An insider's account of what happened behind the scenes at Lehman Brothers, with Lawrence McDonald, author of "A Colossal Failure of Common Sense" and CNBC's Maria Bartiromo. McDonald was a distressed debt trader for Lehman from 2004 until the bankruptcy filing. Incidentally, he said his group made $2 billion in profit for Lehman Brothers in 2007.
I recommend skipping to the 3:25 mark. McDonald says Lehman's fate was sealed earlier in the Spring of '08 at a dinner between Paulson and Dick Fuld. He implies there was bad blood going back a few years, and that the dinner did not go well, with Fuld lecturing Paulson repeatedly, telling the Hammer that he knew what he was doing, had been CEO for a lot longer than Paulson ran Goldman, and that he would de-leverage at his own pace. Fate sealed. I have always assumed it was part personal and part professional. Nobody was very fond of the Gorilla and his abrasive nature, and Lehman's disappearance has obviously benefited Goldman Sachs in an outsized way. I think we can finally shut this case. It was the right decision to let Lehman fail even if Paulson did it for the wrong reasons. The only problem is that the lesson was never learned as the subsequent AIG collapse and creation of TARP meant no one else would be allowed to fail and moral hazard would remain intact.
