A Colossal Failure of Common Sense, about the collapse of Lehman Brothers as told by an employee, Lawrence McDonald. He was a retail broker who saw the value in bonds (especially convertible bonds) twenty years ago. He went on to create an online clearinghouse for bond information, convertbond, before eventually winding up at Lehman.
Oddly, there were many people in Lehman who were all over the housing bubble, and even shorted homebuilder stocks. Apparently, his department even realized the mess the mortgage department was getting in and tried to short builders and lenders as a hedge. They owned New Century puts!
The incompetence seems to have come partially from the mortgage department, because it was on a roll, but even more from the very top of the company, which doubled down on big purchases and on repurchases of its own stock. Here's how out of touch Dick Fuld was, according to the head of distressed debt trading,
“I told them I’d heard a lot about Dick Fuld over the years. He’s a former commercial paper trader, but not once, not one time in all my years here, did I ever see him on the trading floor. Not even on the day me and the guys had the single most profitable day in the history of Lehman’s fixed - income division — two hundred fifty million clams, and the guy’s a no - show.”If Dick Fuld had never spoken with the head of distressed debt trading, what exactly was he doing all day. (I think you can get a sense from one other must read Lehman article, Lehman’s Desperate Housewives.) And that guy was smart enough that he had bought a billion dollars worth of protection on Countrywide for 18 basis points!
At the moment right before the crash - early 2007 - one of the really good distressed analysts quit because there were no distressed bonds. Market top.
It's worth noting that even once this ineptly managed firm woke up and started trying to unload assets, the market had plenty of room to fall.
There's a disappointing story where the author and the distressed head are in Las Vegas playing blackjack (stupid), and the distressed guy has a big drawdown. He responds by upping his bet size and playing all the spots at the table, which the author mistakenly thinks gives the player an advantage.