The downfall of Lehman Brothers was the straw that broke the camel’s back. It was the trigger point that led to the most severe recession since the Great Depression. Yes, what happened at Lehman and how it happened is really important. The decision to allow Lehman Brothers to fail is a decision many wish they could do over. However, second-guessing will not change history, we can only learn from it hoping to avoid a similar downfall in the future.
As I have written about Lehman over that past year; many stories, facts and revelations have surfaced. Recently an article by Vicky Ward, author of ”The Devils Casino,” published “How Lehman’s Hidden Inner Circle Brought the Bank Down.” This article puts forth some of the underpinnings for Lehman’s demise. It states:
Sen. Chris Dodd, the Senate banking chair has asked former Lehman chief Dick Fuld to return to testify exactly how Lehman misled so many people… Perhaps some explanation may lie in an email I received today from one of Lehman’s most senior employees — someone who worked there for 17 years. He wrote to me off the record so I am not at liberty to disclose his identity, but he was very senior and widely respected.
He is not the only Lehmanite to have responded to my new book, The Devil’s Casino (Wiley). Many have thanked me for exposing a culture led (and ruined) by a tiny leadership that was egregious, isolated and mendacious.
What my e-mailer of today however points out is something that both Rep. Bacchus and Sen. Dodd may find useful as they follow up on Valukas’s report.
He wrote, “like many former colleagues, I’m astonished at how much we didn’t know about the workings of the inner circle.”
Note the last three words. “The Inner Circle.” This was not the whole Lehman’s executive committee. This was Fuld, Gregory, perhaps in reverse order, and then Gregory’s pet of the month, at one point Erin Callan, at another Mark Walsh. But it was a tiny unit, cut off from the rest of Lehman.
So, here we have Lehman:
“An inner circle” at the top cut off from the rest. It fires people for telling the truth, and fails to promote the most competent executive until too late…. This culture didn’t spring up in its last few months…it festered for years. Whatever the SEC and FED missed in the bank’s final six months, the cabal at the top was already set in its ways and adept at hiding what it was really doing from not just the SEC, Fed and market — but its own senior management. That really is a horrifying culture, and one I am delighted to have exposed.
The workings of The Inner Circle was simple, they were fostering and festering a silent problem. A silent problem so great and so toxic that The Inner Circle knew they were sitting on a ticking time bomb. And the only one able to rescue them would be the Federal Government. The Inner Circle had placed their hat on the “Too Big To Fail” corner lot. In many respects, they were too big to fail, but the Fed allowed it to fail. And as is often the case, there is a lesson to be learned. That lesson is simple. Silent Problems tend to be the most challenging and disruptive problems of all. These silent problems can happen to companies big and small, sophisticated and crude, new and mature. And that is why my book Without Warning is such a important book to read, comprehend and understand. It discusses silent problems and how they take hold, morph and become so destructive. But more importantly, how to disrupt them, and solve them.
This is really important. Do it today.
I grew up on a farm when John Deere A’s were still in use. The John Deere A (and others in the same series) were a 2-cylinder tractor that incorporated a large cast iron flywheel in its design. It was the flywheel that smoothed out the low-revving engine and gave the tractor its remarkable pulling capacity. They were referred to as Johnnie Popps, since they emitted a pop-pop-pop noise that was very distinctive, and could be heard from a distance.