Tibman's 'The Murder of Lehman Brothers'

This is now the second book we've read on the demise of failed investment bank Lehman Brothers (LEHMQ.PK) and today we're here to review Joseph Tibman's The Murder of Lehman Brothers: An Insider's Look at the Global Meltdown. What's interesting about this read is that it provides you with a different viewpoint of the crisis from the inside. The first book we read on this topic was Lawrence McDonald's New York Times Bestseller list book entitled A Colossal Failure of Common Sense: The Insider Story of the Collapse of Lehman Brothers.

While McDonald's book focused on different viewpoints and sources, Tibman takes a different approach by almost exclusively using his own sole account of what occurred within those hallowed walls. There are both pros and cons to this approach. On the positive side, this account is fresh, opinionated, and truly has a tenured insider feel. The negative aspect of this, though, is the fact that the book leaves with you with a limited viewpoint.

One of the strongest focus points of the book is the notion of 'drinking the Kool-Aid' on Wall Street. Given that so much greed (and irrationality) often abounds on Wall Street, the fact that Tibman's work takes aim at this is laudable. The focus on greed is something that always has and always will exist on Wall Street and Tibman's work showcases just how such desire can ultimately send you down in flames.

The book takes aim at Dick Fuld as it chronicles his 20 year rise and fall at the firm and is additionally laced with attacks at various members of the government. While other books on Lehman's demise will focus on the most recent events leading up to the crisis, The Murder of Lehman Brothers takes a slightly different (more elongated) approach. While the author of course covers the pressing issues relating to Lehman's recent collapse, he also details how they almost went under 10 years earlier had it not been for the U.S. government's bailout of Mexico at the time.

Another highlight of the book is its tone. Many books on finance seemingly have an 'intellectual' or condescending feel to them given the subject matter and language used. Not this book. If you hate the typical snobby, academic approach to financial writing or if you don't consider yourself to be the most financially savvy person out there, then The Murder of Lehman Brothers is perfect for you. The tone provides a very easy to read 'everyday' style that is refreshing.

A somewhat problematic area though (at least in our eyes) is the fact that Joseph Tibman is not the name of the individual whose viewpoint we are reading, but rather a pen name. This fact slightly diminishes the authority of the book and leaves us wondering about the author's true identity. However, we do know that he was a senior investment banker who worked at the firm from before it was spun off by American Express in 1994 until the day of its death on September 21st, 2008. Given the increasing focus on transparency in finance these days, a more 'full disclosure' approach would have been welcomed. At the same time though, we can understand the desire or need to remain anonymous for career purposes.

Overall, The Murder of Lehman Brothers is a compelling narrative of one insider's journey within the burning walls of the failed investment bank that provides a fresh account in a concise, easy to understand writing style worth checking out.

Comments

[Joseph Tibman:]

Your comment makes good sense. The discomfort experienced by people at Lehman is minor relative to the damage done to lives outside Lehman that were ravaged by the fallout (though not every Lehman employee was a fat cat). I wrote this book not to whine about personal misfortune, but because I believe strongly that we remain at risk. There is much that needs to be done to prevent a small number of people with faulty judgment (at best) from creating so much pain. Those at Lehman who ruined the firm are not unique. This can happen again. Based on what I've seen to date I remain hopeful, but not optimistic that our elected officials will fix the Wild West that is our financial sector.

It's important note that there were and are many problems in the financial sector that would have confronted us whether Lehman went bankrupt or not. Still, Lehman's failure unleashed a storm that made it more difficult to manage these problems.

Lastly, I wrote this book in plain English so that people who are not in finance could understand the complex combination of factors that created the conditions that made the financial crisis inevitable. I felt a personal loss when Lehman fell because I'd been there for 20 years. But I in no way make excuses or defend those who caused the crisis. And certainly having worked in investment banking for so many years, while I know I'm not devoid of ethics, I can't possibly claim to be immaculate either.

Long answer to a short comment - but I guess it seems like people assume any book written by an investment banker must be nothing more than one more ploy to cash in. If your public library stocks the book, and it doesn't inconvenience you, I'd be glad if you took a look.


On Nov 01 08:50 AM a. palmer jr. wrote:

> Why didn't he call it "Murder of the Public" or "Murder of Lehman
> bond holders". The Lehman people got off better in most cases than
> the stock and bondholders did. I personally lost a good bit of my
> retirement money because my local "adviser" suggested I buy a Lehman
> bond. At least the people that worked for Lehman made good salaries
> before they left; some people that worked in other occupations who
> invested in Lehman didn't.

Nov 02 06:58 PM

[Joseph Tibman:]

Your comment is one I hear a lot, expressed with a variety of words -- often far more profane than anything you said. You certainly are due an honest response.

