The really juicy details behind the Lehman Bros. collapse

It is not often that a book on the financial crisis makes you want to get a big bowl of popcorn.

But Vicky Ward’s page-turning yarn about Lehman Bros., the failed investment bank, is the closest thing to a bodice-ripper that the 2008 meltdown is likely to produce.

Ward, a contributing editor at Vanity Fair magazine, backs up from Lehman’s tragic collapse to take a look at nearly three decades of backstabbing and greed. Her book is “The Devil’s Casino: Friendship, Betrayal, and the High Stakes Games Played Inside Lehman Brothers,” published by Wiley.

She has interviewed most of the key players as well as selected wives, ex-wives and even, rather dramatically, held a seance to contact the ghost of the man Ward believes was the true heart of Lehman, former President Chris Pettit.

This is not a book for people who care about the geeky details of what went wrong with the global banking system.

Collateralized debt obligations rate just two mentions in the index, and credit default swaps get a paragraph and a half.

But “The Devil’s Casino” has everything readers might want to know about the personal foibles and shopping habits of key Lehman leaders and their wives.

Ward writes about helicopter rides and corporate jets, multimillion-dollar art collections and constant backbiting.

Few people come off well. Erin Callan, the first female chief financial officer at a big Wall Street bank, annoyed her colleagues by becoming blonder, more toned and better dressed as she rose through the ranks — and then embarrassed them by talking to the media about her personal shopper, according to Ward.

Andrew Kirk, the ambitious head of high-yield debt, got docked $1 million for insisting the company-chartered bus change its route and drop him off at his home first after the 2007 company Christmas party, Ward writes.

But for all the book’s apparent fluffiness, Ward hones in on Lehman’s central problems better than even she could have known. In a series of incidents stretching back decades, she shows how Lehman’s traders routinely hid the riskiness of their trades from senior managers and the public.

In the 1970s, they pulled index cards off the wall when the supervising partner came to visit so that he would not realize they were exceeding their position limits in intraday trading. In 2006, she writes, top management sidelined the chief risk officer for daring to suggest that house prices might fall.

The report by the bankruptcy examiner that Lehman had used an accounting trick nicknamed Repo 105 to shrink its balance sheet by millions of dollars at quarterly reporting periods clearly came from a long tradition, even if the report came out too late to be included in Ward’s book.

In spite of Ward’s extensive interviews, there are some gaping holes. She writes that a lawyer for Dick Fuld, the Lehman chief executive, would not permit Fuld to speak to her.

Joe Gregory, the president and chief operating officer who Ward blames for much that went wrong, also refused to talk.

However, the pictures she paints of both men are devastating. Fuld is hands-off, out-of-touch and obsessed with appearances. When Roger Nagioff, the London-based co-head of equities, made the mistake of showing up at the annual summer gathering at Fuld’s ranch in Sun Valley, Idaho, wearing cargo pants instead of the required golf shirt and chinos, Fuld insisted that he change his clothes.

Gregory, described as a “toxic influence”, comes across as greedy and worried more about the charities he supports than running the bank. Ward blames him for the rapid rise and fall of Callan and for forcing out a whole series of potential rivals, including Pettit, the hands-on and well-liked president, in 1996.

Essentially, “The Devil’s Casino” dates Lehman’s ultimate demise back to that cataclysmic power struggle.

As Ward tells it, Fuld first tried to recruit Joe Perella, the mergers and acquisitions maven, to build up Lehman’s weaker investment banking side, but Pettit proved an obstacle. Then Gregory and some of Pettit’s oldest friends conspired with Fuld to push Pettit out instead.

That left Lehman without anyone in a position to challenge Fuld and Gregory on the risks they were taking, particularly in real estate.

To Ward, the rest of the tale is an unstoppable operatic tragedy, albeit one that took 12 years to play out. But it is chock-full of designer clothes and fancy yachts that make for a fascinating read.

Post-crisis reading

THE financial crisis has had many victims but for book publishers it hasn’t been so bad. For a start, the banking collapse, followed by drastic measures to stop it leading to a global depression, have made many standard economics textbooks look dated. So, students and libraries around the world will soon need to stock up on the revised editions that the textbooks’ authors are busy working on.

More important, there has also been a boom (a bubble, perhaps?) in books explaining, dissecting and apportioning the blame for the crisis. Our finance editor discusses them with our books and arts editor in this audio chat, and our Wall Street editor lists his favourites here.

Many of these books have also been reviewed in our pages. Our look at an early batch of credit-crunch books, in June last year, recommended Philip Augar’s “Chasing Alpha” and Gillian Tett’s “Fool’s Gold”, among others, the former a broad, highly readable account of how the crisis developed, the latter focused on the murky world of credit derivatives.

Michael Lewis’s “The Big Short” and Harry Markopolos’s “No One Would Listen” are about the prophets of doom who foresaw the crisis but who were mostly not listened to. In Mr Lewis’s book, some of those prophets profited very nicely from putting their money where their mouths were. Mr Markopolis was an analyst who smelled something fishy about the remarkable investment returns of a money manager called Bernie Madoff, who it turns out was running the world’s biggest Ponzi scheme. In “The Road to Financial Reformation”, another Cassandra of the credit crunch, Henry Kaufman—whose constant warnings about debt bubbles earned him the nickname “Dr Doom”—spends 260 pages relishing reminding us how he told us so.

