Former trader: Lehman Bros. party just getting started
Get ready for round two between regulators and prosecutors and Lehman Brothers, one former employee said.
“This party is just getting started,” a former distressed debt trader, Lawrence McDonald, said at the University of North Florida Thursday. McDonald is co-author of “A Colossal Failure of Common Sense: The inside story of the collapse of Lehman Brothers.”
McDonald said many of the whistle-blowers who helped him write the book have recently told him they are getting called in by regulators and state prosecutors to help them on the case.
“I think [former Lehman Bros. Chairman and CEO] Richard Fuld will be brought before Congress once again,” he said.
Lehman Brothers Holdings Inc. filed for Chapter 11 bankruptcy with the U.S. Bankruptcy Court in the Southern District of New York in September 2008.
“Lehman Brothers was never rotten at the core — that’s where the beauty was,” McDonald said. “She was rotten at the head.”
He attributed the collapse of a 158-year-old institution not to the people on the trading floor who understood 21st century financial products, but to the people on the “31st floor who were living in a completely different era but they did not want to lose control,” he said. “The collapse of Lehman Brothers comes down to one sentence: There were 24,992 people making money and eight guys losing it.”
Regulators and prosecutors could reportedly go after the company’s executives for alleged accounting fraud in what Lehman Brothers called “Repo 105” transactions — an accounting loophole that allows a company to make its leverage ratios look better by temporarily selling securities to move them off its balance sheets before announcing its quarterly earnings and then repurchasing them after the quarterly reports come out.
McDonald said the examiner’s report on Lehman Brothers released March 11 that revealed the balance-sheet movement was “a breath of fresh air.”
Lehman’s failure was also due to the massive amount of risk it took on in billions of dollars of mortgage-backed securities that became “toxic piles of concrete that they couldn’t move,” McDonald said. “But Lehman Brothers told the world that they were in the moving business, not the storage business. They were wrong.”
McDonald recalled many stories where employees and outside consultants tried to warn the company of its risk exposure in 2006 and 2007. “And at every turn, they [top executives] smashed them like grapes,” he said. “They didn’t just rule with an iron fist. They wore brass knuckles.”
In the end, McDonald said the firm became a “$700 billion piece of risk,” which should have never been allowed to happen.
“Big banks are not too big to fail,” he said. “They are too big to succeed. They are too big to be managed.”
McDonald suggested three ways to prevent this from occurring in the future: Abolish the combination of chairman and CEO positions in one person; set term limits for CEOs and board members; and have former CEOs with experience in the industry as board members.
Companies should also have a risk committee with members whose advice can be heard and implemented at the company, he said. “These crises on Wall Street are getting experientially more deadly and more dangerous. We can’t allow it to grow.”
rwitkowski@bizjournals.com | 265-2219
jacksonville.bizjournals.com/jacksonville/...3/22/daily33.html
Zurück
Werbung