First, you're right. The discomfort experienced by people at Lehman is minimal relative to the damage wrought on the global stage. (Though it was pretty crappy if you worked in the mailroom, has little to no savings, were laid off a week before Lehman filed, and found your "package shut down as it was a Lehman obligation. No income. No healthcare.)

1 I would be untruthful if I said I didn't mourn Lehman. I worked there for around twenty years. I had friends and a lot of time within those walls. No question, I tried to be as objective as possible in writing the book, but no insider can be 100% objective. I did use some sources other than my own opinions, but the damned pseudonym prevents me from creating a trail.

2. My personal experience is a distinctive element of the book, but this book is not about me. It's about what happened - events that harmed many.. It would have been far easier not to write the book. But it was clear there would be tabloid accounts by either insiders or outsiders and journalist books that would lack a perspective that an outsider will never possess. If one really wants balance I'd suggest reading an insider Lehman book and Sorkin's new best-seller. He's a good journalist who has uncovered some new info and he has a compelling writing style. Still, from what I've seen, a pure assemblage of facts in some of what he's written pushes an interpretation that occasionally is slightly off target. He didn't live at Lehman.. So I suppose read a book by an objective outysider and an insider whose fiercely trying to be as objective as possible and then draw your own conclusions. Or not. But this st least makes sense to me. I plan to read Sorkin's tome and no doubt I'll find it meaningful.

3. I wrote this book because I believe strongly that we remain at risk. There is much that needs to be done to prevent a small number of people with faulty judgment (far less colorful description than what runs through my book)t) from creating so much pain. Those at Lehman who ruined the firm are not unique. This can happen again. Based on what I've seen to date I remain hopeful, but not optimistic that our elected officials will fix the Wild West that is our financial sector. We need better regulation that is strictly enforced. We need really good police. Imagine America with no police or other crime fighters.

4. Lehman unleashed a torrent, but the problems in the financial sector were not all wrought by Lehman. In my view, the bankruptcy simply unleashed a level of chaos that might have been avoided if we more deftly dealt with the problems. Aren't the Bear, AIG, etc bondholders lucky that it wasn't one of those institutions that went bankrupt before Washington realized the failure of a major financial institution while arguably just, brings unacceptable collateral damage.I

Lastly, I emphasize that I wrote this book in plain English so that people who are not in finance could understand the complex combination of factors that created the conditions that made the financial crisis inevitable. I felt a personal loss when Lehman fell because I'd been there for 20 years. But I in no way make excuses or defend those who caused the crisis. And certainly having worked in investment banking for so many years, while I know I'm not devoid of ethics, I can't possibly claim to be immaculate either.

Long response to a short comment - but I guess it seems like people assume any book written by an investment banker must be nothing more than one more ploy to cash in. If your public library stocks the book, and it doesn't inconvenience you, I'd be glad if you took a look there.

Finally, I truly am sorry to har about the losses you took as a result of the imprudence of some at a place where I proudly worked for so long. As I note in the book, I was one of very many senior bankers and certainly not in the top exec inner circle. Still, it's also because of my long association with Lehman and the damage Lehman caused that I felt compelled to write the book. I was certainly not in any sort of position to alter Lehman's sad course. Ironically enough, like most (and don't believe those who claim otherwise) I didn't even know until nearly the end that we were heading toward an iceberg. In this online environment I can't pretend to truly understand your pain -- but it's clearly profound. I wish you the best.

Joe


On Nov 01 08:50 AM a. palmer jr. wrote:

> Why didn't he call it "Murder of the Public" or "Murder of Lehman
> bond holders". The Lehman people got off better in most cases than
> the stock and bondholders did. I personally lost a good bit of my
> retirement money because my local "adviser" suggested I buy a Lehman
> bond. At least the people that worked for Lehman made good salaries
> before they left; some people that worked in other occupations who
> invested in Lehman didn't.

Nov 02 07:48 PM

[Joseph Tibman:]

Your comment is one I hear a lot, expressed with a variety of words -- often far more profane than anything you said. You certainly are due an honest response.

First, you're right. The discomfort experienced by people at Lehman is minimal relative to the damage wrought on the global stage. (Though it was pretty crappy if you worked in the mailroom, has little to no savings, were laid off a week before Lehman filed, and found your "package shut down as it was a Lehman obligation. No income. No healthcare.)

1 I would be untruthful if I said I didn't mourn Lehman. I worked there for around twenty years. I had friends and a lot of time within those walls. No question, I tried to be as objective as possible in writing the book, but no insider can be 100% objective. I did use some sources other than my own opinions, but the damned pseudonym prevents me from creating a trail.

