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.
I have spent my career on the West Coast in the West coast Crater known as Silicon Valley. (silicone valley is near LA) I found this book to be an easy read and an engaging story of how Larry McDonald fought back from some early family disadvantages to realize his dream of being a real player as a trader on the Street. Many of us who are far removed from this world do not really have a very good feeling for this world and this book gives you at least a feeling for what they do up on Wall Street.
While some have criticised the book for the author's lack of direct contact with the top management, I don't think this prevents the book from giving a reasonable glimpse of what was going on inside of Lehman brothers as the housing market collapsed. McDonald exhibits a decent sense of humor as he describes what he saw occurring around him. I have no doubts, as somebody who has spent his career inside fortune 500 companies that McDonald is able to give a reasonable sense of the realities going on inside Lehman.
Certainly the issues he raises about the cutting off of the top management from the troops is indicative of a top management who was disconnected and I have to say that while I have experienced top managers who rule by intimidation, I have not ever seen a top management that was as dedicated to isolation as what Mr McDonald describes. I have few doubts that it was unhealthy.
There is a significant amount of discussion of California and Florida as relates to the housing crash and he specifically mentions a number of towns that I have personal aquaintance with. I don't see any of his assessments that I would personally take issue with except for a comment he makes offhand regarding one physical phenomenon. I think its clear he's not a physicist, but that is fine. He does correctly describe the situation in California mortgages and it is clear that he and his distressed assets team clearly saw the mortgage meltdown coming as early as June 2005.
This book does hold your interest as his experiences move forward and the story unfolds. I found that I couldnt put the book down.I read this book in a weekend here. I also found that through the narrative he explained a couple of financial items that are main characters in the book and he does this in a very simple manner
I found that some of his anecdotes were pretty interesting ranging from his anecdotes of trying to get his first financial job by trying to get past the receptionists by posing as a pizza delivery boy. I also found his decription of the Bucket shop he interviewed in Philadelphia interesting as also his decriptions of his first financial job that he actually got as a retail broker with Merrill Lynch. His descriptions of how he got potential client leads by getting a bunch of Alumni lists from top schools and scarfing up country club memberships from the clubhouses of the local country clubs and. So I found the book pretty interesting.
I also found that his descriptions of the "Tech Wreck" brought back memories for me as he does mention a couple of the companies that I have worked for.
This is not a deep and trenchant attempt to analyze the balance sheets of Lehman. Its a personal memoir that tells the story of Larry McDonald and it discusses the activities that he was involved in and observed. I don't think he overclaims his knowledge and the story is engaging and an easy read. Its probably not the final word on Lehman Brothers but then it doesnt pretend to be. I suspect that a lot of the pieces are here however.
Two kinds of people are likely to be attracted to this book: the common man in the street who wants to know how a company like Lehman blew up so spectacularly and the financial markets insider who wants to know the inside scoop.
If you are the former, this book is likely to please. It has all the elements of a pot boiler - the breathless accounts of secret meetings, mutiny in the boardroom and the heroic efforts of a few key guys trying valiantly to save the sinking ship. It has the relentless enemy and the arch villain. The only thing missing is the scantily clad woman draped over the hero's arm.
The other side of the barbell is the financial services insider who knows all the acronyms inside and out - CDO, CLO, RMBS, CMBS, SIV who is nevertheless looking for a straight account of what went wrong - like the classic 'smartest guys in the room' on the Enron disaster.
If you are on that side of the barbell, steer clear of this book. It offers no insight into anything, except perhaps the massive ego of a low level trader. By all accounts, Larry McDonald should never have been allowed to place the kind of bets he claims to have made. He was obviously a junior trader on a bond desk that used shareholder money to short everything in sight taking massive short CDS positions on all sorts of names, good and bad. The irony seems entirely lost to him, but his desk was part of the CDS problem - buying protection with no underlying holdings.
Like any gambler, he worships the analyst (Jane Castle) who gave him the hot tip - (Buy Delta, young man!) but is too dumb to acknowledge that Delta could easily have woundup another Eastern, or more to the point, another TWA. The 'hostile' bid from US Airways that made his profit, nearly killed US Airways... but I digress.
Larry does let his political persuasions come through. Clinton is an arch villain for letting Roberta Achtenberg loose on banks 'forcing' them to lend to the huddled masses. 'Easy mortgages were the invention of Bill Clinton's Democrats' he proclaims. Never mind that the CRA ran for over 12 years with nary a problem until the boneheads on Wall Street decided to get in on the action by securitizing it.
Perhaps the most telling passage comes in the tail end of the book and summarizes it quite well:
"All my life, I've been a laissez-faire Ronald Reagan / Margaret Thatcher capitalist, swearing by the market, taking the risks and the devil take the hindmost. But this one time, I was looking for a Givernment rescue and I wasn't going to get it"
This one time. When my stock value is at stake, the principles I held all my life just vaporized. Hank Paulson should have cared more about my stock options in Lehman. That son-of-a-bitch was making an example out of Lehman with *MY* money.
This book is a lousy excuse for a tell-all or even a straight accounting of the events leading up to Lehman;s demise. 'When Genius Failed' this ain't.
As a former Lehman employee who left years ago, I found this book entertaining and enlightening. The seeds of Lehman's fall were sewn years ago and I enjoyed reading about the same cast of clowns that were there when I worked for Lehman. This book is an enjoyable first-hand look at what happened from an insider. Well done Mr. McDonald.
