Table Of ContentCountdown to the
Global Financial Crisis
Countdown to the
Global Financial Crisis
:
A Story of Power and Greed
By
Paul Mazzola
Countdown to the Global Financial Crisis: A Story of Power and Greed
By Paul Mazzola
Edited by Dr Celeste Rossetto
This book first published 2022
Cambridge Scholars Publishing
Lady Stephenson Library, Newcastle upon Tyne, NE6 2PA, UK
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Copyright © 2022 by Paul Mazzola
All rights for this book reserved. No part of this book may be reproduced,
stored in a retrieval system, or transmitted, in any form or by any means,
electronic, mechanical, photocopying, recording or otherwise, without
the prior permission of the copyright owner.
ISBN (10): 1-5275-8281-7
ISBN (13): 978-1-5275-8281-1
This book is dedicated to my father, Rosario, from whom I drew much
encouragement and inspiration and who always provided well-timed and
sage advice.
There are never wanting some persons of violent and undertaking natures,
who, for they may have power and business, will take it at any cost.
(Francis Bacon)
CONTENTS
Table of Figures .......................................................................................... xi
Foreword ................................................................................................. xvii
By Chris Whitehead
Acknowledgements ................................................................................... xx
Chapter 1 .................................................................................................... 1
Introduction
PART ONE: HISTORY OF US INVESTMENT BANKING
Chapter 2 .................................................................................................. 14
War to War (1776-1815)
American War of Independence (1775-1783) .................................... 16
The War of 1812 ................................................................................. 20
Chapter 3 .................................................................................................. 37
Banking on Rail
American Railroad Expansion (1830-1850) ......................................... 37
The Role of Bonds in Funding Railroads .............................................. 41
Needy Americans ................................................................................ 45
Chapter 4 .................................................................................................. 48
Bankers and the Civil War
American Civil War (1861-1865) ......................................................... 56
Formal and Real Power ....................................................................... 70
Chapter 5 .................................................................................................. 73
The Pendulum Swings
“Our Crowd” and the “Yankee Houses” .............................................. 73
The Panic of 1907 ................................................................................ 75
The Pujo Committee of 1913 .............................................................. 81
viii Contents
Post-Depression prudential legislation ............................................... 84
Post-World War II Transformation ..................................................... 88
Transformation from Partnership to Corporation .............................. 91
The Capital Problem for Risk Taking ................................................... 95
Regulation – Post WWII .................................................................... 100
Chapter 6 ................................................................................................ 104
The GFC
Background to the GFC ..................................................................... 104
Insufficient Capital Regulation .......................................................... 111
Capital Regulation ............................................................................. 113
Neo-Liberal Approach to Financial Market Legislation ..................... 119
PART TWO: THE LEHMAN STORY
Chapter 7 ................................................................................................ 126
The Pre-Fuld Era (1850-1994)
The Founders .................................................................................... 126
Normative Influence of the Jewish Connection (Our Crowd) ........... 132
Dispositional Power from Board Directorships ................................. 134
Profiting from the American Civil War .............................................. 134
Transformation to the Business of Investment Banking –
an Exercise of Power ................................................................... 136
Retention of Power through Family Control ..................................... 137
Bobbie Lehman: Head of Lehman Brothers Partnership 1925-1969 .. 139
Peter Petersen: Chief Executive Officer 1973-1983 .......................... 141
Lewis Glucksman Chief Executive Officer 1983-1984 ....................... 144
The American Express Takeover ....................................................... 147
The Sticky Web of Power and Culture .............................................. 150
Chapter 8 ................................................................................................ 153
The Post-Fuld Era (1994-2008)
Richard Fuld ...................................................................................... 153
Fuld’s New Team ............................................................................... 156
Countdown to the Global Financial Crisis: A Story of Power and Greed ix
Chapter 9 ................................................................................................ 170
Hubris: The Terminal Disease
The CDO Rating Route....................................................................... 171
Warehousing and the Process of Securitisation ............................... 172
Resisting Warnings ............................................................................ 181
Selling and Shorting Lehman Brothers shares as Mimetic
Isomorphism................................................................................ 183
Talking Heads .................................................................................... 184
Fuld’s Response to Market Disquiet ................................................. 187
Bear Stearns – Failure of the Hedge Funds and then the Firm ......... 195
Fannie Mae and Freddie Mac’s Rescue............................................. 197
Lehman Brothers’ Last Weekend ...................................................... 198
The Shifting Nature of Power and Institutional Influence ................ 203
Economic Climate ............................................................................. 206
Political Atmosphere ......................................................................... 210
The Wash-up ..................................................................................... 213
Chapter 10 .............................................................................................. 215
Models and Numbers
Lehman Brothers’ Business Model ................................................... 216
Similarities in the Peer Group’s Business Model .............................. 221
Lehman Brothers’ Financial Structure .............................................. 228
Risky Business ................................................................................... 237
Follow the Leader: Financial Structure ............................................. 241
PART THREE: CONNECTIONS & INFLUENCE
Chapter 11 .............................................................................................. 248
Bedfellows
The US Financial Network ................................................................. 250
Political Contributions ....................................................................... 254
Lobbying ............................................................................................ 267
Political Contributions and Lobbying as Coercive Pressure .............. 282
Revolving Door .................................................................................. 284
Empirical Evidence that Connections Count ..................................... 292
Knowledge Asymmetry ..................................................................... 294
Credit Rating Agencies ...................................................................... 296
Institutional Influence over FASB ...................................................... 304
