actually a really interesting view of what happened to Lehman Brothers from an inside perspective. It's likely that it's not the whole story, but it's one of those books like Conspiracy of Fools, where you keep going, "How could they have made such a terrible decision?" every other page.
Capitalism is great, folks! Perfectly healthy.
If you look past that, you see a book that's actually a really interesting view of what happened to Lehman Brothers from an inside perspective. It's likely that it's not the whole story, but it's one of those books like Conspiracy of Fools, where you keep going, "How could they have made such a terrible decision?" every other page.
Capitalism is great, folks! Perfectly healthy.
May 1, 2014
(Caveat: I will probably feel very different about this book one day, but these are my thoughts for now, FWIW. I felt like writing a critical review rather than just a substance review.)
This story was fascinating like most well-told insider stories. Certainly the arrogant and ignorant CEO and chairman of Lehman Brothers, Dick Fuld, and his clueless sidekick, president Joe Gregory, overrode common sense with their greed and ambition -- as many, many other financiers did in the environment that created the crash and recession of 2008-2009. It is a tragedy that men like them are not in prison today. Sure, they have lost their careers and reputations, but how hard can life be, now that they spend their time selling off multimillion dollar assets?
Unfortunately, the book also demonstrates the larger lack of common sense among people like the author and his colleagues. He naively assumes that because they saw some of the impending dangers (e.g., with the subprime mortgage market) they were ahead of everyone else and way smarter. His own hubris about their financial knowledge, as if that made them special human beings (when in reality anybody in any job has certain technical knowledge that other people do not have), is hard to put up with. He also seems oblivious to his own greed and dishonesty that got him to where he was in the first place. Worst of all, he also seems oblivious to the fact that, whether one is making "smart" financial transactions (like McDonald and his buddies) or "dumb" financial transactions (like those traders, mortgage salesmen, and investment bankers who could see know wrong with the U.S. commerical and private real estate bubble), all stock and bond trading is done on the backs of the relatively poor to very poor and all transactions depend on somebody's failure and amounts to betting against others' success. McDonald claims to be touched by others' suffering -- such as those bankers and traders he knew who had to sell SUVs, boats, private art, and beach houses after the stock market collapse in 2008. But what about the people who actually suffered as a result of all the speculating that went (and goes) on there?
Ultimately, this book shows both what went wrong on Wall Street in the years leading up to the subprime mortgage crisis, and also what is wrong in general when Wall Street and global capitalism are not moored to certain ethical and moral principles. McDonald does not understand that, ultimately, the world does not depend on him and his investment banks. Sure, they can provide capital, make mind-blowing financial trades and gains, and help some people while hurting a lot more, but in the end, the world goes on and there is nothing at all great about what he or any of his friends ever did.
McDonald and his buddies should read Ngugi wa Thiong'o's Globalectics. The Kenyan writer points out: "In today’s world, labor can do without capital; but capital can never do without labor. If capital went on strike, people would still work on the land or on machines in factories, make things for use, even exchange, but if labor went on strike, it would end the life of capital—its dominance, at least. Yet our habit is to view labor as dependent on capital, and, in today’s world, given the dominance of capital, especially in its mutation as financial capital, that habitual view may seem obvious and given" (30). Given this truth, obvious to all but those who think Wall Street is everything and despises anyone who cannot live the way they do and frequent the bars and restaurants they frequent, McDonald's statements are extraordinarily obtuse: Hank Paulson actually "obliterated" the world economy? Huge overstatement. It's just a lack of certain regulations that allowed the events of 2008 to happen? Or, indeed, the financial events of 2008 were "Armageddon"? No way. The world moved on, terribly hurt by the big banks, but it moved on and would have even if there had been no government bailout of other banks.
This story was fascinating like most well-told insider stories. Certainly the arrogant and ignorant CEO and chairman of Lehman Brothers, Dick Fuld, and his clueless sidekick, president Joe Gregory, overrode common sense with their greed and ambition -- as many, many other financiers did in the environment that created the crash and recession of 2008-2009. It is a tragedy that men like them are not in prison today. Sure, they have lost their careers and reputations, but how hard can life be, now that they spend their time selling off multimillion dollar assets?
