What Caused The Fall Of Lehman Brothers In 2008?

Summary: In June 2010, your author was able to interview Larry McDonald, author of A Colossal Failure of Common Sense, during the 2010 European Business Summit in Brussels, Belgium. Mr McDonald has written and commented in great detail about the fall of Lehman Brothers in 2008. This page details that interview.

Larry (known as Lawrence McDonald in the USA) participated in the financial services discussion in the 2010 European Business Summit in Brussels. Their debate included brief conversations relating to financial education for the population, the difficulty of finding work in Wall Street and investment banks, the amount of leverage in the financial system and much more.

As we all know, the failure and fall of Lehman Brothers in 2008 and the financial crisis more broadly, was caused by many different problems in the banking world. These reasons include sub-prime mortgages, an interconnected world of derivative contracts, poor understanding of the risks being taken and much more. Many of these issues played out in Lehman Brothers and are described in Larry's book, A Colossal Failure of Common Sense .

Here is some footage of Larry speaking during the session.

In our interview, we discuss a number of the broader issues. EBS is really about European government policy making, so we had to discuss some of the more related topics of regulators and regulations, wages and bonuses.



As interesting as this interview was, Larry was even more interesting off camera before and after (apologies for not catching more of it). He has some strong views on the increase in prop trading by the big investment banks, the impact this had on their business models and their relationships with clients. We also discussed at some length the role of pension funds and why their insistence to company boards of directors that they use limited amounts of borrowing (broadly a very sensible idea) opens them up to the more predatory private equity funds and their mountains of agressively used borrowed money.

This leads to a central issue for Larry in the current financial world - that many of the new products and financial 'developments' have created ways to simply transfer wealth en masse from stockholder and pension fund investor to financiers.

In short, if you have an interest in finance or a desire to understand more about the workings of the world, he is a very interesting man!

To my slight shame at the time, I have the book on my shelf but have yet to start reading it. However, after our conversations, I find it difficult to believe that it can be anything other than a revelation of facts about the mismanagement of global and corporate finance. You can visit Larry's website here .

To read more about bear markets and the financial crisis of 2008 on this site, please follow these links:

Understanding Bull And Bear Market Situations

Bear Market Definition

What Is A Bear Market?

Bear Market Investing Strategies

What Is Short Selling?

Secular And Cyclical Bear Markets

The Great Crash 1929 by J.K.Galbraith

What Caused The 2008 Financial Crisis?

What Caused The 2008 US Stock Market Crash?

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