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Sunday, May 14, 2017

Review: The Devil's Casino: Friendship, Betrayal, and the High Stakes Games Played Inside Lehman Brothers by Vicki Ward

A fascinating look at the rise and fall of Lehman Brothers, an investment bank that went bankrupt as a result of hubris and wild speculation in the real estate market and the people that rose and fell with it. I have read numerous books about the tragic effects of credit default swaps and other speculative financial “instruments” that, while the market continued to go up, made spectacular fortunes for people who came to believe they could do no wrong.

The author had access to the notes and journals of Joe Gregory (who ironically refused to be interviewed,) the company’s president. He began the journals in 2003 by encouraging executives to write up they perceptions of the history of the firm. He discovered a huge disparity (as any historian could have predicted) in their accounts and abandoned his goal of writing a history. Those piles of notes proved invaluable to the author.

The company, under its CEO Dick Fuld, who had worked his way up and was with them his whole forty year career, developed its own lavish lifestyle. "As a Lehman wife, you raised your kids by yourself. You had your babies by yourself in the hospital. And then you were supposed to be happy and pretty and smiling when there was an event, and you really would have liked to strangle somebody,” a senior executive's wife explained. Executives were told what to wear, what charities to donate to, how to spend their time, it was a nice little capitalistic oligarchy. " Lehman was the last of the Wall Street firms to go casual on Fridays.” They were extremely competitive and cutthroat. That single-mindedness lead Time to labeled Fuld as one of 25 executives in the country most responsible for the collapse of 2008.

Many people blame the catastrophe on the repeal of Glass-Steagal which had prohibited banks from speculating with their customer’s assets. That’s probably overly simplistic and hardly mentioned in this book that focuses more on the personalities than the precise speculative strategies that inevitably ballooned into an unsustainable bubble. All of Wall Street conspired to create more and more ways of loaning money and then turning those high-interest, often sub-prime, loans into ways of betting money. As long as prices went up everything was rosy; the collapse was spectacular.

The section on Paulson and Geitner’s roles in the “bail-out” is quite interesting. It probably won’t change any minds on whether Lehman should have been bailed out, too or not. And that’s probably my biggest complaint. I would have liked to see conclusions from the author (with evidence for or against) for whether it indeed should have been done. But then again, the book was more about Lehman and that would have widened the scope. It’s a fun, breezy, cautionary book about a sad time that hurt a lot of people but probably not those who should have been hurt. It was published in 2010 so don’t expect the longer view which I need to read.

The blame, however, ultimately belongs to all of us. We all want and need the stock market and Wall Street to thrive and support pension funds, etc., without which we would all be in terrible shape. That said, a return to more regulation would be in all our best interests.

And who said the monarchy was dead. It thrives in the business world. Trump should know.
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