Unfortunately, the book also demonstrates the larger lack of common sense among people like the author and his colleagues. He naively assumes that because they saw some of the impending dangers (e.g., with the subprime mortgage market) they were ahead of everyone else and way smarter. His own hubris about their financial knowledge, as if that made them special human beings (when in reality anybody in any job has certain technical knowledge that other people do not have), is hard to put up with. He also seems oblivious to his own greed and dishonesty that got him to where he was in the first place. Worst of all, he also seems oblivious to the fact that, whether one is making "smart" financial transactions (like McDonald and his buddies) or "dumb" financial transactions (like those traders, mortgage salesmen, and investment bankers who could see know wrong with the U.S. commerical and private real estate bubble), all stock and bond trading is done on the backs of the relatively poor to very poor and all transactions depend on somebody's failure and amounts to betting against others' success. McDonald claims to be touched by others' suffering -- such as those bankers and traders he knew who had to sell SUVs, boats, private art, and beach houses after the stock market collapse in 2008. But what about the people who actually suffered as a result of all the speculating that went (and goes) on there?
Ultimately, this book shows both what went wrong on Wall Street in the years leading up to the subprime mortgage crisis, and also what is wrong in general when Wall Street and global capitalism are not moored to certain ethical and moral principles. McDonald does not understand that, ultimately, the world does not depend on him and his investment banks. Sure, they can provide capital, make mind-blowing financial trades and gains, and help some people while hurting a lot more, but in the end, the world goes on and there is nothing at all great about what he or any of his friends ever did.
McDonald and his buddies should read Ngugi wa Thiong'o's Globalectics. The Kenyan writer points out: "In today’s world, labor can do without capital; but capital can never do without labor. If capital went on strike, people would still work on the land or on machines in factories, make things for use, even exchange, but if labor went on strike, it would end the life of capital—its dominance, at least. Yet our habit is to view labor as dependent on capital, and, in today’s world, given the dominance of capital, especially in its mutation as financial capital, that habitual view may seem obvious and given" (30). Given this truth, obvious to all but those who think Wall Street is everything and despises anyone who cannot live the way they do and frequent the bars and restaurants they frequent, McDonald's statements are extraordinarily obtuse: Hank Paulson actually "obliterated" the world economy? Huge overstatement. It's just a lack of certain regulations that allowed the events of 2008 to happen? Or, indeed, the financial events of 2008 were "Armageddon"? No way. The world moved on, terribly hurt by the big banks, but it moved on and would have even if there had been no government bailout of other banks.
August 24, 2011
I really enjoyed reading this, certainly not because Mr. McDonald was a great writer, but it *is* a great story.
The negatives first.
• The author uses more cheesy metaphors than a southern used car salesman (see what i did there?). Sometimes they work, sometimes not, but it doesn't matter because he'll try again in 2 pages.
• The book starts a bit slow, but I think the author wanted to establish his credibility, which is fine, but it didn't flow as well as the later stuff.
• HIs conclusions are confusing, he spends 200 pages telling us that the Lehman CEO was insane, and then says, 'i don't know how it happened.' I wanted to yell at him to read the previous 200 pages!
• I also found his definitions of what capitalism is a bit telling. Towards the end he blames Hank Paulson for kicking off the Great Recession by not bailing out Lehman Brothers, but once again, I wanted to yell at him to read the previous 200 pages!
Anyway, hate to be so hard on the guy, because I did really enjoy this book. It's a great 1st and 2nd person account of the incredible hubris that ultimately DID kick off the great recession. Lehman certainly wasn't alone, they just seemed to have a CEO that was crazier than most. I enjoyed the characterization of Richard Fuld as a wannabe-king and had no trouble imagining him as Nero, fiddling as Rome burned. Fuld not only fiddled, he threw gasoline onto the fire. The description of Fuld's reclusiveness and inability to take advice or be around anyone smarter than he should be a lesson for any aspiring leader.
And now for some positives;
• Great story from a great point of view
• Author did a pretty good job of explaining very complex terms and relationships, CDOs, LDOs, MBSPs, etc
• When he got to the meat of the book, it flowed quite well. Story kept me hanging on and couldn't stop reading.
I want more, I am starting The Big Short now, so Mr. McDonald did a good job ispiring me to want to learn more. What more do you want?
The negatives first.
• The author uses more cheesy metaphors than a southern used car salesman (see what i did there?). Sometimes they work, sometimes not, but it doesn't matter because he'll try again in 2 pages.
• The book starts a bit slow, but I think the author wanted to establish his credibility, which is fine, but it didn't flow as well as the later stuff.
