Columbus GA Bankruptcy Lawyer – Bond trader remembers Lehman collapse

Bond trader remembers Lehman collapse

http://news.brisbanetimes.com.au/breaking-news-business/bond-trader-remembers-lehman-collapse-20090913-fmbx.html

September 13, 2009 – 11:24PM

A chill runs down the spine of Lawrence McDonald every time he drives past the Wall Street building of collapsed investment bank Lehman Brothers, where he was one of the most profitable bond traders.

“The big takeaway is that the fate of 20,000 souls was determined in that building, especially on the 31st floor,” said McDonald, ahead of the first anniversary on Tuesday of Lehman’s collapse.

The 158-year-old Lehman bank filed for bankruptcy protection on September 15, 2008, in the largest US bankruptcy filing in history. This left the future of 25,000 staff in jeopardy and sent a financial tsunami across the globe that continues to reverberate today.

But McDonald, 43, thinks Lehman, which collapsed under the weight of hundreds of billions of dollars in risky mortgage-backed securities, could have been saved if the bosses had heeded a number of clear early warnings.

The top Lehman leadership, housed on the bank building’s 31st floor, “drove us at 162 miles an hour … right into the biggest subprime iceberg ever seen,” he said.

Bank chief executive Richard Fuld and president Joe Gregory heard warnings beginning in 2005 that the property market, on which they were “betting the ranch,” was on the verge of collapse but turned their backs each time, McDonald charged.

“It was 24,992 people making money and eight guys losing it,” said the man who rose from a humble pork chop salesman to top-notch Wall Street trader. His team once made $US250 million ($A289.65 million) in a single day.

Lehman was heavily over-leveraged at the top of the market in 2007 – its net tangible equity was $US17 billion ($A19.7 billion) but its total investment was $US750 billion ($A868.96 billion) – a good chunk of it in mortgage-backed securities that turned “toxic.”

“Inside Lehman some really weird things were going on… the 31st floor was one of those mysterious places on Wall Street because we had incredibly talented risk-takers that were politically outmanoeuvred and squashed like grapes,” said a fuming McDonald.

“They didn’t just rule with an iron first, they wore brass knuckles.”

Asked if he had personally raised the issue with the top brass, McDonald said he had no access to them but his immediate bosses had raised the alarm.

It would be complete suicide to go to the top management, he said.

McDonald is now managing director of Pangea Capital Management and has co-authored a top-selling book, A Colossal Failure of Common Sense: The Incredible Inside Story of the Collapse of Lehman Brothers.

The book, published in July, squarely points the finger of blame at Fuld and his board. It accuses them of taking dangerous risks in pursuit of short-term profits.

“I spoke to 150 people, 45 managing directors, members of the risk committee who were my best friends and members of the executive committee. This is incredible access,” he said.

Fuld was so perturbed about McDonald’s book that he angrily phoned a pair of former Lehman traders he believed secretly had helped to contribute to the account of the bank’s stunning collapse, the New York Post reported last week.

The former chief executive said he felt “horrible” over the bank’s demise when he testified to the US Congress in October 2008 to explain the events leading to the disaster. This was one month after the bank’s collapse.

“What has happened is an absolute tragedy,” Fuld said.

“I take full responsibility for the decisions I made and for the actions I took,” he said

Fuld also told legislators that if he could turn back the clock, he would do many things differently but legislators took turns to castigate him.

One of them held up a chart suggesting that Fuld’s personal remuneration totalled $US480 million ($A556.13 million) over eight years but Fuld said the figure was exaggerated and that the majority of the compensation came in stock, most of which had not been paid to him at the point of Lehman’s bankruptcy.

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