2. My personal experience is a distinctive element of the book, but this book is not about me. It's about what happened - events that harmed many.. It would have been far easier not to write the book. But it was clear there would be tabloid accounts by either insiders or outsiders and journalist books that would lack a perspective that an outsider will never possess. If one really wants balance I'd suggest reading an insider Lehman book and Sorkin's new best-seller. He's a good journalist who has uncovered some new info and he has a compelling writing style. Still, from what I've seen, a pure assemblage of facts in some of what he's written pushes an interpretation that occasionally is slightly off target. He didn't live at Lehman.. So I suppose read a book by an objective outysider and an insider whose fiercely trying to be as objective as possible and then draw your own conclusions. Or not. But this st least makes sense to me. I plan to read Sorkin's tome and no doubt I'll find it meaningful.

3. I wrote this book because I believe strongly that we remain at risk. There is much that needs to be done to prevent a small number of people with faulty judgment (far less colorful description than what runs through my book)t) from creating so much pain. Those at Lehman who ruined the firm are not unique. This can happen again. Based on what I've seen to date I remain hopeful, but not optimistic that our elected officials will fix the Wild West that is our financial sector. We need better regulation that is strictly enforced. We need really good police. Imagine America with no police or other crime fighters.

4. Lehman unleashed a torrent, but the problems in the financial sector were not all wrought by Lehman. In my view, the bankruptcy simply unleashed a level of chaos that might have been avoided if we more deftly dealt with the problems. Aren't the Bear, AIG, etc bondholders lucky that it wasn't one of those institutions that went bankrupt before Washington realized the failure of a major financial institution while arguably just, brings unacceptable collateral damage.I

Lastly, I emphasize that I wrote this book in plain English so that people who are not in finance could understand the complex combination of factors that created the conditions that made the financial crisis inevitable. I felt a personal loss when Lehman fell because I'd been there for 20 years. But I in no way make excuses or defend those who caused the crisis. And certainly having worked in investment banking for so many years, while I know I'm not devoid of ethics, I can't possibly claim to be immaculate either.

Long response to a short comment - but I guess it seems like people assume any book written by an investment banker must be nothing more than one more ploy to cash in. If your public library stocks the book, and it doesn't inconvenience you, I'd be glad if you took a look there.

Finally, I truly am sorry to har about the losses you took as a result of the imprudence of some at a place where I proudly worked for so long. As I note in the book, I was one of very many senior bankers and certainly not in the top exec inner circle. Still, it's also because of my long association with Lehman and the damage Lehman caused that I felt compelled to write the book. I was certainly not in any sort of position to alter Lehman's sad course. Ironically enough, like most (and don't believe those who claim otherwise) I didn't even know until nearly the end that we were heading toward an iceberg. In this online environment I can't pretend to truly understand your pain -- but it's clearly profound. I wish you the best.

Joe


On Nov 01 08:50 AM a. palmer jr. wrote:

> Why didn't he call it "Murder of the Public" or "Murder of Lehman
> bond holders". The Lehman people got off better in most cases than
> the stock and bondholders did. I personally lost a good bit of my
> retirement money because my local "adviser" suggested I buy a Lehman
> bond. At least the people that worked for Lehman made good salaries
> before they left; some people that worked in other occupations who
> invested in Lehman didn't.

Nov 02 07:48 PM

[Joseph Tibman:]

Not even close. In which part of Lehman did you work. And I didn't sit through Goldfarb's talks either.


On Nov 01 09:33 AM exLEH wrote:

> I'm pretty certain Joe Tibman is David Goldfarb, the former CAO.
> I've been in many meetings with the guy and have heard many presentations.
> Parts of the book (esp on the LB history) sound almost exactly like
> word-for-word repetitions of Goldfarb's standard presentation. Of
> course, it might be written by someone else who also had to listen
> to Goldfarb talk about The Brothers for hours on end.

Nov 02 07:52 PM

[Joseph Tibman:]

Agree on Fuld, but I don't buy into the Goldman conspiracy thing. I do note that one must wonder whether Paulson would have let Goldman go down. For that reason, I beliueve there is inherent copnflict when you appoint Wall Street execs to a position like Sec of Treasury. But I absolutely believe Paulson was driven by an ethos of "moral hazard" and switched gears when he saw the nuclear impact opf the Lehman bankruptcy. I've read all the articles about his phone calls to Goldman, etc, but don't believe his decisions on Lehman were to eliminate a Goldman competitor.


On Nov 01 09:00 AM john s. gordon wrote:

> it is clear that mr. fuld acted foolishly (refusing an attractive
> buyout offer which could have been accepted).
> it is also clear that mr. paulson was offered a chance to get rid
> of a competitor of his well-connected GS and accepted the opportunity
> with glee.

Nov 02 07:59 PM

[TradingHelp...:]

"The Murder of Lehman Brothers"??

