A COLOSSAL FAILURE OF COMMON SENCE
On 20th January 2010, Lawrence G. McDonalds came to Depaul University for a lecture on the failure of Lehman Brothers. He was a former vice president of the company handling both joint equity and fixed income divisions. He started his lecture by talking about his childhood and the path that he traveled till he was hired as a VP in Lehman brothers. He talked about how it was stressful for him after his parents divorce, his life as a college student and finding a job after college. His main goal was to enter the WALL STREET WORLD and for that he would dress up as a pizza delivery person so that he can have a word with the CEO's of the companies. He also tells a great saying " ITS NOT WHERE YOU START IN LIFE, ITS WHERE YOU FINISH". He tells about the company surviving the civil war, the great depression and the World War. The company lasted for 158 years and in 2008 the company was destroyed.

He then starts talking about the workings of Lehman Brothers and its downfall. He talks about how the company crashed, which was because of the CEO Richard "Dick" Fuld and a few top executives who were Richards followers. He was even called the invisible man as he was always away from all the problems which the company was facing. There were a handful of people who knew about the problems, but they were silenced (fired) by the top authorities, as they did not want to know anything that they could not understand. Lawrence tells us how the company was using Mark to Market form of Accounting and which arose the problem in the Mortgage sector. He told us how it had grown very complex and so it was difficult for the company to understand. He said “whenever you have an investment opportunity the principal is your exit strategy" which they did not understand as the top management did not understand the 21st century financial problems. Lehman brothers now had Ninja Accounts which states for NO INCOME, NO JOBS, NO ASSETS which results in no profits. When the Head Risk Manager started showing the problems the company was going through Richard literally told the manager to shut up. The main problem was that the top management consisted of people who did not have any knowledge of finance and banking. It was like monarchy prevailing in the company. Lawrence told that there will be abuse of power as time passes, and that’s what happened as Richard was the CEO of the company for more than a decade. The company kept on taking more and more risks and the leverage ended up 44:1.

After discussing the downfall Lawrence talked about the last days at Lehman Brothers. Bank Of America was looking to buy Lehman Brothers. It took them 10 days to figure out the accounts of the company. It was that bad. He said “Lehman brothers had to fail to get the tarp back.” If the government did decide to save Lehman brothers then it would have increased the costs of GM, Chrysler and AIG worst. And so the 750 billion dollar empire was destroyed.