Lehman Brothers' Dance With Delusion; Wrestling Wall Street eBook Stanley J Dziedzic Jr
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Lehman's Dance with Delusion treads where no one has dared to go and chronicles the collapse of Lehman Brothers from an insider's point of view. It delves into the inner sanctums of Lehman's deep rooted risk-management problems that made it particularly vulnerable to the financial crisis. It is not a story of moral inadequacies, though these exist, rather it is a villain-driven narrative of how Lehman's senior management ignored the lessons from previous market crises--which led to its downfall. Beginning in the mid 1980s with Salomon Brothers' famed training class and proceeding through the subprime-mortgage crisis, the odyssey takes an interesting and provocative route through the development of the mortgage and derivative markets, the demise of the savings and loan industry, the implosion of Long Term Capital Management, and the intrusion of the government into the global capital market. Stan Dziedzic, an ex-Lehman managing director and Olympic medalist and world wrestling champion, peppers the text with unique international and Olympic wrestling experiences as a lens through which to view the evolution of capital markets and to provide apt lessons for the world of Wall Street. Dziedzic reviews how Wall Street and Lehman-intoxicated with their own greatness and paralyzed with hope-failed to imagine what lay in wait. As financial regulations remain incomplete, the book is not a diagnosis; rather it is a synopsis of intertwined anecdotes that weaves an unpredictable tale of how Lehman and Wall Street failed to distill its own delusion and went awry
Lehman Brothers' Dance With Delusion; Wrestling Wall Street eBook Stanley J Dziedzic Jr
Successful as Stanley Dziedzic was as a wrestler (118 wins and 2 losses in the college sport, plus a bronze Olympic medal and a world championship), he was far more important as a teacher and coach. His technical brilliance and innovations in tactics and training (to be fair, some of it borrowed from the Russians) changed the sport for the better, and propelled American wrestlers to the top of the international sport. His matches were a joy to watch, but even better was to see the effect of his coaching and training efforts turning collegians who had coasted on raw talent into elite international wrestlers.This agile mind is an important qualification for describing the events leading up to the financial crisis, as is the honesty demanded from an individual competitive activity that can't be gamed or faked, as is the intense focus demanded of a winner. Stan also had an almost perfect vantage point, a senior executive at Lehman Brothers who was far enough from the inner New York circle to be unbiased and to have a good perspective. Also he was mortgage sales specialist whose job was to explain complex securities to sophisticated investors, meaning he had to understand how these derivatives really worked, in practice every day, but has no vested interest in defending the models and business tactics that created them. A New York mortgage quant can get away with jargon, theory and some well-timed hand-waving; a salesperson in Atlanta has to answer tough questions from smart people about real borrowers and real cash flows, in language they understand.
Unfortunately, this book does not read like a Stan Dziedzic wrestling match full of clever and graceful moves. It's more like two out-of-shape heavyweights monotonously circling and leaning on each other, with the match going to the guy who doesn't drop from exhaustion first. It's frankly a chore to read. It is a series of direct sentences, almost all founded on forms of the verb "to be," set out like aphorisms (or coaching instructions) to be memorized rather than graceful conversation to enlighten and provoke deeper thought. Each sentence seems to carry equal weight, there are few hints to the reader about where the argument is going or why. There are few true paragraphs, and fewer introductory or summary portions of the text. I have read other opinion pieces by Dziedzic and they are reasonably well-written, I have no idea why he chose to write such a monotonously pounding book.
Therefore, this is a book to read for information, not pleasure. On that basis you will not be disappointed. There is a lot of raw material in here giving details of both the mortgage markets and Lehman decision-making that you will not find anywhere else. Things are described with clarity and honesty. A few of the stories are worthwhile for their humor or general insight, but for the most part this is a "just the facts ma'am" account for serious investigators rather than entertainment for disinterested spectators.
