A Colossal Failure of Common Sense

A Colossal Failure of Common Sense  
Author(s) Lawrence G. McDonald
Patrick Robinson
Country United States
Language English
Publisher Crown Business
Publication date July 21, 2009

A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers is a 2009 non-fiction book written by Lawrence G. McDonald and Patrick Robinson which chronicles the events surrounding the bankruptcy of Lehman Brothers in the context of the financial crisis of 2007–2010 and the subprime mortgage crisis. The work is divided into a prologue, an epilogue, and twelve chapters.

Contents

Summary

The book is highly critical of Richard Fuld, Henry Paulson, and the Gramm–Leach–Bliley Act, a 1999 act of Congress signed by former United States President Bill Clinton that repealed portions of the Glass–Steagall Act of 1933.

The book contains an account of how McDonald, after attending the University of Massachusetts, selling pork chops, and self-teaching himself the material required to pass the General Securities Representative Exam, went on to develop the website ConvertBond.com, which was later purchased by Morgan Stanley.[1]

The author's stated expertise, in the convertible bond market, was what allowed him to create the website ConvertBond.com during the dot-com bubble, and successfully sell it to Morgan Stanley before the Internet bubble burst. It was while he was working at Morgan Stanley that McDonald was offered a job as vice-president at Lehman Brothers.[2] The book characterizes Richard Fuld as being out of touch, smug, and a ruthless CEO with a short temper and a penchant for rage.[3] The book sarcastically refers to Fuld as "his majesty," "god-like," and a "spiritual leader."[4]

McDonald believes that the United States government should have saved Lehman Brothers, and that Dick Fuld falsely believed that the United States government would save the company after having a meeting with Henry Paulson in the spring of 2008, which led him to engage in unnecessarily risky behavior and reject an offer of $18 per share from the Korea Development Bank as late as August 2008.[5][6]

Chapters

  1. A Rocky Road to Wall Street
  2. Scaring Morgan Stanley to Death
  3. Only the Bears Smiled
  4. The Man in the Ivory Tower
  5. A Miracle on the Waterway
  6. The Day Delta Air Lines Went Bust
  7. The Tragedy of General Motors
  8. The Mortgage Bonanza Blows Out
  9. King Richard Thunders Forward
  10. A $100 Million Crash for Subprime's Biggest Beast
  11. Wall Street Stunned as Kirk Quits
  12. Fuld, Defiant to the End

Reception

James Freeman, writing for The Wall Street Journal, wrote that the biographical portion of the book, which describes McDonald's life, how his mother was a fashion model and how his father spent most of his time working and playing golf was "fascinating, no doubt, to people named McDonald, but less so for the rest of us". He also questions the details which provide a critical characterization of Richard Fuld, saying that "sources for such details are often left unclear, though, and little wonder".[7]

Arthur Doyle, a managing director at Lehman Brothers until the summer of 2008, wrote that McDonald's position, "that Lehman’s collapse was an unfortunate and totally preventable disaster caused by a failure of leadership" is questionable because "given the combination of the credit bubble and the availability of cheap, plentiful leverage, along with an asymmetric reward structure (which paid out huge bonuses to managers from profits generated from that leverage but had no mechanism to punish those managers for taking risks that led to bad outcomes)," Lehman’s outcome may have been inevitable. Doyle believe that the fact that "Lehman’s close peers—Bear Stearns, Merrill Lynch, Citigroup, Bank of America—either collapsed along with it or were saved through quasi-nationalization" supports his contention that Fuld was not the "lone gunman in the Lehman homicide".[8]

See also

Notes

  1. ^ McDonald, Lawrence and Patrick Robinson, pp. 14, 25, 43.
  2. ^ McDonald, Lawrence and Patrick Robinson, p. 79.
  3. ^ McDonald, Lawrence and Patrick Robinson, pp. 91.
  4. ^ McDonald, Lawrence and Patrick Robinson, p. 90
  5. ^ "Book Review: A Colossal Failure of Common Sense" - Canadian Capitalist Retrieved December 30, 2009
  6. ^ "Ex-Insider's Book Details Lehman Brothers Collapse" - NPR.org Retrieved December 30, 2009
  7. ^ "Banking On a Rescue" - The Wall Street Journal Retrieved December 30, 2009
  8. ^ Guest Post: Recent Lehman MD Reviews "A Colossal Failure of Common Sense" - naked capitalism Retrieved December 30, 2009

References

McDonald, Lawrence; Patrick Robinson (2009). A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers. New York: Crown Business. ISBN 978-0-307-58833-3. 

External links


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