Lehman Bros. wasn't murdered. It committed suicide via an overdose of greed and financial risk ignorance.

The financial world is a better place without it. Look at it as a Darwinian process of weaning out the truly stupid.

Nov 07 02:57 AM

[untrusting ...:]

Joseph,
Glad you wrote the book and will try to read it somewhere along the line. Interesting that you reply to SA comments.

With regard to Goldman, some questions would be: (any comments?)
1) How is it possible for Goldman to have quarters of 90+% winning trades.? Never been done in market history to our knowledge. Statistically and mathematically almost impossible. Almost certainly has to involve unethical or illegal practices such as front-running, inside information, etc.
2) Regulatory capture - it is almost inconceivable, that with the large number of GS executives in key governmental and regulatory positions, that valuable information and considerations are not passed back to GS. After all GS ex-executives still have large financial interests in GS stock, LT friends at GS, etc. For example the GS NY Fed board member that resigned, or the Bank of Canada governer, or the GS ex-executive developing mid-east exchange markets.
3) Trading dominance of handful of large traders in today's market - many articles on SA and elsewhere have indicated that as much as 50-70% of the entire trading volume on US equity markets since March/09 have been done by less than 2% of market participants, noteably GS, JPM, and a few HFT's. Not to mention the numerous late day "stick saves" that have turned a market sell-off into a continuation of the uptrend. Many believe that the "recovery rally" long ago would have stalled out and corrected, except for this obvious and consistent market support.
4) HFT's, dark pools, liquidity share rebates, etc - any thoughts on how this is affecting the fairness of retail and institutional investor trading?
5) Gold - what is the real status of gold from the big player perspective? Reports indicate that commercial traders have massive short positions in gold, whereas the retail, institutuional, and hedge funds are overwhelmingly long. Any comments on the gold push/pull fight?

Thanks in advance for any comments or observations on the above.

On Nov 02 07:59 PM Joseph Tibman wrote:

> Agree on Fuld, but I don't buy into the Goldman conspiracy thing.
> I do note that one must wonder whether Paulson would have let Goldman
> go down. For that reason, I beliueve there is inherent copnflict
> when you appoint Wall Street execs to a position like Sec of Treasury.
> But I absolutely believe Paulson was driven by an ethos of "moral
> hazard" and switched gears when he saw the nuclear impact opf the
> Lehman bankruptcy. I've read all the articles about his phone calls
> to Goldman, etc, but don't believe his decisions on Lehman were to
> eliminate a Goldman competitor.

Nov 07 03:15 AM

[acttang:]

Indeed so, a shit show played out by two nasty guys. Dick Fuld's arrogance was beyond reprehension when he turned down the $15ish bid from KIC. And Paulson wasted no time to use this opportunity to deal a deadly blow to this mother f*cker, who in normal times had been a pain in the ass in many ways to Goldman Sachs. None of them cared much about the shareholders, creditors, and employees. Amazing...


On Nov 01 09:00 AM john s. gordon wrote:

> it is clear that mr. fuld acted foolishly (refusing an attractive
> buyout offer which could have been accepted).
> it is also clear that mr. paulson was offered a chance to get rid
> of a competitor of his well-connected GS and accepted the opportunity
> with glee.

Nov 07 07:43 AM

[Nathaniel C:]

Personally I am glad that Lehman went under (wish Goldman and Morgan Stanley went down as well). It is what should happen under a capitalist system. Failures are rewarded with bankruptcy and success is rewarded with riches. That is how it should be.

I also have very little sympathy for Lehman employees who had 100% of their net worth in Lehman. That pretty much symbolizes why Lehman failed. No one ever heard of risk management. The idea that you could use 30-1 leverage was absurd. You think Lehman would have learned its lesson in 1998 when it narrowly avoided collapse due to the Asian financial crisis.

That being said what did Fuld do to piss off Bernanke so much that it prevented Lehman from getting a taxpayer bailout?

Nov 07 02:24 PM

[untrusting ...:]

After Enron and Worldcom, it is nothing short of amazing that any employee in any company would risk anywhere near 100% of their net worth or pension account in one single company, even if it is their own employer. Even more questionable is that finance-based employees (supposedly with some finance background), like those at Lehman or any Wall Street firm, would have no diversification.


On Nov 07 02:24 PM Nathaniel C wrote:

> Personally I am glad that Lehman went under (wish Goldman and Morgan
> Stanley went down as well). It is what should happen under a capitalist
> system. Failures are rewarded with bankruptcy and success is rewarded
> with riches. That is how it should be.
>
> I also have very little sympathy for Lehman employees who had 100%
> of their net worth in Lehman. That pretty much symbolizes why Lehman
> failed. No one ever heard of risk management. The idea that you could
> use 30-1 leverage was absurd. You think Lehman would have learned
> its lesson in 1998 when it narrowly avoided collapse due to the Asian
> financial crisis.
>
> That being said what did Fuld do to piss off Bernanke so much that
> it prevented Lehman from getting a taxpayer bailout?