While I respect the accumulation of facts here, I don't think it comes close to proving his oft-repeated and heavy-handed conclusions. That's not to say I disagree with the conclusions, just that this witness needs some cross-examination to establish credibility. If the problem was incentives, why were Lehman employees, including the top people, the biggest holders of Lehman stock? Why did the three Wall Street CEOs with more than a billion dollars at risk in their companies (Dick Fuld, Hank Greenberg and Jimmy Cayne) run firms that failed while the CEOs with less personally at stake piloted their firms to safe harbor? If the problem was deep-seated deficiencies in risk management, how could Lehman have delivered adequate return on equity to survive prior to 2007 without taking the risks that lead to destruction in 2008? What specifically did surviving firms do better than Lehman?
These are the sort of challenging questions that Dziedzic never asks himself in the book. He may have good answers, but until you see them, you have to treat this book as a series of assertions rather than a completed argument. Also, when he goes beyond direct observation to mine lessons from previous financial disasters, he picks facts selectively to support his views.
This is a five-star book for honesty, clarity and important information, but a two-star book for literary merit and rigorous argument. I compromised on four stars, but that's not really accurate. If you are seriously interested in figuring out what happened before and during the financial crisis, this is a very important book. If you'd like to learn a little finance and current events and have fun doing it, this is a book to avoid.
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Lehman Brothers' Dance With Delusion; Wrestling Wall Street eBook Stanley J Dziedzic Jr Reviews
Wrestling fans know Stan Dziedzic for his outstanding career as a competitor and coach. He won the triple crown of NCAA title, Olympic medal, and world championship on the mats. He was also U.S. national freestyle coach and culminated his tenure in the position with the seven gold medals won by the U.S. at the Los Angeles games in 1984.
Most fans are not aware that Dziedzic had an equally successful career in the ferociously competitive world of Wall Street. He split his career between Salomon Brothers and Lehman Brothers and when he retired in 2005 he was a Managing Director and manager of Lehman's Atlanta office. He spent most of his career as an institutional salesman for mortgage-backed securities. Thus, he was an eyewitness to the development of the subprime-lending crisis that pushed the financial system to the brink.
It is with this perspective that he wrote Lehman Brothers' Dance with Delusion - Wrestling Wall Street. The book is obviously aimed at a different audience than the wrestling community, but does include a number of anecdotes from his career in wrestling. It describes how Wall Street got into such a fix by developing products that even their creators, and especially the senior management, could not understand or gauge the associated risks. This was going on while government regulation was encouraging people to borrow to buy houses they could not afford.
The combination of rapidly rising housing prices, easy lending through ever more complex securitization, and an unregulated and out of control derivatives market (especially for credit default swaps) created the biggest bubble in financial history. After Lehman collapsed, government policymakers realized that the other financial institutions (e.g. AIG) were really "too big to fail" and the American taxpayer was left with a huge bill.
While Congress has taken action to prevent this from happening again, many of the systemic risks remain. Dziedzic remarked in an interview "the financial reforms currently passed are not sufficient to address the core problems, which was part of my motivation [to write the book]. The financial institutions are larger-and-more-interconnected today than before the crisis."
At the end of the book, Dziedzic details possible actions to create a "more durable financial structure." The root of the problem was the inability of all the players to understand, measure, and manage risks that were one of the byproducts of the financial innovations developed during his two-decade career on Wall Street. Moreover, the Street's basic institutional structure evolved from partnership to corporation. It went from an environment where partners were risking their own money to one where the taxpayers often ended up paying the lion's share of the cost of catastrophic failure.
This is a simplification of the points that Dziedzic makes at length in his book. However, he does argue for a return to a partnership type ethic. "Management's new challenge is to design a compensation structure that is risk adjusted, aligns personal reward with realized - not interim - marked profits, and compartmentalizes the risk." He also calls for public-private partnerships to foster laudable goals like increased home ownership and a clearinghouse for most derivative transactions.
