A Colossal Failure of Common Sense

The Inside Story of the Collapse of Lehman Brothers

By: Patrick Robinson, Lawrence G. McDonald

Narrated by: Erik Davies

Length: 16 hrs and 38 mins

Publisher's summary

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.

©2009 Lawrence G. McDonald (P)2009 Random House

Exciting Telling of a story.

McDonald does a great job of setting up all the figures in the collapse, both good and bad. He kept in suspenseful and interesting. For not knowing about Wall Street, he did a good job of explaining these complex transactions in lay-man terms so it was easily understood. By far the most complete and understandable explanantion on how it all went down. I recommend it.

A true “page turner”

Incredible storytelling with the perfect narrator to match. I could not put my device down.

Interesting despite the author

The facts and the explanations were great. The supporting narrative was amateur. I would recommend it if you like learning about the sub prime debacle but be prepared to cringe a little bit at the self aggrandizing and cliches.

A great recap with dramatic effect

It’s a great story told from the somewhat dramatic lens of the front-line author, who saw a hand at the rise and fall of a massive firm.

Useful but a little self serving

For a number of reasons the Lehman bankruptcy is a very important and painful personal event in the context of my own financial and business interests.

So while the author does adequately remind us that hindsight is always 20/20, I was a little tired of hearing repeatedly of the absolute world class brilliance of various Lehman trading teams. While I am in no position to determine whether these claims of brilliance are correct, I do have to continually remind everyone that anyone in the senior manager position or above at this company has to be considered fairly complicit in this collossal failure.

That being said, the book is a nice, easy to listen to narrative of the insanity that led to this collapse. The author's point of view is well positioned and the personal stories are helpful. Its a little more autobiographical than I thought it would be, but that's OK.

As a senior unsecured creditor myself, I wish it would have shed more light on the potential outcome of the bankruptcy, but that's probably another book all together.

REQUIRED READING FOR ALL THOUGHTFUL AMERCANS

GREAT WHILE A BIT TOO MUCH PERSONAL INFO IN THE FIRST FEW CHAPTERS; THE EXPLANTION OF WHAT, WHY AND HOW WE HAD THE FINACIAL MELTDOWN AND WHERE THE MONEY WENT.
VERY INPORTANT. INFO.

Excellent read. Rivotting.

The best inside story of Lehman Brothers yet. Great read and would recommend for anyone in the finance industry.

Great read!

It’s one of the rare finance books that is both educational but still engaging enough to pay attention.

Informative First Hand Account

This is a first-hand and very informative account of the reasons Lehman Brothers fell into ruin and bankruptcy in September 2008. The author was a Lehman bond trader, a loyal employee (this was his dream job), and part of a group within Lehman that was highly disturbed by the high risk strategy continued by top management even after stormy conditions had arisen in what had been a highly profitable ride for Lehman in the sub-prime CMO market. "Strategy" may be a euphemism here because according to the author top management was not open to rational argument on Lehman's business course, even when confronted as early as 2006 by highly able and experienced Wall Street executives within Lehman. The dissenting voices were forced out or squelched until it was too late. The lethal combination of high leverage (44 times at its high in 2008) and unsaleable real estate, private equity, and CMO assets reached the point where Lehman was no longer seaworthy when it hit the unprecedented financial storms of 2008. The author clearly makes the case that Lehman's failure should not have happened and would not have happened had top management been more capable and responsible or heeded the alarm bells of 2006.

The book does have some flaws. The author is on less sure ground when he talks about the general causes of the financial crisis of 2008. For example, he cites the repeal of the Glass-Steagall Act in 1999 as a key contributor. Yet only one of the keystone US financial firms facing collapse in 2008 (Citigroup) was organized under a corporate structure that included a major commercial bank. Further, the rescue of Merrill Lynch by BofA and the approval of Goldman Sachs and Morgan Stanley to become bank holding companies--all elements of the Government's response to the financial crisis of 2008--would not have been legally permitted under the old Glass-Steagall Act.

Readers and Numbers people be aware

There is a mistake in the reading of the book. It deals with bond pricing, purchasing and yield to maturity amounts at 1:40. When I couldn't make sense of the numbers, I looked at the physical book (thanks B&N). It should read (or should have been read as): "They are paying 6% annually on that initial $1 million investment for another 5 years which is a total of $300,000. When the bonds mature, the buyer gets the original $1 million back not just the $800,000 he paid. Which represents a straight $200,000 profit. That's a $500,000 total return on the original investment of $800,000 - a yield to maturity of 11.5%"

I'm still working out how he gets the 11.5% figure. It might be compounded somehow, but simple percentage 500/800 / 5 years = 12.5% annually.

You're welcome.