Nov 07 06:11 PM

[Joseph Tibman:]

1. Agree on Goldman track record. The firm is largely a big hedge fund that moves markets. As the market has risen, the inflows area fraction of the money that came out when it plummeted, so your comments make sense. But you don't need govt favors to manipulate the market. You need only a system with few police, none of whom are enforcing, and in many cases are not as savvy as those they oversee.

2. Agree that Goldman must get better info for reasons sited. A mid-level Goldman guy was just appointed to #2 spot in SEC enforcement. But still don't believe Paulson kicked Lehman down the stairs to eliminate a competitor. Too much ego involved to sacrifice his legacy for that. Also, would seem to be an awfully crazy game to play; i.e. destabilize the market and know that one day later you will save AIG whose failure would have rocked Goldman's world as AIG held the bag on Goldman subprime risk. Too much a game of high stakes poker. Goldman plays the sure thing.
3. Already answered in 1. I essentially agree.
4. Not an even playing field.
5. Don't know enough about gold trading to answer.

Bottom line, when I say I don't believe in Goldman conspiracy, I say I don't think they took out Bear, Lehman, and to a large degree, Merrill to take out competitors. Nothing really suggests that. People have found all sorts of smoke, but no gun. But I do agree that Goldman, (and others) manipulate markets. Information is a currency and they are better placed than anyone else on the Street.
On Nov 07 03:15 AM untrusting investor wrote:

> Joseph,
> Glad you wrote the book and will try to read it somewhere along the
> line. Interesting that you reply to SA comments.
>
> With regard to Goldman, some questions would be: (any comments?)
>
> 1) How is it possible for Goldman to have quarters of 90+% winning
> trades.? Never been done in market history to our knowledge. Statistically
> and mathematically almost impossible. Almost certainly has to involve
> unethical or illegal practices such as front-running, inside information,
> etc.
> 2) Regulatory capture - it is almost inconceivable, that with the
> large number of GS executives in key governmental and regulatory
> positions, that valuable information and considerations are not passed
> back to GS. After all GS ex-executives still have large financial
> interests in GS stock, LT friends at GS, etc. For example the GS
> NY Fed board member that resigned, or the Bank of Canada governer,
> or the GS ex-executive developing mid-east exchange markets.
> 3) Trading dominance of handful of large traders in today's market
> - many articles on SA and elsewhere have indicated that as much as
> 50-70% of the entire trading volume on US equity markets since March/09
> have been done by less than 2% of market participants, noteably GS,
> JPM, and a few HFT's. Not to mention the numerous late day "stick
> saves" that have turned a market sell-off into a continuation of
> the uptrend. Many believe that the "recovery rally" long ago would
> have stalled out and corrected, except for this obvious and consistent
> market support.
> 4) HFT's, dark pools, liquidity share rebates, etc - any thoughts
> on how this is affecting the fairness of retail and institutional
> investor trading?
> 5) Gold - what is the real status of gold from the big player perspective?
> Reports indicate that commercial traders have massive short positions
> in gold, whereas the retail, institutuional, and hedge funds are
> overwhelmingly long. Any comments on the gold push/pull fight?<br/>
>
> Thanks in advance for any comments or observations on the above.
>
>
> On Nov 02 07:59 PM Joseph Tibman wrote:

Nov 08 07:39 PM

[Joseph Tibman:]

I agree that institutions that are headed for bankruptcy due to mismanagement should go. Absolutely. And for that reason I think Lehman deserved to go bankrupt. You will never hear me complain for a second about the impact of the Lehman bankruptcy on me personally. In my book I describe the fraught days when Lehman was going, but that is it. As to all these firms failing, I believe its naive to think that you can allow the complete collapse of the financial system and not see the rest of industry, the country, and the globe suffer as a result. Some institutions are too big to fail. The real problem is poor oversight. Because large financial institution hurt others, not just themselves, when they die, there should be better oversight that helps prevent this. And those that are guilty of criminal activity, including misleading financial disclosure, should personally pay for their crimes. As to Lehman having crappy risk management: First Lehman did not almost go under in 1998 -- unfounded rumor. Lehman did almost go under, however, during the Mexican tesobonos crisis. Absent the US led support for Mexico, Lehman would have gone bust. It was this that led Lehman to put in place state-of-the-art risk management. What existed (or actually didn't exist) before that was scary. Lehman also had a top notch risk management head, Madelyn Antoncic until a few top execs removed her and threw all the sound risk management in place since after '95 under the bus. Why could they do this, despite the cries of those who could see we were getting into an extremely dangerous position - because there was no one to stop it; i.e. regulation and enforcement to prevent this. I don't view Lehman as filled with a couple of bad guys and thousands of saints. But the people at all the investment banks are not unique mutations. Without proper oversight, they will all be gone. And yes, Lehman went bankrupt. And guess what? With Barclays taking only what was clean, Barcap is better poised to pay its bankers and traders (mainly ex-Lehman) more than all the banks that were saved and got government assistance. Does that seem fair? Yah, let Wall Street go down the tubes and then you'll really hear the country calling for their scalps.