As noted earlier, this book is not aimed at wrestling fans. It deals with some very complex financial concepts, such as phantom income and noneconomic residuals (NERDs), but Dziedzic does try to simplify things where possible. And certainly everyone has a stake in the smooth functioning of the financial system. Also, the book has a number of interesting asides that provide insights into the world of international wrestling. One can likewise hope that the author will one day fully devote his writing talents to this subject. He is currently a member of the FILA Bureau, the governing body for amateur wrestling, and undoubtedly has a wealth of knowledge and experience in this arena.
Successful as Stanley Dziedzic was as a wrestler (118 wins and 2 losses in the college sport, plus a bronze Olympic medal and a world championship), he was far more important as a teacher and coach. His technical brilliance and innovations in tactics and training (to be fair, some of it borrowed from the Russians) changed the sport for the better, and propelled American wrestlers to the top of the international sport. His matches were a joy to watch, but even better was to see the effect of his coaching and training efforts turning collegians who had coasted on raw talent into elite international wrestlers.
This agile mind is an important qualification for describing the events leading up to the financial crisis, as is the honesty demanded from an individual competitive activity that can't be gamed or faked, as is the intense focus demanded of a winner. Stan also had an almost perfect vantage point, a senior executive at Lehman Brothers who was far enough from the inner New York circle to be unbiased and to have a good perspective. Also he was mortgage sales specialist whose job was to explain complex securities to sophisticated investors, meaning he had to understand how these derivatives really worked, in practice every day, but has no vested interest in defending the models and business tactics that created them. A New York mortgage quant can get away with jargon, theory and some well-timed hand-waving; a salesperson in Atlanta has to answer tough questions from smart people about real borrowers and real cash flows, in language they understand.
Unfortunately, this book does not read like a Stan Dziedzic wrestling match full of clever and graceful moves. It's more like two out-of-shape heavyweights monotonously circling and leaning on each other, with the match going to the guy who doesn't drop from exhaustion first. It's frankly a chore to read. It is a series of direct sentences, almost all founded on forms of the verb "to be," set out like aphorisms (or coaching instructions) to be memorized rather than graceful conversation to enlighten and provoke deeper thought. Each sentence seems to carry equal weight, there are few hints to the reader about where the argument is going or why. There are few true paragraphs, and fewer introductory or summary portions of the text. I have read other opinion pieces by Dziedzic and they are reasonably well-written, I have no idea why he chose to write such a monotonously pounding book.
Therefore, this is a book to read for information, not pleasure. On that basis you will not be disappointed. There is a lot of raw material in here giving details of both the mortgage markets and Lehman decision-making that you will not find anywhere else. Things are described with clarity and honesty. A few of the stories are worthwhile for their humor or general insight, but for the most part this is a "just the facts ma'am" account for serious investigators rather than entertainment for disinterested spectators.
While I respect the accumulation of facts here, I don't think it comes close to proving his oft-repeated and heavy-handed conclusions. That's not to say I disagree with the conclusions, just that this witness needs some cross-examination to establish credibility. If the problem was incentives, why were Lehman employees, including the top people, the biggest holders of Lehman stock? Why did the three Wall Street CEOs with more than a billion dollars at risk in their companies (Dick Fuld, Hank Greenberg and Jimmy Cayne) run firms that failed while the CEOs with less personally at stake piloted their firms to safe harbor? If the problem was deep-seated deficiencies in risk management, how could Lehman have delivered adequate return on equity to survive prior to 2007 without taking the risks that lead to destruction in 2008? What specifically did surviving firms do better than Lehman?
These are the sort of challenging questions that Dziedzic never asks himself in the book. He may have good answers, but until you see them, you have to treat this book as a series of assertions rather than a completed argument. Also, when he goes beyond direct observation to mine lessons from previous financial disasters, he picks facts selectively to support his views.
This is a five-star book for honesty, clarity and important information, but a two-star book for literary merit and rigorous argument. I compromised on four stars, but that's not really accurate. If you are seriously interested in figuring out what happened before and during the financial crisis, this is a very important book. If you'd like to learn a little finance and current events and have fun doing it, this is a book to avoid.
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