• HIs conclusions are confusing, he spends 200 pages telling us that the Lehman CEO was insane, and then says, 'i don't know how it happened.' I wanted to yell at him to read the previous 200 pages!
• I also found his definitions of what capitalism is a bit telling. Towards the end he blames Hank Paulson for kicking off the Great Recession by not bailing out Lehman Brothers, but once again, I wanted to yell at him to read the previous 200 pages!
Anyway, hate to be so hard on the guy, because I did really enjoy this book. It's a great 1st and 2nd person account of the incredible hubris that ultimately DID kick off the great recession. Lehman certainly wasn't alone, they just seemed to have a CEO that was crazier than most. I enjoyed the characterization of Richard Fuld as a wannabe-king and had no trouble imagining him as Nero, fiddling as Rome burned. Fuld not only fiddled, he threw gasoline onto the fire. The description of Fuld's reclusiveness and inability to take advice or be around anyone smarter than he should be a lesson for any aspiring leader.
And now for some positives;
• Great story from a great point of view
• Author did a pretty good job of explaining very complex terms and relationships, CDOs, LDOs, MBSPs, etc
• When he got to the meat of the book, it flowed quite well. Story kept me hanging on and couldn't stop reading.
I want more, I am starting The Big Short now, so Mr. McDonald did a good job ispiring me to want to learn more. What more do you want?
April 4, 2011
A fascinating book when understood from the perspective of the author, an upper-level manager at Lehman Brothers. McDonald opens the book by blaming HUD under Clinton for forcing banks to lend to middle- and lower-income families to increase home ownership. His tirades wrap up the book by blaming the Fed and Treasury under Bush for not taking additional actions to save Lehman Brothers. However, the other 80% of the book sings the praises of investment bankers, the brilliance endowed within, the ignorance of federal regulations, and his personal quixotic quest to save the firm.
Is McDonald a smart man? Seems to be so. But his constant self-congratulatory comments, his showering of praise upon the very people (except a few he seems to personally dislike) who caused the financial meltdown, and emphasis on the suffering of his wealthy brethren who were forced to sell yachts and vacation homes, make this smug book a great read for those of us on Main Street - but for the opposite reason he intended. After hearing about the absurd salaries, ridiculous lifestyles, and arrogant personalities, it drives the conclusion that letting Lehman Brothers fail was actually a pretty fair result, notwithstanding the secondary effects on the economy.
Is McDonald a smart man? Seems to be so. But his constant self-congratulatory comments, his showering of praise upon the very people (except a few he seems to personally dislike) who caused the financial meltdown, and emphasis on the suffering of his wealthy brethren who were forced to sell yachts and vacation homes, make this smug book a great read for those of us on Main Street - but for the opposite reason he intended. After hearing about the absurd salaries, ridiculous lifestyles, and arrogant personalities, it drives the conclusion that letting Lehman Brothers fail was actually a pretty fair result, notwithstanding the secondary effects on the economy.
August 4, 2010
An excellent audiobook which can be quite suspenseful even tho you know the ending in advance.
I liked this best of the 3 I've read so far about the Financial Crisis that came to a head in 2008. Others are House of Cards and Too Big to Fail. I may have liked this best due to its being written by someone who is neither super high up in the company, nor a professional writer. Rather Lawrence G. McDonald was a trader and thus a true insider at Lehman. Has some wonderful human interest stories about himself and his colleagues, some of whom he admired greatly. Very negative view of the highest levels of management, tho author had great respect for some of the people right under them.
Tho I liked the book a lot, I ultimately did not care for the author, who is ever so much more sympathetic to the people who lost their vacation homes and motor boats than he is ordinary Americans who lost their homes and their jobs. Seeing him interviewed recently on TV confirmed all my negative impressions of McDonald. But I still recommend his book!
I liked this best of the 3 I've read so far about the Financial Crisis that came to a head in 2008. Others are House of Cards and Too Big to Fail. I may have liked this best due to its being written by someone who is neither super high up in the company, nor a professional writer. Rather Lawrence G. McDonald was a trader and thus a true insider at Lehman. Has some wonderful human interest stories about himself and his colleagues, some of whom he admired greatly. Very negative view of the highest levels of management, tho author had great respect for some of the people right under them.
Tho I liked the book a lot, I ultimately did not care for the author, who is ever so much more sympathetic to the people who lost their vacation homes and motor boats than he is ordinary Americans who lost their homes and their jobs. Seeing him interviewed recently on TV confirmed all my negative impressions of McDonald. But I still recommend his book!