On Nov 07 02:24 PM Nathaniel C wrote:

> Personally I am glad that Lehman went under (wish Goldman and Morgan
> Stanley went down as well). It is what should happen under a capitalist
> system. Failures are rewarded with bankruptcy and success is rewarded
> with riches. That is how it should be.
>
> I also have very little sympathy for Lehman employees who had 100%
> of their net worth in Lehman. That pretty much symbolizes why Lehman
> failed. No one ever heard of risk management. The idea that you could
> use 30-1 leverage was absurd. You think Lehman would have learned
> its lesson in 1998 when it narrowly avoided collapse due to the Asian
> financial crisis.
>
> That being said what did Fuld do to piss off Bernanke so much that
> it prevented Lehman from getting a taxpayer bailout?

Nov 08 07:53 PM

[Joseph Tibman:]

Btw, what this review and many -- but not all -- miss is that the book does not blame everything on Fuld and his best buddies. They carry much of the blame, but the book also talks about the many who created the conditions for Lehman. And given that so many institutions had to be bailed out, the siutuation wasn't unique to Lehman. Unless we accept that ego and greed will forever dominate the decisions of people who can at times have a powerful impact on our markets and our world -- and police them -- we are doomed to repeat the mistakes of the past. Lehman is one of many contemporary as well as many past examples going back centuries of this brand of bad behavior.

Nov 08 07:58 PM

[Crocodilian:]

The "Murder" of Lehman Brothers? Anyone consider that it might be suicide?

Let's see: buy illiquid complex securities of doubtful quality, and leverage them 40 to 1, much of it with overnight money.

What could possibly go wrong with a plan as brilliant as that?

Nov 08 09:57 PM

[The WaveNET...:]

I agree with Joseph Tibman that the risk of another crisis has not diminished, mostly because the "band-aids" in place still ignore the reasons behind the Great Panic.

I notice that Goldman Sachs and Morgan Stanley were saved by the conveniently timely privileges accorded to a "bank holding company", while Lehman and Merrill were treated as stepchildren.

These survivors, which still have no or negligible deposits, are essentially giant hedge funds supported by government guarantees. They can continue gambling ( or trading, as they call it) with more risk than before borne by taxpayers ,and more profits than before available for executive bonuses.

If "moral hazard" needed an abject illustration, we are looking at it. So Joseph, you are not alone in thinking that we are worse off.

Nov 08 11:36 PM

[TVFH:]

Had they been called Lemon Bros., instead of Layman Bros., it wouldn't have happened.

Nov 09 09:11 AM

[Joseph Tibman:]

Exactly. Top management threw risk management under the bus. Of course, LB wasn't the only firm to do that. So doesn't it seem we should have regulation and enforcement, just like our larger society has laws and police?


On Nov 08 09:57 PM Crocodilian wrote:

> The "Murder" of Lehman Brothers? Anyone consider that it might be
> suicide?
>
> Let's see: buy illiquid complex securities of doubtful quality, and
> leverage them 40 to 1, much of it with overnight money.
>
> What could possibly go wrong with a plan as brilliant as that?

Nov 10 06:41 PM

[Joseph Tibman:]

Thank you. I think some people assume from the title that I believe Lehman was blameless. That's too bad. Maybe I should have called the book "The Assisted Suicide of Lehman Brothers."


On Nov 08 11:36 PM The WaveNET Perspective wrote:

> I agree with Joseph Tibman that the risk of another crisis has not
> diminished, mostly because the "band-aids" in place still ignore
> the reasons behind the Great Panic.
>
> I notice that Goldman Sachs and Morgan Stanley were saved by the
> conveniently timely privileges accorded to a "bank holding company",
> while Lehman and Merrill were treated as stepchildren.
>
> These survivors, which still have no or negligible deposits, are
> essentially giant hedge funds supported by government guarantees.
> They can continue gambling ( or trading, as they call it) with more
> risk than before borne by taxpayers ,and more profits than before
> available for executive bonuses.
>
> If "moral hazard" needed an abject illustration, we are looking
> at it. So Joseph, you are not alone in thinking that we are worse
> off.

