Tag Archives: Lehman Brothers

Inside Job

The Big Short: Inside the Doomsday Machine by Michael Lewis (Norton, $15.95, 291 pages)

“The problem wasn’t that Lehman Brothers had been allowed to fail.   The problem was that Lehman Brothers had been allowed to succeed.”

If you read The Blind Side by Michael Lewis, and think this is going to be another warm and fuzzy story, think again.   This is a former insider’s telling of the reasons the American economy was virtually destroyed by greed in the early 2000’s and it will get you angry – or at least it should.   Here’s one example pointed out in the book…

It’s late 2006 and U.S. home values have just suffered their greatest decline in 35 years.   And, so, Goldman Sachs selected this time to give a bonus to each and every one of its employees – a little bonus of $542,000 (not salary, but some extra spending cash for the holidays)…   How does this make you feel?

If you’re a normal human being without any ties – familial or otherwise – to Wall Street, you should be infuriated by the knowledge of these practices; and there are dozens of examples provided by Lewis.   Yes, this is a tale of incredible hubris.  Lewis, who had once worked at Solomon Brothers, notes that Wall Street traders saw themselves as geniuses who were above reproach:  “(They had) the ability to see themselves in their successes and their management in their failures.”   In fact, however, Lewis well makes the case that these same self-proclaimed geniuses simply didn’t grasp the details of the game that they were playing.   And we all paid the price for their failures.

In just a few years, “One trillion dollars in (subprime-related) losses had been created by American financiers…”   Lewis is honest enough to say that if he’d remained on the Street, he might have been part of the problem:  “If only I’d struck around, this is the sort of catastrophe I might have created.”

“This woman (Meredith Whitney) wasn’t saying that Wall Street bankers were corrupt.   She was saying that they were stupid.”

This is also the story of one Dr. Michael Burry, a man who figured out that big money could be made off of the Street’s losses and ignorance – he decided to bet, big-time, against subprime mortgage tranches and won big-time.   Burry was a man who figured out early on (in 2007) that Wall Street’s rating firms were engaging in massive cheating – rating as solid risks mortgage packages that were pure losers.   One single pool of “crappy mortgages” (falsely rated) – based on home loans made between April and July of 2005 – was allegedly worth three-quarters of a trillion dollars, but the entire pool was basically worthless.

The problem with Lewis’ account, which he states began as a policy paper on the roots of the modern-day American fiscal crisis, is that it reads like a dry white paper.   There’s no sense of outrage, no moral center.   Even while Lewis complains that the U.S. government (and, specifically, the White House) transformed Wall Street firms into public corporations, which were then deemed to be “too big to fail,” there’s no sense of anger.   Thus, we’re left with a sense of amorality, instead of immorality, in this presentation.

This is an interesting and easily read account, but it’s quite frustrating and not recommended.   If you want to enjoy something written by Michael Lewis, try The Blind Side.

Joseph Arellano

This book was purchased by the reviewer.  


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Coming Up Next…

A review of The Big Short: Inside the Doomsday Machine by Michael Lewis, author of The Blind Side.

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Don’t Dream It’s Over

The Imperfectionists: A Novel by Tom Rachman (The Dial Press; $15.00; 281 pages)

Perhaps the sub-title of The Imperfectionists should have been Related Tales of Dark Humor and Irony.   This is the fictional story of a second-rate international newspaper based in Rome, a poor cousin to the International Herald-Tribune.   It has never had any more than 25,000 subscribers and readers, and it has no website.   It is, therefore, doomed.

The Imperfectionists is not actually a novel but rather a grouping of eleven short stories concerning the wild and wooly characters who work at the rag before it enters its death spiral.   One copy editor is smart enough to depart early…  She finds an apparent life raft in the International Finance Department at the Milan Office of Lehman Brothers.   Welcome to the Titanic!

This may give you a bit of insight into author Rachman’s wicked sense of humor.   Rachman could likely write about anything – even a crew of sanitation workers – and make it sound interesting and engaging.

“You can’t dread what you can’t experience.”

The reporters and allied staff members at the nearly defunct paper truly dread – like they fear their own deaths – its inevitable closing, but they take some comfort in the fact that their pink slips mean they won’t actually experience the lights being turned off for the final time.

One of the opaque characters is a copy editor who simply pretends to hate her job because she loves it too much.   “I get to stay…” she thinks as she avoids a round of lay-offs, while grousing that she wishes they had let her go.   Then there’s the veteran war reporter who is completely nuts but quite successful (like the one my wife and I had drinks with once).   These gruff and nicked guys are far more interested in telling their literal war stories than in observing anyone’s reaction to them…  They’re a bit like wild animals whose press badge serves as their “If lost, return to —” tag.

The paper in question is owned by Oliver Ott, a man who inherited the paper and who is – quite naturally – completely clueless as to its operations.

“The paper – that daily report on the idocy and the brilliance of the species – had never before missed an appointment.   Now it was gone.”

Arthur Gopal, the often-pitied obituary writer, survives to find a plum job as a top reporter in Manhattan, while the publication he so carefully wrote for expires (“Overnight, the paper disappeared from newsstands…”) without the benefit of a beautifully written send-off.   Such is life.

The Imperfectionists would be virtually perfect but for an abrupt, flawed and somewhat frustrating ending.   Be forewarned.   Still, this is well recommended.

Joseph Arellano

This book was purchased by the reviewer at Lyon Books in Chico, California.

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When the Music’s Over

A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers by Lawrence G. McDonald with Patrick Robinson (Crown Business Reprint Edition; $16.00; 368 pages)

A Colossal Failure of Common Sense describes a CEO acting as if his firm was too big to fail…  One might be tempted to think that Lehman’s bankruptcy was too mild a punishment for the firm’s management.”   James Freeman, The Wall Street Journal 

The bankruptcy of Lehman Brothers is now 2 years behind us.   It was the largest bankruptcy in history and the first in a series of banking and financial institutional failures linked to the housing bust.   It marked a low point in the chronology of Wall Street.   Former Lehman vice president of trading, Lawrence McDonald, and a veteran professional writer, Patrick Robinson, have painstakingly detailed the intellect, honesty and caring at the heart of the Lehman trading groups that tried valiantly to warn upper management of the impending doom.

This one hundred and fifty-eight-year-old institution was leveled by a small clique of men at its very top who lacked the restraint and manners that were the key to traditional corporate culture at Lehman.   The arrogance, greed, weak egos and excesses (think of TV’s Dynasty) are similar to the unfortunate behaviors exhibited by members of any and all cliques.

We view the action from McDonald’s perspective starting with his early yearning to work at a major player on the Street.   If you think every aspect of the real estate bubble and bust has been examined and reported on, think again.   This hefty book is written from an insider’s perspective.   Credit is given to whomever it is due at both ends of the spectrum of good and evil.  

The reader can feel the suspense building as the story continues to develop.   This book became a true page-turner prior to its end, even though its conclusion had already been written.   Recommended.

This review was written by Joseph Arellano.   Reprinted courtesy of Sacramento Book Review.

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