Monday, 19 October 2009

“The Murder of Lehman Brothers”, by Joseph Tibman (Brick Tower Press)

Tibman-MurderOfLehmanBros A first-hand, personal account of the demise of Lehman Brothers and what caused it

There are now so many books on the market that discuss the demise of Lehman Brothers (LB). For any new volume to stand out, something special is needed, beyond the quality of research or writing style. According to Tibman, the purpose of his book is “to tell you what it was like within the belly of the beast, during the unimaginable unfolding of events at my office-home that have indisputably impacted the world”, to “tell the tale from an intensely personal perspective”. The author is actually writing under a pseudonym, choosing the name Joe because of the ubiquitous nature of similar names in connection to the 2008 Presidential Elections in the US (Joe-the-Everyman, and of course, Joe-the-Plumber). By writing anonymously, the author was afforded a good deal of freedom to write about events without harming any potential for future employment in finance and banking. His first-person perspective is the ace-in-the-hole for this volume, providing a connection with the events and the firm that is missing from the many other books on LB.

Before he gets to the events of 2007-8, Tibman first lays out a history of the firm. LB has a very long and storied life, not always tarnished by the events of 2008. Tibman says,

“while LB quite often stumbled, and ultimately crashed and burned, the firm did much that was good – not only for the bank accounts of its tabloid defamed rainmakers as well as its clerks (who I pray sold lots of their shares a couple of years ago), but for the development of business and commerce in our country. Of this, I am proud.”

Established in 1850 as a dry-goods business in Alabama, Lehman Brothers quickly morphed into a commodities trader, opening up an office in New York. Until 1969, the firm was always ruled by a member of the Lehman family, but following the death of the last, “dictatorial” Lehman brother, Bobbie Lehman, the firm was left in the hands of “commoners”. The author outlines Bobbie’s tenure as a time of considerable growth, innovative investment in a number of emerging industries, as well as “unparalleled, toxic infighting”.

In the second act of LB’s life, there was no clear dictatorial-style leader to step into Bobbie’s shoes, resulting in some considerable upheaval and a waning in LB’s stature. Pete Peterson, Nixon’s Secretary of Commerce, would help revive LB during his tenure as CEO (1973-1984), while his manner and demeanour alienated many of his staff, who found him insufferable and a snob. Peterson was succeeded by Lewis Glucksman, another storied employee, after he effectively ousted Peterson (who would go on to found the Blackstone Group). During this time, the infighting between investment bankers and traders continued to grow and fester further (indeed, it would not disappear until after 9/11).

This is also the time during which Dick Fuld, LB CEO upon its death, made a name for himself – as well as illustrating his desire to keep LB independent, voting against its sale to American Express in 1984, a position he would repeat “with Biblical consequences” a couple of decades later. AmEx would later decide that it couldn’t handle the cyclical nature of LB’s industry, and sell it off, with Dick Fuld at the helm. Tibman seems to have a mixed opinion of his former boss, the man sometimes referred to as “the Gorilla” for his tendency to communicate mainly through grunts – “He has puzzled, alienated, and at times impressed me, though I was more impressed by what I heard and read, not what I saw of him first hand.” Fuld was a strong leader in the vein of Bobbie Lehman, ruling with an iron fist and a fearsome reputation: “No one in the firm wanted to deliver bad news to Dick, fearing he would shoot the messenger, perhaps after disembowelling the poor soul.”

Tibman paints an interesting picture of the people he used to work with, as well as those in the same business at large: They are, basically, a bunch of jocks with money. “We became, in our minds, invincible... In hindsight, we were also like a teenager who believes he will live forever.” Each seems to be attempting to out-bravado the next, and this is true between firms, as well as employees. Also, post-9/11, the firm adopted a patriotic need to “deal the terrorists a fuck you”, as the author puts it, putting a patriotic sheen to the driven capitalism that infused the firm and its employees (this is the only time the author submits to schmaltz). However, despite this need to succeed for America, in this “rarefied world” of business, “what matters most is this year’s bonus... at times we capitulated to faulty, flawed judgement.”

“when these lapses occur, we are often found rationalising that the great risk inherent in contemplated business is a trifle. When the lucid point this out, we characterise them as buzz killers. It is this mentality that sometimes leads to disaster.”

And so the seeds for LB’s destruction were sown. Many column inches and pages have been written about the subprime mortgages and “collateralised debt obligations” that brought down the economic system in 2008. While I will freely admit to not entirely understanding it still, Tibman’s account and explanations went a long way to clearing some of the fog for me. At LB, it is clear to the author that only a small number of people among Lehman’s top executives were responsible for the ultimate decision to “accumulate a massive position in real estate assets at the very worst of times.” While there were many experienced voices who cautioned against this move, “in the end, it was the imprudent decision of a very few, deaf to rational internal misgivings, that would ultimately decide Lehman’s fate.”

Fuld, especially, comes across as reckless – on one hand telling guests at the January 2007 World Economic Forum in Davos that he was concerned about the real estate bubble, claiming that LB were reducing their risk and had “taken a bit of money off the table”. This, naturally, impressed his audience, but the truth was the opposite:

“Lehman was not reducing its exposure. Even in early 2007 with visible fissures in the housing market, Lehman was increasing its real estate holdings… in 2007, Lehman added $12 billion of commercial real estate exposure”

This is partly because Fuld had delegated the day-to-day running of the firm to others; particularly to Joe Gregory who “undiscouraged by Dick, did much to insulate, even separate the chief from what was happening at the firm.”

While there are plenty of vigorously researched, intelligent books on the death of Lehman Brothers, Tibman’s tome benefits from first-hand experience of the company since its inception. Another clear benefit of the book is that Tibman highlights the links between politicians in Washington and Wall Street, as well as their part in helping create the environment in which the 2008 crisis could happen. Tibman offers one of the most accessible accounts of the LB debacle, explaining why it was allowed to fold while other firms were bailed out (seems to have been a case of poor timing on LB’s part), and the various reasons the firm collapsed in the first place. Through liberal and frequent use of footnotes to explain important jargon, without ruining the flow of his narrative, Tibman has probably written the most user-friendly account of LB’s demise and guide to the economic collapse of 2008.

There are many who might find some of Tibman’s statements somewhat eyebrow-raising – how, for example, can someone who trumpeted the benefits of free-market capitalism so much, not to mention someone who worked where he did, have a moral makeover? Is it self-serving? Perhaps, but much of what he has written appears sincere and genuine, written with a welcome bluntness and honesty:

“The endgame was always money, and as much of it as possible, but not at any fucking cost. We were not choir boys, but I always thought we were far more scrupulous whores that those who filled the ranks of other investment banks.”

“I cannot pretend that every deal in which I was involved as an investment banker was driven by altruism. Not even close. Such a contention by any investment banker is pure oxymoron.”

The Murder of Lehman Brothers may not be the most objective account of LB’s death – nor does it pretend to be – but it is certainly one of the best available. Tibman’s honesty and writing style make this a refreshing addition to the growing body of literature on the 2008 Economic Crisis, and if you’re looking for something with a first-hand slant, then this is perfect. Accessible and an enjoyable read, I would certainly recommend this book to others.

Other books on Lehman Brothers & Economic Crisis:

Charles Morris, Two Trillion Dollar Meltdown (2009); William Cohen, House of Cards (2009); Lawrence G. McDonald, A Colossal Failure of Common Sense (2009); Vicky Ward, The Great Mistake (2009)

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