Nov 10 06:59 PM

[untrusting ...:]

Joseph,
Many thanks for responding to our questions/comments.

Here are a few thoughts we have posted before on other SA articles.

1) Too-big-too-fail - There are solutions. For example, we believe that all systemically important (too-big-to-fail) public companies should be required to have a "fail safe" mechanism. It should never be governments or taxpayers or the Fed's obligation to "bail out" a public company. Our view is that something like "mandatorily convertible bonds" should be required to be part of the capital structure of systemically important companies.
- in times of extreme stress, then mandatory convertible bonds would be required to be converted either by management or the Fed.
- Yes interest would be higher, but so what. It is managements responsibility to provide for risk mitigation.
- Amount of mandatory convertible debt could be a function of the leverage that a public company has. With higher leverage each year, requiring mandatory issue of yet more convertible debt. Yes shareholders would be diluted, but so what?

In short if public companies cannot be responsible as too-big-to-fail institutions, then they should be forced to develop "fail safe" mechanisms such as manatory convertible debt or forced capital raises (possibly at various leverage levels), when predetermined conditons are encountered. If they cannot or will not do this, then they should be broken up and forced to become not systemically important.

2) Regulation - yes would agree that securities regulation (and many others as well such as healthcare, agriculture, etc.) are a hugh failure for many reasons including the ones you mentioned.

Again, there are good solutions, but probably nothing that will ever happen because of the vested interests (politicans, wall street, lobbyists, public companies). Our view is that there should only be one regulator, the SEC, with all other securities regulators such as FDIC, Office of Thrift, CFTC, etc being rolled into the SEC as divisions of the one regulator. Regulatory shopping should not be an option.
- The one securities regulator should be totally self-funded by the users and be removed totally from tax funding altogether. Could be 2-cents per share traded, $2-bond traded, or whatever user fees are required to fully fund the regulator.
- Should appoint a knowledgable expert to head the SEC (non-banking) and give them a 10 year mandate to totally reform securities regulation. Maybe a Jim Chanos, John Bogel, Bill Gross, or a Jeremy Grantham. Give them a Presidential Medal of Honor and a place in the history books if they are successful.
- Should also consolidate state securities regulation into the one regulatory body, with representatives from each state. Consistent regulations, with the odd special exception where justified by need.
- Should also have the one regulator responsible for other major areas impacting the securities markets. Such as ratings agencies and auditors. Both of these should be clients of the SEC, not the individual companies. That is they are hired by and report directly to the SEC. Yes, the individual securities still have to pay directly for the ratings or the audit, but they pay to the SEC and the SEC assigns a ratings firm or auditor to do the job, by competitive bids.
- should be stiff financial and jail penalties for any SEC staffer convicted of any irregularities, collusion, etc with any regulated entity. Should also be mandatory non-compete clauses, such that any regulator cannot work for any regulated financial entity or lobby organizaton for a minimum of 5 years after leaving the regulator. That still leaves them plenty of options such as media, education, or start their own business, etc.

3) National Fraud Enforcement - our view is that one of the most significant problems in the US economy today is the total lack of fraud enforcement and prosecution. This applies certainly to the securities industry in a major way, but also to many other areas such as medicare fraud, government contractor fraud, etc.

In our view, the laws already exist to deal with fraud, misrepresentation, insider trading, and most other financial fraud issues. Specifically the Rico laws and the Foreign Corrupt Practices Act to name just a couple. The great thing about the Rico law is that (it was enacted mainly for gangsters and drug dealers) provides for lengthy jail sentences and virtually total consfiscaton of all assets. That is the key. When financial criminals become subject to loss of almost all personal assets and lengthy jail terms, then it no longer is worth getting caught. For example, Pfizer just admitted to something like their 4th major fraud and agree to settle for something like $2billion. Or Goldman just admitted to fraud, bribery and misrepresention in the Arkansas complex securities deal. But they both just settled. If some executives had lost all their personal wealth and gone to jail, instead of just settling, then it would become a different game in the future. Both of them will just continue to steal more in the future, because they can just settle and make it back again later.

The answer in our view is to set up a National Fraud Agency. It should be modelled on private sector contingency law firms. It should not cost the taxpayer one dime. Clearly the present politicans and even Dept. of Justice are too conflicted, underfunded, and understaffed too even attempt massive fraud monitoring and prosecution.
- a National Fraud Agency could be staffed with thousands of lawyers, FBI agents, investigators, etc. All on a "pay-for-performance basis" and not require one cent of taxpayer money.
- They ought to be able to recover billions or tens of billions annually just from successful prosecutions and asset seizure. Would think than many of the staff literally could become millionaires within 10 or less years just on pay-for-performance.
- Could possibly be a special department of DoJ, or we would appoint a special supreme court justice to oversee it.
- could allocate 40-50% of asset seizures to pay-for-performance and operations and remainder to paying down the national debt.
- would have to again have heavy penalties for staffers convicted of fraud, collusion, etc in the course of their duties.
- should have large whistleblower incentives. If the US can offer $25 million for Sadam or bin Laden, then no reason why they cannot do something similar for major financial fraudsters in the US and start to clean up the massive financial fraud that has been escalating in the US for decades now.

