It has been four years since the fixed income bubble burst, first taking down the venerable investment firm Bear Stearns, and then the much larger Lehman Brothers.
With government life support for their rivals, do we need yet another book on the financial cataclysm of 2008?
The answer is a resounding yes.
At last year’s BlackRock-sponsored breakfast I attended as part of the Bloomberg Hedge Fund Summit, I wrote an article, “Contingency or Contagion: Will the EU survive the Euro.” The hot phrase that morning—“Now there’s only scared money”—was batted around by the expert panel, with one Wall Street veteran stating Europe would be in the same mess by the “middle of next year.”
That time has arrived, and such a prescient call should be noted.
But without a crystal ball, who would have predicted the Facebook Ponzi-scheme unraveling within just hours of its overhyped IPO? Or Norway’s sovereign wealth fund selling all of its bonds in Spain and Portugal, pulling out of those toxic nations a few weeks ago? (There’s a Lehman Brothers lesson there that Norway’s pension fund has since learned—more on that later).
Or risk-cautious JPMorgan Chase’s derivatives implosion, announcing losses that initially exceeded $2 billion and that could soar to more than $7 billion? (JPMorgan apparently didn’t learn all of the lessons from the 2008 debacle).
Or that the safe havens of gold and oil would suffer a price collapse, signaling a global slowdown?
Thus, taking the journey through the dizzying world of ex-Lehman Brothers ETF trader Jared Dillian’s personal life in his book, Street Freak: Money and Madness at Lehman Brothers, is a guilty pleasure worth taking, with much to learn and enjoy along the way.
Street Freak’s Wild Ride
The memoir is crazed, candid, humorous, personally insufferable, and refreshing all at the same time. Toss in the fallen monarch of Lehman ex-CEO Dick Fuld coupled with the nitrous rush of being an exchange trader, and the book makes one volcano of a Wall Street salad.
At a recent book signing in New York City, the author, who is a reserved but polished Wall Street professional, discussed his memoir and the days before, during, and after the historic collapse.
“Street Freak doesn’t really have any significance from a policy standpoint; it’s simply a great story and a great read,” Dillian said. “The entertainment value is unmatched. It’s also a good way for potential Wall Street employees to get a feel for the business, and for people to get an idea of what Lehman’s culture was like.”
“Entertainment value” is the understatement of the year.
Dillian’s story is a roller coaster ride from start to finish. It takes the reader on a perilous journey—inside the frenzied orbit of the trading desks, the ballooning anxiety of hoping he didn’t stand on the wrong side of many trades, Lehman Brothers doubling down on its leverage (debt) while the markets were sinking, and Dillian’s memorable SOS call to a Russian psychiatrist in Manhattan, all the while leaving a trading position open that could rack up $5 million in losses.
Inside the Mind of a Trader
Having a nervous breakdown is no small trip. To talk and make light of such a holiday from the daily pressure cooker of Wall Street is what separates Street Freak from other books written on the crash. Self-deprecating humor has a way making those life-changing moments more universal, and thus lures the reader into the subject matter.
Questioning whether he belonged in a psych ward has a way of humanizing the story. On a macro level, the author’s survival became the perfect foil for the survival of his old firm.
He wrote near the end of the book: “Every Wall Street bank had incredibly bright, talented people. So did Lehman Brothers. But Lehman employees were survivors. They were cockroaches, having lived through plagues and famines and nuclear winters.”
“This was a highly functional aspect of the firm’s culture. The senior executives, on up to Dick Fuld, would tout the performance of the franchise after the firm was blasted out of its headquarters on 9/11. ‘We are survivors,’ they said constantly.”
But due to its huge $40 billion real estate portfolio, still growing as the housing bubble was going through the “Big Rip,” Dillian wrote: “Rumors were beginning to swirl that the Lehman real estate folks weren’t even visiting the properties—they were just crunching numbers in Excel spreadsheets and buying [stuff] sight unseen.”
But Dick Fuld and all the Lehman employees who had their college, life, and retirement savings in company stock and options wouldn’t be the only ship of fools who watched their money vaporize into thin air in the Sept. 15 bankruptcy. Norway’s conservative pension fund, which had twice as many shares in Lehman as Fuld, lost more than $1 billion that day.
Citizens back in Norway were outraged. They blasted their government’s investment, labeling it as “gambling” with their retirement plan.
Breaking the Buck
Lehman’s bankruptcy was only the beginning. The panic spread. The next day it moved like a virus with the imminent collapse of Merrill Lynch and then AIG. Worse, by Sept. 15, 2008, the Fed saw the dollar’s value dive, and it was falling fast. Without an immediate federal injection of liquidity into the money markets—to halt a run on the banks—a total global financial collapse would have taken place.
TARP or no TARP, it was the right call by the Bush administration, which failed, however, to step in and rescue Lehman Brothers, as it had done earlier that year with Bear Stearns.
Dillian confirmed the global meltdown threat, saying, “The financial markets were in unimaginably terrible peril—if the run on the money markets had not been stopped, we would have had a crash that has never before been seen on this earth.”
Had the financial asteroid struck earth, the modern world would have been the dinosaurs. Life would have been vastly different for people and businesses, especially in the developed world. Today, with Western governments buying time, a systemic collapse is still an outside possibility. But a more likely scenario would be a protracted period of stagflation.
In asking the author whether he missed the rush of Wall Street, he replied, “I am happy to not be trading. My life is a lot calmer and more manageable now. Being a writer suits me just fine.”
I asked him: “What’s your next book about?”
“It’s a novel—I can’t reveal the details,” he said. “But I’m really excited about it.”
James O. Grundvig is a freelance reporter and columnist residing in New York. He is a frequent Epoch Times contributor.