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First look at 'A Colossal Failure of Common Sense'

by Robert Teitelman | Published August 1, 2010 at 3:13 AM

A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers
by Lawrence McDonald and Patrick Robinson'

I've just begun reading Lawrence McDonald and Patrick Robinson's "A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers." McDonald was a midlevel trader at Lehman Brothers Holdings Inc. for four years, and Robinson, who specializes in something called "techno thrillers," appears to be his writer. I'll confess up-front that I haven't finished it yet, and so I'm going to hold off discussing the basic issues the book purports to tackle: the responsibility for Lehman's failure of Dick Fuld and his small senior team and the notion that Henry Paulson let the firm collapse because Fuld had "disrespected" him. But the book raises a number of other issues worth considering.

This is the first of a veritable flood of books coming out this fall that will tackle what clearly seems to be the key moment in the financial crisis: the decision to let Lehman go (in this regard, the Bear Stearns Cos. disaster, which earlier books tackled, fades in significance). Another Lehman insider, an investment banker who undoubtedly circulated higher in the ranks than McDonald, Joe Tibman, has a book scheduled for late September; comparisons will be interesting. Paulson's book is scheduled for early November. And The New York Times' Andrew Ross Sorkin's take on all this, "Too Big to Fail," should hit the bookstores, the Kindles and cable in late September.

There are many others coming as well. (Of course if you're a true believer in blogging and twittering, you can ignore all of this as hopelessly retrograde.)

If McDonald's book is any indication, this is going to be a hard slog. Given the proximity of events, most of these books are being rushed to readers with a speed that was literally impossible just a few years ago. You can tell. Many of them out already are thin, hastily written and slapdash in their thinking. No one has historical perspective, because no one yet knows how this episode will end. At this point in the process, we're essentially hostage to books written by folks who were in the room, folks who talked to folks who might have been milling just outside the room and folks who were in the building but not allowed up the elevator. The question to ask in all these books is: Do we learn anything new about the actors, a la Malcolm Gladwell's startling revelation that Jimmy Cayne was overconfident, that we didn't know before? How can we trust what the authors are telling us? How much of this is verifiable, how much sheer opinion, how much spun to a particular audience or aligned with a particular politics?

And then there's the serious questions raised by Matt Taibbi's take-down of Goldman, Sachs & Co. (NYSE:GS) in Rolling Stone. Does it matter if the evidence used to make a case is spotty, or just plain wrong? Can we simply junk standards of facticity and veracity on the altar of colorful writing and popular ideas? Is the simple explanation true?

McDonald is one of those authors who couldn't get up the elevator. His book is far more about himself than it is about Lehman. Most of this book could fit into the obscure, if persistent, genre of picaresque memoirs about life in the fast-paced, skeezy depths of Wall Street; we saw a number of these after the research scandals, a few like Andy Kessler's, pretty good. Wrapped around this story, which is told as if Mickey Spillane was drinking with Carl Icahn, is a bizarre family tale of McDonald and his father, a plastics-entrepreneur-turned-stock broker who speaks in simple homilies but wields a big stick, namely a golf club, which at one point he uses on his ex-wife's new boyfriend's Mercedes. Most of his life seems to be spent playing golf. McDonald's father appears to be the voice of common sense that shows up in the title. He is a natural bear -- a "perma-bear" in an expression that appears way too often -- who sniffs disaster (dot-coms, Glass-Steagall) and nudges his son to, at the very least, go short. The odd thing about this figure is that as a father, he appears to be a complete disaster. He left McDonald's mother and the five children, forced them out of a comfy suburban life (the house had a gate) to working class Worcester, Mass., where McDonald had to attend lousy schools that meant he couldn't go to Notre Dame and ended up selling pork door-to-door on Cape Cod. His father's oracular reasoning (he's a man of few words): He was toughening him up for life. McDonald accepts that, which raises all kinds of questions about his ability to judge more complex situations later.

This memoir quality overwhelms everything else. When McDonald does step back, he's invariably about to launch into an analysis that is incredibly simplistic. His uber-explanation of the crisis is that it began in the Clinton era with the sale of subprime mortgages to poor people through CRA and the repeal of Glass-Steagall. He doesn't really dislike Bill Clinton ("President Bill"), who he argues wanted to do right by Glass-Steagall ("his heart, not for the first time, ruled his head") and kept a "weather eye out on history" but was forced by vague forces that included bank lobbyists to cave. He describes the Citicorp-Travelers merger as "probably illegal," because Glass-Steagall hadn't been repealed. He seems to have no sense that the "fabled" Glass-Steagall had already been hollowed out by years of exceptions and waivers. He offers no argument what Glass-Steagall had to do specifically with Lehman, which never got into commercial banking and had no retail deposits. He offers no analysis of trade imbalances, consumer spending, deregulation, low interest rates or high compensation practices. His thumbnail sketch of the Crash, the Great Depression and the heroic Carter Glass is barely a cartoon -- it's a sketch of cartoon. But it all hangs on the wisdom of his father: History repeats itself.

Taibbi is the populist as assassin. He's smart, focused, and most importantly, he doesn't seem to want to work at Goldman Sachs. McDonald is the populist as mensch. He's angry and confused about what happened at Lehman -- although he was only there for four years, he feels "as if he remembers the great days," all 158 years of them -- but he really likes being a trader and he can't comprehend that the complicity for the disaster might have been a little wider and a bit more complex than a few bad guys on the 31st floor.

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