March 28, 2018
In this book, Lawrence McDonald describes events within Lehman Brothers and within the American and global financial system in the years leading up to the 2008 market crash and the bankruptcy of Lehman Brothers. Given that Mr. McDonald and many people he knew and respected lost their jobs as well as the value of Lehman stock options they had received as part of their compensation, he has a toolshed of axes to grind and minces no words. That said, it is interesting to get the perspective of an industry insider. Factors he concludes are behind the 2008 market crash include:
• The 1999 repeal of Glass-Steagall allowed commercial and investment banks to be merged. People deposit savings into commercial banks so it can be available to them at a later date. Investment banks invest in businesses, etc., a riskier proposition than traditional commercial banking. Placing commercial and investment banks within the same organization makes commercial bank deposits available for the use of high-rolling investment bankers. The absence of this wall was a contributor to the 1929 stock market crash, and Glass-Steagall was enacted after the crash to prevent a repeat performance.
• Starting with the Clinton administration, there was a push to increase home ownership among lower income demographics. Banks had wisely been hesitant to lend money to this demographic on account of the elevated risk of default and loss of depositor money. The government incented and strong-armed the banks into issuing such mortgages.
• The ratings agencies consistently gave mortgage-backed securities that relied on poor people to consistently make their mortgage payments high ratings, giving the false impression that they were safe investments.
• Mortgage brokers became fast and loose in their lending practices, requiring little to no proof of income or ability to repay mortgages. Often these were adjustable rate mortgages (ARMs) whose payments would reset to significantly higher dollar amounts, often greater than the income of the debtors, after a certain period of time. These mortgages would be sold to investment banks to be packaged into collateralized debt obligations (CDOs) and other financial instruments. As long as the brokers got paid, the credit risk was someone else’s problem.
• The investment banks didn’t have a problem with the fast and loose mortgage brokers. As soon as they packaged the mortgages into CDOs, they would sell them. Again, the risk became someone else’s problem.
Mr. McDonald brought up several other factors, including one related to the aftermath of Sarbane-Oxley, that I cannot remember. Otherwise, I would summarize them here. With respect to the collapse of Lehman Brothers, he places the lion’s share of the blame on poor decisions by CEO Richard Fuld and President Joseph Gregory. Those decisions include:
• Excessive exposure to subprime mortgages in spite of warnings from within the organization as early as 2005 or 2006. Those raising the caution flag were forced out.
• A buying spree of commercial real estate, etc., paid for with borrowed money in an effort by CEO Fuld to grow Lehman Brothers to rival Goldman Sachs and other investment banks. As the market crashed in 2008, a demand for extra collateral for this debt is what finished off Lehman Brothers. The cash wasn’t on hand.
As before, this list is by no means comprehensive, just what I remember.
In writing the book, Mr. McDonald included his life story up to 2008, and I couldn’t help noticing some ironic parallels between his background and those subprime mortgages that destroyed Lehman Brothers and nearly destroyed the economy. After McDonald’s parents divorced while he was a teenager, his mother moved into the best housing she could afford, in a rough area of town, and McDonald grew up having to deal with local toughs who wanted him to join in their delinquency. When he refused, they took out their anger on him with violence. Not surprisingly, this affected his performance in school and his grades. When it came time for him to go to college, he had to settle for a state school. He had a dream of becoming a Wall Street trader, and the big firms recruited from the Ivy League rather than state schools. After he graduated, he mounted an unsuccessful campaign to get hired but got some good advice to work in sales. After a successful stint selling pork chops, he managed to bootleg his way into taking and passing the Series 7 test. Still unable to get a job on Wall Street, he partnered with a friend to found convertbond.com, an on-line investment research tool for the convertible bond market. In advance of the 2001 dot com crash, he and his friend sold the company to a brokerage for a healthy profit. Afterwards, he was hired on at Lehman Brothers and finally fulfilled his dream of being a Wall Street trader. He was not what Wall Street wanted in a trader but a combination of hard work, cunning and creativity made it possible for him to achieve his goal. Like him, the low-income recipients of subprime mortgages were not what the bankers normally would look for. However, unlike him, they were able to fulfill their dreams without proving themselves. In contrast, McDonald did not get a position on Wall Street until he had proved himself.
