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Business Books: The inside scoop on Lehman's collapse

(Agencies)
Updated: 2010-04-02 09:19

A literary genre to emerge from the financial crisis is the Big Bank Biography, led by "The Partnership," Charles Ellis' history of Goldman Sachs, and several tales of the end of Bear Stearns & Co.

Add to this list Vicky Ward's "The Devil's Casino," an inside account of the egos and rivalries that guided Lehman Brothers from the 1980s to its catastrophic end in 2008. The story couldn't be more timely, coming as investigations allege gory new details of its fall such as how top executives hid borrowing.

Ward's book is rich on details, like CEO Dick Fuld's aversion to Casual Friday (the end of Western Civilization, as he saw it) but almost empty on the firm's storied first 100 years. As Ward, a contributing editor at Vanity Fair, explains, that story has been told elsewhere.

Her book takes off from 50 pages of an official history that was commissioned by the firm in 2003.

The pages were never published because so many executives painted negative portraits of Fuld and offered so many disparate accounts that the firm's own writers could not weave a clean tale for public consumption.

They got that one right. In Ward's hands, the notes become a gold mine of gossip and the basis for further revealing interviews. Affairs poison friendships. Money changes priorities. And the wives of top executives gripe how hard it was to pack for a retreat featuring hiking by day and fancy dinners by night.

There are tales to admire as well: the firm comes alive on September 11, 2001, when it lost only one of the hundreds of its employees at the World Trade Center, then brings itself back into operation days later because technicians had carried crucial servers down many flights of stairs out of the doomed building.

Fuld often emerges in the book as a sympathetic character, committed to his family and to various charities, and, like a good chief executive, at pains to mend feuds.

But when Ward connects the dots, the rough conclusion she comes up with is that fatal flaws of Fuld's culture brought Lehman down. Briefly: his ambition to match Goldman Sachs and other firms led Lehman to pile on too much risk, such as the mortgage-backed securities that ultimately proved fatal.

The problem with this analysis is that Lehman's fall does not lend itself to a cultural explanation alone. It is also a story of a firm allowed to become too big to fail by regulators navigating uncharted waters.

And, despite speaking with nearly all the central players and getting terrific details of the desperate, last-ditch negotiations to save Lehman, she lacks several key accounts including that of Fuld himself, who is hamstrung by lawsuits.

This is the limit of the Big Bank Biography: without subpoena power, the full picture is out of reach.

No matter how good the gossip, top executives are also actors in a wider financial system, and the inside story can only explain so much.