Lawrence G. McDonald - A colossal failure of common sense: the inside story of the collapse of Lehman Brothers

This book is respectfully dedicated to the many thousands of Lehman employees whose lives were thrown into turmoil when the firm collapsed, and among whom I was privileged to work for the four best years of my life .

Cast of Characters Lehman Brothers (31st Floor) / Members of the Executive Committee Richard S. Fuld Jr.: chairman of the board and chief executive officer Joseph Gregory: president and chief operating officer David Goldfarb: former chief financial officer; former global head of principal investing; chief strategy officer Christopher OMeara: chief financial officer, 200507; chief risk officer Erin Callan: managing director and head of hedge fund investment banking; chief financial officer, 200708 George Walker IV: managing director and global head of investment management Ian Lowitt: chief administrative officer; chief financial officer, 2008
Lehman Brothers (Traders, Investment Bankers, Risktakers, Salespeople) Michael Gelband: managing director and global head of fixed income; head of capital markets; member of the executive committee Alex Kirk: managing director and global head of high-yield and leveraged-loan businesses; chief operating officer of fixed income; global head of principal investing Herbert Bart McDade: managing director and global head of fixed income; global head of equities; president, 2008; member of the executive committee Eric Felder: managing director and head of global credit products group; global head of fixed income Dr. Madelyn Antoncic: managing director and chief risk officer; government liaison Thomas Humphrey: managing director and global head of fixed-income sales Hugh Skip McGee: managing director and global head of investment banking Richard Gatward: managing director and global head of convertible trading and sales Lawrence E. McCarthy: managing director and global head of distressed-debt trading Joseph Beggans: senior vice president, distressed-debt trading Peter Schellbach: managing director, distressed-loan trading Terence Tucker: senior vice president, convertible securities sales David Gross: senior vice president, convertible securities sales Jeremiah Stafford: senior vice president, high-yield credit products trading Lawrence G. McDonald: vice president, distressed-debt and convertible securities trading Mohammed Mo Grimeh: managing director and global head of emerging markets trading Steven Berkenfeld: managing director and chairman, investment banking commitments committee
Lehman Brothers (Research and Analysis) Christine Daley: managing director and head of distressed-debt research Jane Castle: managing director, distressed-debt research Peter Hammack: vice president, credit derivatives research Ashish Shah: managing director and head of credit strategies, derivatives, and research Karim Babay: associate, convertible securities research Shrinivas Modukuri: managing director, mortgage-backed securities research
Lehman Brothers (Mortgage and Real Estate) David N. Sherr: managing director and global head of securitized products Mark Walsh: managing director and global head of commercial real estate group
Lehman Brothers Family and Former Lehman Brothers Partners Robert Bobbie Lehman: chairman, 192569, and the last of the brothers to head the firm Christopher Pettit: president and chief operating officer, 199496 John Cecil: chief administrative officer, chief financial officer, 19942000 Bradley Jack: president and chief operating officer, 200204 Peter G. Peterson: former chief executive officer; former U.S. secretary of commerce; founding partner of the Blackstone Group Steve Schwarzman: former investment banker; founding partner of the Blackstone Group
Senior Government Officials and Banking/Investment Industry VIPs Henry M. Paulson Jr.: former CEO of Goldman Sachs; former secretary of the U.S. Treasury Ben Bernanke: chairman, U.S. Federal Reserve Timothy F. Geithner: former president, Federal Reserve Bank of New York; secretary of the U.S. Treasury Jamie Dimon: chief executive officer, JPMorganChase David Einhorn: founder, Greenlight Capital John Devaney: chairman and chief executive officer, United Capital Management
Corporate Financial Personnel Anand Iyer: managing director and global head of convertible securities research, Morgan Stanley Tony Bosco: managing director, convertible securities trading, Morgan Stanley, acquisitions Gary Begnaud: Philadelphia branch manager, Merrill Lynch
Family and Friends Lawrence G. McDonald Sr.: father, investor, golfer Debbie Towle McDonald OBrien: mother, fashion model Ed OBrien: stepfather and lawyer Bob Cousy: family friend; point guard, Boston Celtics Steve Seefeld: best friend at Falmouth High and Wharton; partner, ConvertBond.com Kate Bohner: longtime friend and television financial journalist Jack Corbett: longtime friend and successful retail stockbroker
Fallen Angels Jeff Skilling: president and chief executive officer, Enron Angelo R. Mozilo: chairman and chief executive officer, Countrywide Financial

Authors Note Its been said that there are two distinct groups of people in America: Wall Street and Main Streetthe former composed of people who keep the financial plumbing of the latter in good condition so that everyone will prosper. Wall Street has, however, become increasingly complex and opaque, and many on Main Street have only the most basic notion of what it does. In addition, Wall Street, particularly with the collapse and bankruptcy of Lehman Brothers in September 2008, was the epicenter of the worldwide financial crises that brought the global economy close to a complete collapse. My objective in writing A Colossal Failure of Common Sense was twofold. First, to provide Main Street with a close-up, inside view of how markets really work by someone who was on the trading floor in the years leading up to Lehman Brothers calamitous end. And, second, to give my colleagues on Wall Street as crystal clear an explanation as possible about the real reasons why the legendary Lehman Brothers met with such a swift ending. The lessons therein are important for beginning to understand how we can prevent such disasters in the future and ultimately do a better job of serving Main Street. Lawrence G. McDonald, July 2009

A house divided against itself cannot stand. Abraham Lincoln,
June 16, 1858