It is clear that Mr. McDonald has some very strong opinions about what went wrong, and this book is necessarily one-sided. It provides some very fascinating insider information regarding the inner workings of the investment community and might be a good resource for someone researching the U.S. financial market in the years leading up to the Great Recession (I prefer to think of it as the Great Depression 2.0). In that time period, I worked at a power plant owned by the regulated side of a utility. His descriptions of increasingly risky decisions in support of aggressive growth brought back memories of some near disastrous and very costly decisions made by the unregulated side of the corporation. Those memories lent Mr. McDonald’s descriptions credibility.
• The 1999 repeal of Glass-Steagall allowed commercial and investment banks to be merged. People deposit savings into commercial banks so it can be available to them at a later date. Investment banks invest in businesses, etc., a riskier proposition than traditional commercial banking. Placing commercial and investment banks within the same organization makes commercial bank deposits available for the use of high-rolling investment bankers. The absence of this wall was a contributor to the 1929 stock market crash, and Glass-Steagall was enacted after the crash to prevent a repeat performance.
• Starting with the Clinton administration, there was a push to increase home ownership among lower income demographics. Banks had wisely been hesitant to lend money to this demographic on account of the elevated risk of default and loss of depositor money. The government incented and strong-armed the banks into issuing such mortgages.
• The ratings agencies consistently gave mortgage-backed securities that relied on poor people to consistently make their mortgage payments high ratings, giving the false impression that they were safe investments.
• Mortgage brokers became fast and loose in their lending practices, requiring little to no proof of income or ability to repay mortgages. Often these were adjustable rate mortgages (ARMs) whose payments would reset to significantly higher dollar amounts, often greater than the income of the debtors, after a certain period of time. These mortgages would be sold to investment banks to be packaged into collateralized debt obligations (CDOs) and other financial instruments. As long as the brokers got paid, the credit risk was someone else’s problem.
• The investment banks didn’t have a problem with the fast and loose mortgage brokers. As soon as they packaged the mortgages into CDOs, they would sell them. Again, the risk became someone else’s problem.
Mr. McDonald brought up several other factors, including one related to the aftermath of Sarbane-Oxley, that I cannot remember. Otherwise, I would summarize them here. With respect to the collapse of Lehman Brothers, he places the lion’s share of the blame on poor decisions by CEO Richard Fuld and President Joseph Gregory. Those decisions include:
• Excessive exposure to subprime mortgages in spite of warnings from within the organization as early as 2005 or 2006. Those raising the caution flag were forced out.
• A buying spree of commercial real estate, etc., paid for with borrowed money in an effort by CEO Fuld to grow Lehman Brothers to rival Goldman Sachs and other investment banks. As the market crashed in 2008, a demand for extra collateral for this debt is what finished off Lehman Brothers. The cash wasn’t on hand.
As before, this list is by no means comprehensive, just what I remember.
In writing the book, Mr. McDonald included his life story up to 2008, and I couldn’t help noticing some ironic parallels between his background and those subprime mortgages that destroyed Lehman Brothers and nearly destroyed the economy. After McDonald’s parents divorced while he was a teenager, his mother moved into the best housing she could afford, in a rough area of town, and McDonald grew up having to deal with local toughs who wanted him to join in their delinquency. When he refused, they took out their anger on him with violence. Not surprisingly, this affected his performance in school and his grades. When it came time for him to go to college, he had to settle for a state school. He had a dream of becoming a Wall Street trader, and the big firms recruited from the Ivy League rather than state schools. After he graduated, he mounted an unsuccessful campaign to get hired but got some good advice to work in sales. After a successful stint selling pork chops, he managed to bootleg his way into taking and passing the Series 7 test. Still unable to get a job on Wall Street, he partnered with a friend to found convertbond.com, an on-line investment research tool for the convertible bond market. In advance of the 2001 dot com crash, he and his friend sold the company to a brokerage for a healthy profit. Afterwards, he was hired on at Lehman Brothers and finally fulfilled his dream of being a Wall Street trader. He was not what Wall Street wanted in a trader but a combination of hard work, cunning and creativity made it possible for him to achieve his goal. Like him, the low-income recipients of subprime mortgages were not what the bankers normally would look for. However, unlike him, they were able to fulfill their dreams without proving themselves. In contrast, McDonald did not get a position on Wall Street until he had proved himself.
