Book Review: A Colossal Failure of Common Sense – The Inside Story of the Collapse of Lehman Brothers by Lawrence G. McDonald with Patrick Robinson

A Colossal Failure of Common Sense

Book Review: A Colossal Failure of Common Sense – The Inside Story of the Collapse of Lehman Brothers by Lawrence G. McDonald with Patrick Robinson, Crown Business – an imprint of Crown Publishing Group, a division of Random House Inc. NY, NY Copyright © 2009 by Lawrence G. McDonald and Patrick Robinson

If you must pick one book to satisfy your hunger for riveting insights into the rise and fall of Wall Street over the past several years, this is it. Lawrence McDonald (former V.P. of distressed debt and convertible securities trading at now defunct Lehman Brothers) and Patrick Robinson craft a thrilling and action-packed literary journey through this period. This book is written for a broad audience – you certainly do not need to possess a Series 7 securities license to thoroughly enjoy this book.

The authors do a fantastic job providing the reader with a feel for the tension, the people, the context and the conundrum that, among other things, resulted in the collapse of Lehman Brothers. The authors use a phrase from Texas to characterize the realization that Lehman Brothers was on the verge of embracing the reality of a potentially fatal collapse; “big hat, no cattle.” — A phrase that appropriately captures the challenge of the U.S. to emerge from the structural damage that has been incurred since the Fed and U.S. Treasury were required to step in and stabilize the systemic risk and ongoing aftershocks of Wall Street’s penchant for irrational exuberance.

This book makes a point that other treatments of this subject might overlook: A business is a group of people; real human beings with families, livelihoods, hopes and dreams. When people become deceived about the nature of the world around them, they have succumbed to myth and illusion – and begin making business decisions that compromise the welfare of all concerned, resulting, in this case, the collapse of Lehman Brothers.

This book is replete with fundamental truths that we need to be reminded about, as we move ahead. The following excerpt is a prudent example:

“The truth was, this was the starting point of America living in a false economy, because all this free money was in defiance of the natural laws of the universe. All bubbles, down the centuries, have started that way, leading to the inevitable time when people begin to think it’s normal, that nirvana has finally arrived — But, of course, it wasn’t. It never is. You can ask my dad who watched the start of the insane credit boom in late 2003 by observing, dryly, “Here we go again. Straight back to the edge of the cliff.” (p.77).

How do millions of people get to the edge of the cliff? What happens when the precipice upon which we are standing breaks off? Common sense would tell you not to stand on the edge of a cliff with millions of others wouldn’t it?

Is it the cliff’s fault, or the colossal failure of common sense attributable to those gathered there?

Only an insider such as Lawrence McDonald (and his co-author Patrick Robinson) can provide a poignant perspective having hung on this precipice.

This is a truly great read. Buy it. Think about it.

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