The point being that much could be done to significantly improve the functioning and fairness of the US capital markets. And it need
not even cost taxpayers anything. There is plenty of talent in the US that could come up with much better solutions for most problematic issues in the US today, including securities regulation, banking regulation, or even healthcare. Unfortunately, significant change is highly unlikely given that the locus of power, influence, wealth, and political control exists precisely with the tiny minority that benefits most from maintaining the status quo and papering over any real or effective change.

You probably have seen the Frontline-The Warning documentary. If virtually the same cowboys being Alan Greenspan (now Bernakne), Larry Summers, Tim Geitner, and the cabel of big banking could defeat Brooksley Born by lying and misrepresenting derivitive regulation back in the 90's to Congress, and they still are running the machine today, then what hope is there of any effective change today?


On Nov 08 07:39 PM Joseph Tibman wrote:

> 1. Agree on Goldman track record. The firm is largely a big hedge
> fund that moves markets. As the market has risen, the inflows area
> fraction of the money that came out when it plummeted, so your comments
> make sense. But you don't need govt favors to manipulate the market.
> You need only a system with few police, none of whom are enforcing,
> and in many cases are not as savvy as those they oversee.
>
> 2. Agree that Goldman must get better info for reasons sited. A mid-level
> Goldman guy was just appointed to #2 spot in SEC enforcement. But
> still don't believe Paulson kicked Lehman down the stairs to eliminate
> a competitor. Too much ego involved to sacrifice his legacy for that.
> Also, would seem to be an awfully crazy game to play; i.e. destabilize
> the market and know that one day later you will save AIG whose failure
> would have rocked Goldman's world as AIG held the bag on Goldman
> subprime risk. Too much a game of high stakes poker. Goldman plays
> the sure thing.
> 3. Already answered in 1. I essentially agree.
> 4. Not an even playing field.
> 5. Don't know enough about gold trading to answer.
>
> Bottom line, when I say I don't believe in Goldman conspiracy, I
> say I don't think they took out Bear, Lehman, and to a large degree,
> Merrill to take out competitors. Nothing really suggests that. People
> have found all sorts of smoke, but no gun. But I do agree that Goldman,
> (and others) manipulate markets. Information is a currency and they
> are better placed than anyone else on the Street.
> On Nov 07 03:15 AM untrusting investor wrote:

Nov 29 01:34 AM

[nport:]

"When you combine ignorance and leverage, you get some pretty interesting results." Warren Buffett

I just finished the book and want to compliment Joe Tibman for writing his truth from the perspective of one who worked and lived at LB for twenty years. A really great read. No question he loved the firm. There are however, some disturbing implications in the title. If I were on a jury I would have to vote against premeditated murder and render a verdict of manslaughter. Perhaps assisted suicide. Leveraged 30 to 1 and doubling down on real estate at that time was not the smartest move by top management. Dick Fuld is responsible but the blame must rest mainly with the Board of Directors. How is it possible for Fuld to be praised as CEO of the year when profits were roaring and then be seen as a monster. No, he did not get stupid overnight; did not suffer dementia; he was paid handsomely to increase shareholder value; which he did with the use of leverage. The board gave him a free hand. He was their fair-haired boy and they had no risk-managers after Gelband left. Fuld didn't want to hear the word risk on 31, so he eliminated all who challenged his strategies. Now as it happens, my lovely wife thought she was getting rich when her brokerage statements would arrive and show that her spin-off from her Amexco holdings (LEH) was heading north. At $80, I asked her whether it might be a grand idea to take some money off the table. She said no. A lot of stakeholders said no; give us more of what you doing to make us rich, which includes employees of Lehman who should not have drunk all that Kool-aid. Lehman was a victim of Adam Smith's invisible hand. The "free-market" left totally free will murder us all. Joe Tibman has pleaded for a review of market regulations and I for one, second his motion. Unregulated, rampant speculaltion is destoying the very fabric of our dream. The American people deserve better. Now I do believe that Paulson was being disingenuous when he said he was powerless to help Lehman. He had a conflict of interest as a former Goldman CEO from all appearances. Had GS been down, I think he would have rang the bell before the count reached 10. He was, after all, killing a competitor of his former firm. I have urged all my friends and associates to read Tibman's book.

Dec 04 11:48 PM