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

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

by Lawrence G. McDonald, Patrick Robinson

Narrated by Erik Davies

Unabridged — 16 hours, 40 minutes

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

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

by Lawrence G. McDonald, Patrick Robinson

Narrated by Erik Davies

Unabridged — 16 hours, 40 minutes

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Overview

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.

Editorial Reviews

"Armageddon happens. The world freezes. But why were the shockwaves so devastating? How did Wall Street become so involved with this madness? Why did a home loan in an asparagus field outside San Francisco bring down Lehman Brothers and put Bank of America on life support? How did Lehman's bankruptcy obliterate hedge funds around the world? What was the connection? What really happened at Lehman?" In A Colossal Failure of Common Sense, former Lehman vice president Lawrence G. McDonald and Patrick Robinson, the coauthor of Lone Survivor, expose the largely untold story of the collapse of the behemoth global financial service firm. With its insider's perspective, clear, powerful prose, and biting analysis, this book earns comparisons with classics like House of Cards.

Michiko Kakutani

Mr. McDonald's book gives the reader a visceral sense of what it was like to work at Lehman Brothers and the fateful decisions and events that led to the company's death spiral—decisions that turned the once-proud firm into a grim illustration, in the words of one of the author's colleagues, of the "colossal failure of common sense."
—The New York Times

From the Publisher

...gives the readers a visceral sense of what it was like to work at Lehman Brothers and the fateful decisions and events that led to the company’s death spiral...”
—Michiko Kakutani, The New York Times

“Highly readable…A Colossal Failure of Common Sense largely rings true. It expresses the anger that many former Lehman employees still feel toward Mr. Fuld. And it convincingly characterizes the investment bank as a house divided against itself, between the bears who had foreseen bubbles and the bulls who wrongly believed that this time was different.”
—The Economist

“... describes a CEO ­acting as if his firm was too big to fail.”
—Wall Street Journal

“...poignantly told...from an insider [who] witnessed, often in amazement and disgust, the corporate dysfunction and hubristic leadership that led to [Lehman’s] demise.”
—BusinessWeek

“...engaging and even funny.”
—Fortune

SEPTEMBER 2009 - AudioFile

While you pore over the dry analysis of the financial crisis of 2008 with a cup of strong coffee in hand—take a few hours to listen to this engaging account of the investment firm Lehman Brothers. According to Robinson and McDonald, while the "mortgage guys" on the fourth floor wrecked the world economy and the "chowder heads" on the 31st floor wrecked Lehman, the risk-and-debt experts on the third floor saw it all coming. Forgive the authors their often-overwrought language and absorb their sense of the moment with respect to an extraordinary line of work. Erik Davies's tough-guy baritone is suitable and easy to understand. He delivers the story’s vivid images and characters with panache. F.C. © AudioFile 2009, Portland, Maine

Product Details

BN ID: 2940169179620
Publisher: Penguin Random House
Publication date: 07/21/2009
Edition description: Unabridged

Read an Excerpt

Prologue
 
I still live just a few city blocks away from the old Lehman Brothers headquarters at 745 Seventh Avenue—six blocks, and about ten thousand years. I still walk past it two or three times a week, and each time I try to look forward, south toward Wall Street. And I always resolve to keep walking, glancing neither left nor right, locking out the memories. But I always stop.
 
And I see again the light blue livery of Barclays Capital, which represents—for me, at least—the flag of an impostor, a pale substitute for the swashbuckling banner that for 158 years was slashed above the entrance to the greatest merchant bank Wall Street ever knew: Lehman Brothers.
 
It was only the fourth largest. But its traditions were those of a banking warrior—the brilliant finance house that had backed, encouraged, and made possible the retail giants Gimbel Brothers, F. W. Woolworth, and Macy’s, and the airlines American, National, TWA, and Pan American. They raised the capital for Campbell Soup Company, the Jewel Tea Company, B. F. Goodrich. And they backed the birth of television at RCA, plus the Hollywood studios RKO, Paramount, and 20th Century Fox. They found the money for the Trans-Canada oil pipeline.
 
I suppose, in a sense, I had seen only its demise, the four-year death rattle of twenty-first-century finance, which ended on September 15, 2008. Yet in my mind, I remember the great days. And as I come to a halt outside the building, I know too that in the next few moments I will be engulfed by sadness. But I always stop.
 
And I always stare up at the third floor, where once I worked as a trader on one of the toughest trading floors on earth. And then I find myself counting all the way up to thirty-one, the floor where it all went so catastrophically wrong, the floor that housed the royal court of King Richard. That’s Richard S. Fuld, chairman and CEO.
 
Swamped by nostalgia, edged as we all are by a lingering anger, and still plagued by unanswerable questions, I stand and stare upward, sorrowful beyond reason, and trapped by the twin words of those possessed of flawless hindsight: if only.
 
Sometimes I lie awake at night trying to place all the if-onlys in some kind of order. Sometimes the order changes, and sometimes there is a new leader, one single aspect of the Lehman collapse that stands out above all others. But it’s never clear. Except when I stand right here and look up at the great glass fortress which once housed Lehman, and focus on that thirty-first floor. Then it’s clear. Boy, is it ever clear. And the phrase if only slams into my brain.
 
