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A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers By Lawrence McDonald with Patrick Robinson, Crown Business: 2009, 368 pages
A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers by Lawrence McDonald with Patrick Robinson is an excellent book that reveals the experiences of a Vice President (VP) at the now failed investment bank, Lehman Brothers, around the time of the recent financial crisis. It is both interesting and informative. Throughout the book, the author uses extensive exaggerations that are usually recognizable as such, and they add a touch of humor while at the same time indicating the subjective feelings in existence at the time. The large signs put up in Lehman's trading room just prior to its bankruptcy, which mock the institution's leader for imploring its troops not to take excessive risk are especially entertaining.
Focused on the business life of the primary author, the tale provides fascinating insights on investment banking as well as the recent credit boom and bust. Prior to his very successful work there, the author describes his interesting early career activities, including the co-founding of a very successful internet firm that developed the very useful convertbond.com website with its massive database, which he wisely sold just before the bursting of the internet bubble in 2000.
In the Prologue, the author blames the 2008 crisis on the 1999 disassembling of the barrier between commercial and investment banking which was set up after the Great Depression in the 1930s. However, no real evidence is ever provided to support that conjecture. The removal of regulatory authority over credit default swaps (CDSs) in 2000 is mentioned as a contributory cause, but the connection is never explained other than to mention that nearly $70 trillion worth of such derivatives were created after that year (and a few lines, including a joke about credit default swaps causing the financial disaster). As the author recognizes in the Epilogue, those credit insurance derivatives included many offered by companies like AIG to guarantee subprime mortgage Collateralized Debt Obligations (CDOs). Nevertheless, the author's assertion that investors purchased those CDOs simply because of Aaa ratings by credit rating agencies may actually be only partially correct, as astute...