A mortgage colleague I have worked with in the past and only have high marks for, Patty Immekus of PHX Mortgage, graciously gave me a copy of A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers by Lawrence G. MacDonald recently and I have been reading it.
I am about a third through and thought I would share my impressions of it so far.
First, a brief description. The book is about the fall of the investment giant, Lehman Brothers in New York in late 2008. The author was involved in Lehman Brothers convertible bonds business and watched as events unfolded which led to the firm’s demise.
My Critique
Keep in mind that I am not yet done reading. My overall opinion could change here.
I have found the book to be quite interesting as it does shed a lot of light on the pieces to the puzzle of the financial and real estate disasters that have shaken this country. It is for this reason that I continue to read it. It is a fascinating world and provides a sharper picture as to how something like we have seen could have come to pass.
On the flip side, there are elements to the book I find lacking as well as a certain vanity throughout the reading. There seems to be an underlying sense of superiority rather than humbleness when the author talks to his or others accomplishments.
The author likes to take a lot of time talking about his background and how he worked hard to eventually become a trader in Wall Street. This seems to be done less out of relevant description and more out of self-admiration. The author talks a lot about the people he worked with and their pedigrees and intelligence. I can appreciate the point he makes that Lehman Brothers and other Wall Street firms hired the absolute best and sharpest for their roles, but I think there is something lost in his descriptions which makes these people to seem nothing more than exceptionally bright employees driven only to obtain corporate windfalls for the company.
The author talks to the history of Lehman Brothers which is quite impressive. However, in talking to the demise of Lehman Brothers, I believe that Mr. MacDonald doesn’t address the importance of a previous acquisition of Lehman Brothers by Shearson American Express back in the early 1990s. American Express would eventually spin off Lehman Brothers in 1994.
I have studied and worked extensively in the corporate world. As such, in my view, Lehman Brothers ceased to exist in this time period when it was first acquired. No matter what the arrangement, corporate cultures, personnel, and practices change. Though Lehman Brothers would re-emerge later, my take is that any company with a long-standing tradition and history such as Lehman Brothers can’t remain the true Lehman Brothers once it has been acquired. It’s no longer the same company. I realize this is a technicality of perception and highly arguable, but I would suggest that Lehman Brothers didn’t emerge from this exercise in the same vein as its embodiment before the acquisition.
The author makes a point about calling out how the average investor doesn’t have a chance against the powerful teams of analysts and traders looking for opportunities in the markets. This is a pretty blunt comment and it certainly struck me. It is no secret that it is hard for the average investor (one who works a different job by day) to research and comprehend what they should with respect to corporations, stocks, bonds, etc. However, to have this reinforced by the notion that there are teams of highly intelligent analysts and traders who essentially have the average investor at a disadvantage, is certainly disturbing. The average investor doesn’t stand a chance in many respects. It sounds like a battle between David and Goliath where David is swiftly disemboweled of his capital.
The author calls out Lehman Brothers acquisitions of Aurora Capital LLC and BNC so Lehman is complicit in the whole mortgage crisis. The irony is that I can’t count how many Aurora Capital lender-owned properties I have come across since this whole thing began.
I don’t know if the author is looking for pity yet for Lehman Brothers. But this last nugget of insight would seal the deal for me, PERIOD.
If Lehman Brothers helped to create the mess we have been in the last few years with various financial widgets and complex financial tools in addition to employing an army of mortgage representatives chomping at the bit to sell loan products to people that had no real business getting them, then so be their demise. I only wish more banks that were involved in similar practices would have been liquidated.
Of course, I don’t believe the author is suggesting Lehman Brothers was misunderstood at this point. The story is at a point that sounds like a rift was developing in the bank between the ‘mortgage guys’ and the bonds people.
I will write again when I am finished reading.
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