If only they had listened—Dick Fuld and his president, Joe Gregory. Three times they were hit with the irredeemable logic of three of the cleverest financial brains on Wall Street—those of Mike Gelband, our global head of fixed income, Alex Kirk, global head of distressed trading research and sales, and Larry McCarthy, head of distressed-bond trading.
 
Each and every one of them laid it out, from way back in 2005, that the real estate market was living on borrowed time and that Lehman Brothers was headed directly for the biggest subprime iceberg ever seen, and with the wrong men on the bridge. Dick and Joe turned their backs all three times. It was probably the worst triple since St. Peter denied Christ.
 
Beyond that, there were six more if-onlys, each one as cringemakingly awful as the last.
 
If only Chairman Fuld had kept his ear close to the ground on the inner workings of his firm—both its triumphs and its mistakes. If he had listened to his generals, met people who formed the heart and soul of Lehman Brothers, the catastrophe might have been avoided. But instead of this, he secluded himself in his palatial offices up there on the thirty-first floor, remote from the action, dreaming only of accelerating growth, nursing ambitions far removed from reality.
 
If only the secret coup against Fuld and Gregory had taken place months before that clandestine meeting in June 2008. If the eleven managing directors who sat in ostensibly treasonous but ultimately loyal comradeship that night had acted sooner and removed the Lehman leaders, they might have steadied the ship, changing its course.
 
If only the reign of terror that drove out the most brilliant of Lehman’s traders and risk takers had been halted earlier, perhaps in the name of common sense. The top managers might have marshaled their forces immediately when they saw giants such as Mike Gelband being ignored.
 
If only Dick Fuld had kept his anger, resentment, and rudeness under control. Especially at that private dinner in the spring of 2008 with Hank Paulson, secretary of the United States Treasury. That was when Fuld’s years of smoldering envy of Goldman Sachs came cascading to the surface and caused Paulson to leave furious that the Lehman boss had disrespected the office he held. Perhaps that was the moment Hank decided he could not bring himself to bail out the bank controlled by Richard S. Fuld.
 
If only President George W. Bush had taken the final, desperate call from Fuld’s office, a call made by his own cousin, George Walker IV, in the night hours before the bank filed for Chapter 11 bankruptcy. It might have made a difference.
 
If only . . . if only. Those two words haunt my dreams. I go back to the fall of Lehman, and what might have made things different. For most people, victims or not of this worldwide collapse of the financial markets, it will be, in time, just water over the dam. But it will never be that for me, and my long background as a trader and researcher has prompted me many times to burrow down further to the bedrock, the cause of the crash of 2008. I refer to the repeal of the Glass-Steagall Act in 1999.
 
If only President Clinton had never signed the bill repealing Glass-Steagall. Personally, I never thought he much wanted to sign it, but to understand the ramifications it is necessary to delve deeper, and before I begin my story, I will present you with some critical background information, without which your grasp might be incomplete. It’s a ten-minute meadow of wisdom and hindsight, the sort of thing I tend to specialize in.
 
The story begins in the heady, formative years of the Clinton presidency on a rose-colored quest to change the world, to help the poor, and ended in the poisonous heartland of world financial disaster.
  
Roberta Achtenberg, the daughter of a Russian-born owner of a Los Angeles neighborhood grocery store, was plucked by President Clinton from relative obscurity in 1993 and elevated to the position of assistant secretary of the Department of Housing and Urban Development. Roberta and Bill were united in their desire to increase home ownership in poor and minority communities.
 
And despite a barrage of objections led by Senator Jesse Helms, who referred to Achtenberg as that “damn lesbian,” the lady took up her appointment in the new administration, citing innate racism as one of the main reasons why banks were reluctant to lend to those without funds.
 
In the ensuing couple of years, Roberta Achtenberg harnessed all of the formidable energy on the massed ranks of United States bankers, sometimes threatening, sometimes berating, sometimes bullying—anything to persuade the banks to provide mortgages to people who might not have been up to the challenge of coping with upfront down payments and regular monthly payments.
 
Between 1993 and 1999, more than two million such clients became new homeowners. In her two-year tenure as assistant secretary, she set up a national grid of offices staffed by attorneys and investigators. Their principal aim was to enforce the laws against the banks, the laws that dealt with discrimination. Some of the fines leveled at banks ran into the millions, to drive home Achtenberg’s avowed intent to utilize the law to change the ethos of providing mortgage money in the United States of America.
 
Banks were compelled to jump into line, and soon they were making thousands of loans without any cash-down deposits whatsoever, an unprecedented situation. Mortgage officers inside the banks were forced to bend or break their own rules in order to achieve a good Community Reinvestment Act rating, which would please the administration by demonstrating generosity to underprivileged borrowers even if they might default. Easy mortgages were the invention of Bill Clinton’s Democrats.
 
However, there was, in the mid- to late 1990s, one enormous advantage: amid general prosperity, the housing market was strong and prices were rising steadily. At that point in time, mortgage defaults were relatively few in number and the securitization of mortgages, which had such disastrous consequences during the financial crisis that began in 2007, barely existed.

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