I recently read a book on the collapse of Lehman Brothers by Lawrence Mcdonald, and it increased my interest for more books on the topic. I decided to read another book also on Lehman Brothers titled The Murder of Lehman Brothers: An Insider's Look at the Global Meltdown by Joseph Tibman.
In case you have not heard the name Joseph Tibman it is likely due to the fact that this book was written anonymously. The author claims that he does not want his career in finance to be jeopardized by revealing his identity. What we do know however is that the author was a senior investment banker at the firm. He was at the firm at least since the IPO of Lehman in 1994.
The book starts with a brief early history of the firm which began in the 1800s. The author quickly goes back to the 1990s where the first problems in mortgage practices started. The author faults several actions of the Clinton administration policies on housing, mortgages, and financial policy. These policies grew worse in the Bush administration when many actions or inactions exacerbated the problem.
I thought overall the author was fair in his criticism of the Government’s role in the demise of the financial system, without having a partisan bend towards either party. The beginning of the book was mostly an interesting overview of Lehman’s history, but it contained much detail about Dick Fuld’s risk taking traits that would decades later prove fatal to the firm. The book also explains how Lehman went from becoming a small investment bank, to one of the most prestigious banks on Wall Street. Despite the authors obvious (and justified) dislike of Dick Fuld he was fair in crediting Fuld for much of Lehman’s success up until its risky practices in the mid 2000s. He credits Dick Fuld with uniting the firms division between traders and investment bankers, with a slogan One Firm after the 9/11 attacks.
The author’s premise I believe was that the collapse of Lehman Brothers was due to a herd mentality. He claims that there developed in the firm a sense of the firm would survive anything as they had in the past. Interestingly the author claims that Lehman almost collapsed due to their exposure to tesobonos in 1995, and was saved due to the IMF and U.S. government’s aid to Mexico. Lehman constantly felt that “the world was out to get them”, yet in the end the firm would survive.
The author said that due to this herd mentality, few questioned top management’s increasing exposure to commercial real estate, subprime securitization and other risky practices. When top Lehman executives claimed on conference calls that the firm had hedged its risk, most of the employees believed it to be true. Tibman claimed that the people at the firm were kool-aid drinkers and he was one too. While it is easier for an anonymous person to find fault in themselves, I still think it’s admirable that the author does not try to glorify himself.
Interestingly, guru David Einhorn was aware of the troubles at Lehman Brothers and took a short position in the company. Dick Fuld was infuriated by Einhorn, and even went on to blame his fund for the firms demise.
Conflict of interest
I learned some interesting, and unrelated information in the book that I had not previously known. Lehman and Bear Sterns' collapse was mostly due to exposure to Alt-A mortgages, commercial real estate and the firms only had minimal exposure to subprime loans. I was also shocked to learn the Dick Fuld was a member of the board of directors of the New York Federal Reserve. I did not know this was legal, but it is obviously a conflict of interest and in fact Fuld used this role to try and help Lehman. The book also mentions the many offers that Lehman received to be bought out, and the fact that Henry Paulson was in touch with Fuld almost daily towards the end of the firm’s life. Paulson was constantly trying to convince Fuld to sell the firm which he refused.
Overall I enjoyed the book. My main criticism is that there was not enough discussion of the detailed practices that led to Lehman’s demise. I would have preferred to hear more about the technical details of Lehman’s practices in commercial real estate, subprime lending, and Alt A mortgages. However, it is clear the author wanted his book to appeal to readers without a background in economics and therefore did not want to make the book too technical. I think the book still gives the reader a good understanding of the financial crisis from the perspective of a long time Lehman insider.
The book is a good account of what went wrong at Lehman Brothers and I would recommend it to someone who works on main street or Wall street.