Is Your Business Harboring Rogues?
My friends showed up for work on Monday, Sept. 15, 2008 and discovered the company was bankrupt. Along with 25,000 employees worldwide they were not only out of work, but also their stock and retirement savings were dust.
Back to square one at age 40.
A couple of years later I ran into one of these ex-Lehman friends and asked if he had any kind of warning—an inkling—that Lehman was in trouble.
"I was part of a very profitable division and I assumed everything was running like a well-oiled machine," my friend told me. "It was a total surprise."
How could this have happened? A group of nerdy Ph.D.'s in Wall Street's back offices—they were known as "Quants"—came up with a magic mathematical formula that proved it was hugely profitable to persuade millions of families to borrow money from lenders for the purpose of buying homes they could not possibly afford.
These mortgages were immediately sold to aggregators who combined them into tranches and sold them by the slice as funds to investors.
Neither buyers nor sellers had a clue what the hell they were doing.
Both the mortgages themselves and the funds derived from them were extremely toxic.
According to the quants, the odds of the entire system collapsing were less than minuscule because 1) everybody would not default and 2) the housing market would never go down.
According to Lawrence G. MacDonald—author of "A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers"—the CEO of Lehman Brothers, Dick Fuld, was a dreadful human being:
Colleagues named [Fuld] The Gorilla, and his brutality was legendary. He ruled by intimidation, and he conceived of Wall Street as a war, his staff a great fighting force manning a battleship, its guns permanently trained on even bigger rivals. His "never surrender" attitude meant that he rejected offers from potential buyers for Lehman Brothers earlier in 2008, when outsiders were saying the bank was too weak to survive on its own.