Now and again, I’ll verify in to point out objects floating round Wall Road circles and blogs.
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Long term developments within the markets and economic system.
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Further particulars on what appears underappreciated or overhyped.
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Hyperlink to some nice explainers on the ideas.
**Every little thing as of 8/21/2024
Lehman Brothers filed for chapter on September 15, 2008 elevating a monetary disaster of the time into the Nice Monetary Disaster for the historical past books.
At this time, Lehman Brothers lives on because the fallen Goliath in each ebook ever written concerning the Nice Monetary Disaster and as a cheeky novelty hat you’ll be able to maintain in your workplace for some company levity.
Again in 2008, I witnessed the autumn of Lehman via the eyes of a naïve school scholar nonetheless studying the fundamentals of finance and making an attempt to maintain up with one unprecedented transfer after one other. Now in 2024, after a decade+ of expertise contained in the halls of main funding banks – the narrative, the occasions and reactions to the disaster ring in a different way.
As such, I believed it might be enjoyable to record 10 Classes I’ve re-learned trying again on the Lehman Brothers Collapse — 16 years later.
In the course of the Lehman collapse a little bit identified accounting trick referred to as Repo 105 got here to mild because the lynchpin for Lehman’s hidden leverage and supreme blow up. On the time, it felt like a wonky, unsexy backwater software in comparison with unique CDOs, MBS contracts, and the plummeting fairness market.
Now, after 2 years working with repo desk groups, and seeing all of the funding dramas of the previous decade, I can say for positive repos are a wonky, unsexy backwater software BUT they maintain energy over all different buying and selling desks because of their means to supply the buying and selling money wanted by each different desk to operate. No repos means no buying and selling.
In the course of the GFC the free fall and volatility of equities had been among the many worst ever -exceeding the dotcom bust and impacting a far wider scope of corporations. Hoarding ingesting water and gold cash in a fortified cabin within the woods was nonetheless loopy…however rather less loopy throughout November 2008.
Now, we’ve seen a dotcom bust, the GFC, a COVID crash, Rate of interest hikes and a number of other volatility occasions in between proving a purchase and maintain technique for the long term isn’t simply educational; it’s stress examined and confirmed.
Earlier than Lehman, I understood chapter to imply an organization can’t pay its money owed anymore and should shut. Now, we all know a bankrupt group is simply an train for attorneys to gather charges for years throughout arbitration & settlements and for opponents to swoop in and pay pennies on the greenback for the viable leftovers.
In 2008 retirement was not on my radar however the sob tales of Lehman workers who’d been given LEH inventory bonuses for years solely to lose all of it had been abound. Suck to be them I believed.
Now I see it did suck to be them however not as a result of the corporate failed. It was their very own fault for not diversifying out of a concentrated wager. You may’t each make your revenue from and plan your retirement across the identical firm succeeding.
Buying and selling curbs and circuit breakers got here after 1987’s Black Monday. Sarbanes-Oxley (SOX) got here after the Enron and Worldcom accounting scandals and Dodd-Frank wouldn’t arrive till after the monetary disaster.
Banks love cash and and when one door closes, they are going to at all times discover a new strategy to open one other door. The place are they making a living at present which shall be an issue tomorrow?
Did you learn Timothy Geithner’s ebook? How about certainly one of Ben Bernanke’s? Hank Paulson’s possibly? How about all the opposite economist throwing of their 2 cents?
By no means let a very good disaster go to waste and by no means write an Op/Ed when you’ll be able to publish a ebook about being in the appropriate place on the proper time to make the entrance web page of the WSJ for just a few months.
Bulge bracket names like Lehman Brothers beloved recruiting from their elite goal colleges to get the most effective and brightest for his or her companies. But, for all these IQ factors, nobody noticed the writing on the wall till it was too late.
Name it groupthink, mass psychosis or easy aggressive greed however 95% of Wall Road had no thought what was coming regardless of their schooling, certificates and coaching. Warren Buffet lives away from its all out in Omaha Nebraska for a motive.
In a mean job, should you make a mistake you’re anticipated to enhance otherwise you get fired.
Dick Fuld, CEO of Lehman Brothers, took residence $466 million in pay between 1993 and 2007, whereas increase the agency’s timebomb stability sheet. Whereas technically he didn’t obtain a severance, he owed nothing again and stayed on for years to assist oversee the dissolution of the agency and gather much more compensation for his providers.
I’ve misplaced a job 3 occasions in my profession and probably the most I ever received was a $500 thanks present card.
What did Lehman Brothers truly do? In 2006 Lehman Brothers, historically a brokerage and advisory enterprise, adopted a brand new enterprise technique to develop its proprietary companies with a deal with business actual property, leveraged loans, and personal fairness.
Scope creep exterior your core competency and spreading your sources too skinny is a recipe for dropping management of the state of affairs.
Lehman Brothers began in 1844 and was a mainstay via recessions, depressions and struggle. Corporations who push the bounds of leverage and danger too far usually are not immune from falling off the cliff they’ve constructed for themselves.
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