This book is the inside story of the collapse of Lehman Brothers, by Larry McDonald, a former vice president at Lehman. He offers an insider’s account of the dramatic fall of one of Wall Street’s most iconic institutions. The book is co-authored with Patrick Robinson. McDonald’s shares his own journey into Lehman Brothers, painting a vivid picture of the chaotic atmosphere inside the firm during the lead-up to its collapse in 2008. He writes from the perspective of someone who lived through the turbulence and shares the disbelief among employees as the company unravelled.
While Lehman’s failure is often described as a high-level, systemic consequence of complex financial instruments like subprime mortgages and credit default swaps, McDonald focuses on the role of leadership and corporate culture. He attributes much of Lehman’s downfall to the reckless behaviour of its CEO, Richard Fuld, and other executives. Fuld’s unwillingness to heed warnings and his aggressive pursuit of risky strategies are key themes in the book.
The CEO is heavily criticised and blamed for the downfall and Larry seems to suggest a different strategy or a different CEO would have completely changed the outcome. This of course may be true, but you do have to consider personal bias and he could be a bit blinkered to the full story. McDonald explains many of the more complicated financial terms in an easy way including the mechanics of mortgage-backed securities, derivatives, and the US housing market crisis., and the economic forces at play.
His description of Lehman’s collapse goes beyond numbers and financial jargon. Painting the failure in human terms he shows how thousands of employees were affected by the decisions of a few at the top. The book is filled with vivid descriptions of tense board meetings, sleepless nights, and the dawning realisation that Lehman’s fall would have devastating consequences for the global economy.
He also offers glimpses into the personal toll the collapse took on individuals, including himself.
There are some key stories in the book, including:
The Rise of Subprime Mortgages
One of the most critical stories in the book is McDonald’s account of Lehman Brothers’ deep dive into subprime mortgages. He vividly describes how Lehman aggressively expanded its presence in the housing market, particularly in risky mortgage-backed securities. McDonald explains how traders at Lehman, eager to boost profits, fueled the growth of subprime loans despite clear signs of an overheated housing market. He recalls how some within the firm raised red flags, warning of the dangers, but their concerns were dismissed by senior management, including CEO Richard Fuld.
This example showcases how the relentless pursuit of short-term gains blinded Lehman’s leadership to the risks, eventually leading to a catastrophic exposure to toxic assets.
Lehman’s Internal Culture: The Fuld Factor
McDonald paints a striking portrait of Richard Fuld, the longtime CEO of Lehman Brothers, and the autocratic leadership style that he believes contributed to the firm’s downfall. One story that stands out is Fuld’s notorious isolation from reality and refusal to listen to advice from his colleagues. McDonald recounts how Fuld would often make decisions in a vacuum, disregarding warnings from key executives, including the firm’s risk managers.
One particular moment highlights the growing disconnect: As Lehman was spiralling toward disaster, McDonald describes a tense meeting in which executives attempted to make Fuld see the looming dangers in the market. Instead of acting, Fuld remained obstinate, convinced Lehman was untouchable. His overconfidence and reluctance to seek outside help or entertain rescue options, like selling parts of the firm, were critical factors in the company’s failure.
The Failure of Bear Stearns: A Missed Warning
McDonald recounts the collapse of Bear Stearns in March 2008, an event that should have served as a stark warning to Lehman Brothers about the fragility of Wall Street and the financial markets. In the aftermath of Bear Stearns’ near-bankruptcy and forced sale to JPMorgan, McDonald describes the frantic atmosphere at Lehman, where some executives recognised the need to raise capital and reduce risky positions.
However, he details how Lehman’s leadership largely ignored the warning signs and even expressed arrogance about their ability to weather the storm better than Bear Stearns. This misplaced confidence and unwillingness to adapt to the new reality of the financial markets would prove to be a fatal mistake, as Lehman followed a similar path just months later.
A Personal Journey
Throughout the book, McDonald also shares his own journey from being a stockbroker on the outside to becoming a vice president at Lehman Brothers. He offers anecdotes about his early career struggles, his experience joining the high-stakes world of Lehman, and the surreal, almost dreamlike experience of watching the company fall apart from the inside.
For example, McDonald describes the moment he realized that Lehman was in serious trouble. While sitting at his trading desk, he noticed that the prices of credit default swaps (CDS)—instruments used to hedge against the risk of default—on Lehman’s own debt were skyrocketing. This was an early sign that the market was losing faith in Lehman’s solvency, a realisation that sent shockwaves through the firm. McDonald’s own sense of helplessness as he watched the collapse unfold adds a deeply personal dimension to the book.
A Desperate Scramble in the Final Days
One of the most gripping sections of the book is McDonald’s account of the last days before Lehman declared bankruptcy. He describes the frantic behind-the-scenes efforts to save the firm, from last-minute talks with potential buyers, including Barclays and Korea Development Bank, to government meetings in Washington, D.C., where Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke grappled with the decision of whether to intervene.
McDonald recalls the emotional toll these final days took on Lehman employees, who were uncertain whether they would have jobs, savings, or even homes after the collapse. The sheer panic, disbelief, and anger among the Lehman staff are palpable in his retelling. The moment Lehman finally filed for bankruptcy—on September 15, 2008—is described as a moment of both profound sadness and bitter reflection on what could have been done differently.
Whilst I already know the story well, I found this book a really good read, and I finished it in just a few days. Would certainly recommend it.