It is clear that Mr. McDonald has some very strong opinions about what went wrong, and this book is necessarily one-sided. It provides some very fascinating insider information regarding the inner workings of the investment community and might be a good resource for someone researching the U.S. financial market in the years leading up to the Great Recession (I prefer to think of it as the Great Depression 2.0). In that time period, I worked at a power plant owned by the regulated side of a utility. His descriptions of increasingly risky decisions in support of aggressive growth brought back memories of some near disastrous and very costly decisions made by the unregulated side of the corporation. Those memories lent Mr. McDonald’s descriptions credibility.
April 15, 2010
Nice easy business reading, if there is such an activity. This is a repeat of the never ending human "sheep" story. One particularly dominant sheep, Richard Fuld of Lehman Bros., leads all of the other banker sheep to the edge of the cliff while happily bleating until the very moment it's too late to turn back. It happened with Hitler and probably Atilla the Hunn. Should it be any less surprising with the banking industry? Glass Steagall should never have been repealed. My hero, Bill Clinton, blew it the day he crumbled under pressure to sign that particular bill. My theory is that Monica clouded his judgment on the very day of the signing. That's just for starters. AIG was next. It was all down hill after that.
I often find that business books have large areas of print that I prefer not to labor over. Lawrence McDonald and the talented ghost writer held my attention throughout.
I often find that business books have large areas of print that I prefer not to labor over. Lawrence McDonald and the talented ghost writer held my attention throughout.
July 5, 2011
Fascinating book. If I have one complaint, it is McDonald's ideological axe with (to paraphrase) $400,000/year Kmart cashiers, i.e., lower-middle and working-class mortgage borrowers. Statistics show that many of these people made payments faithfully as long as they could, only faltering when mortgage resets forced their backs to the wall. Those of us who are more reasonable and less elitist place blame on people who were flipping houses, or buying strings of properties as 'investments'. And let's not forget the people buying McMansions and trying to impress their friends: they were the ones living beyond their means, not those who wanted their first taste of owning a home after living in crime-ridden surroundings. McDonald, though showing himself to have a soft heart by the end of the book, still retains vestiges of his privileged Cape Cod upbringing and the skewed perspective it engenders.
September 18, 2009
McDonald tells the story of his fight to achieve his goal of becoming a Wall Street Trader and describes the industry trends and legislative changes that would set the stage for the largest ever bankruptcy in the U.S. A self-described vulture, McDonald and his coworkers made billions of dollars (for Lehman, millions for themselves) by predicting when companies would fail (or at least tank). From this viewpoint, they could see the huge problems with issuing/trading subprime mortgages earlier than most. It's not clear when Lehman Brothers passed the point of no return and whether they could have avoided collapse if the management had listened to the warnings of McDonald and his coworkers, but it is clear (at least from McDonald's perspective) that the detachment of CEO Fuld from the reality situation ultimately gave the company no chance at survival.
August 8, 2011
This book was riveting all the way through. I randomly started reading this book and couldn't put it down. I'm a pastor, and in general read mostly pastoral and ministry related books, but I do enjoy reading outside the field too. I'm not really a financial guy and yet this book brought me right in to the story of Wall Street. I think that's where it shines. Colossal Failure tells a story. A story about a driven man (McDonald) and his passion for the world of Wall Street. Along the way he chronicles the story of his time and Lehman Brothers and the eventual destruction of the institution (note, it was not the authors fault. Hope that's not a spoiler).
Whether you're interested in the economics of it or not, A Colossal Failure of Common Sense is a great story and one you should check out.
Whether you're interested in the economics of it or not, A Colossal Failure of Common Sense is a great story and one you should check out.
May 4, 2011
The book gives a quite thorough account on the circumstances leading to the 2007 Wall Street crisis. It should have been a quarter of its length though. It becomes quite evident that the author and former pork chop salesman Lawrence G. McDonald was only a second rate trader and analyst and this book lives almost entirely from his recollection of the doings of his colleges and other Wall Street big shots. He never misses a chance to praise and to elaborate on their countless heroic feats. You need to be able to read between the lines to get the full gist of the story which is contained somewhere between the clutter.
June 6, 2013
This book is interesting, but the author is a complete idiot. Not only does he fail to see that he and his brain-dead friends are a big part of the problem, but he has no comprehension of probabilities, a point made very obvious by the praise he heaps on his boss for falling for the gambler's fallacy---that a string of losses must be followed by a string of wins. No wonder our economy ended up in the toilet with idiots like this sucking all the money out of it. Dude, your hero was a moron who knows zip about gambling, and thus nothing about stocks or bonds, or anything else.
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