As the world’s financial system teetered in 2008, no one was closer to the centre of the action than America’s then treasury secretary, Hank Paulson, whose book “On the Brink” contains some jaw-dropping revelations and an admirably frank assessment by Mr Paulson of what he did well, and not so well, in the crisis.

Another prominent figure in the crisis and its aftermath is the former treasury secretary’s namesake, a hedge-fund manager called John Paulson, who is the subject of Gregory Zuckerman’s “The Greatest Trade Ever”. This Mr Paulson came from nowhere to make a fortune by betting that the housing bubble would pop. (Unfortunately his lucrative bets made him part of the dramatis personae of the Securities and Exchange Commission’s fraud case against Goldman Sachs.) Our review of Mr Zuckerman’s book also looked at Scott Patterson’s “The Quants”, which described the mathematical whizzes who sought their fortune by means of applying complex modelling to exploit anomalies in the markets. They conquered Wall Street, says Mr Patterson, but nearly destroyed it.

David Wessel’s “In Fed We Trust” focuses on the Federal Reserve and its boss, Ben Bernanke, giving a vivid description of how they fared as the crisis unfolded, starting with the collapse of Lehman Brothers. The rise and fall of Lehman was itself such a sizzling tale that it has merited several books all to itself. “A Colossal Failure of Common Sense”, by Lawrence McDonald and Patrick Robinson, describes the hubris of the bank’s boss, Dick Fuld, who so riled Mr Paulson that the then treasury secretary became determined to let Lehman go bust. In the same review we looked at Carmen Reinhart and Kenneth Rogoff’s comprehensive look at eight centuries of financial folly, “This Time is Different”, which is ideal for anyone looking for a more academically grounded analysis of crises past and present.

“The Devil’s Casino”, by Vicky Ward, contains some fascinating pen-portraits of Lehman’s characters—Mr Fuld and his sycophantic court; Joe Gregory, the bank’s obsessively politically correct president; and the “desperate housewives” who found that they and their husbands were married to the bank. But perhaps the best of all the fly-on-the-wall books giving the inside story of Lehman’s collapse and the broader ensuing crisis is Andrew Ross Sorkin’s “Too Big to Fail”, which is meticulously researched and littered with colourful anecdotes.

A meltdown on this scale was bound to offer plenty of scope for axe-grinding and blame-spreading. Joseph Stiglitz’s “Freefall” and Simon Johnson and James Kwak’s “13 Bankers” both take a potshot at financial policymakers. Mr Stiglitz traces the origins of the crisis to a deregulatory fervour fuelled by the “ideology” of free-market fundamentalism and Wall Street’s influence on politics; he argues for tough action, including the break-up of the biggest banks. Messrs Johnson and Kwak also worry about the excessive influence of an “oligarchy” of American bankers, and reach the same conclusion: banks that are “too big to fail” are too big.

The volcanic ash from American banking’s eruption spread far and wide. Three books on how Ireland’s “Celtic tiger” economy was brought low by the credit crunch dish out plenty of blame to politicians, bankers and property speculators. They all agree that greed and ineptitude on the part of the country’s wealthy and the powerful are to blame for Ireland’s economic crash-landing being more violent than its peers’.

While other authors point accusing fingers, in his book, “Don’t Blame the Shorts”, Robert Sloan leaps to the defence of short-sellers who, as he describes, have long been scapegoated for market crashes, and are being once again in the wake of the recent crisis. The Dutch East India Company was blaming its troubles on them as far back as 1609.

A spectacular market collapse was bound to provoke a re-examination of assumptions about the trust that modern societies place in markets. John Cassidy’s “How Markets Fail” recounts the story of America’s housing boom and bust, arguing that its roots lie in the “Utopian” idea that society is best served when individuals are left to pursue their self-interest by means of free markets.

In a similar vein, “The Myth of the Rational Market”, by Justin Fox, argues that the whole crisis was the result of an idea that failed: that markets are rational and efficient. Mr Fox provides a fascinating and entertaining history of how this powerful idea, the efficient-markets hypothesis, inspired a wave of innovative financial products, such as derivatives and securitised subprime mortgages, that believers claimed would let their users exploit the wonders of the market. Then it turned out that the market was not rational after all and trillions of dollars were wiped out. Mr Fox talks about his book in this video interview.

Reinhart and Rogoff’s book was one among several notable attempts to set the recent crisis into historical context. Another is Harold James’s “The Creation and Destruction of Value”, which illustrates how financial crises provoke a reconsideration of values, not just the value of investments but in a more fundamental sense. At the moment everything from the ethics of debt and the nature of capitalism to the continued dominance of the dollar is up for debate. Past crises, Mr James argues, show that this sort of ferment can lead to changes in political power.

Liaquat Ahamed’s “Lords of Finance” describes how the central bankers of the Great Depression were obsessed with a single idea, rather like their successors today. Then, it was maintaining the gold standard; now, he says, it is controlling inflation at all costs. History doesn’t repeat itself but it does rhyme, and once again the central bankers’ big idea has been so compelling that they have ignored its unintended consequences, in this case the bubbles in the housing and stockmarkets.

After the massive stimulus packages we are all Keynesians now, so it is only natural to expect a clutch of books celebrating John Maynard Keynes and declaring “victory” for his ideas. One of them, Robert Skidelsky’s “Keynes: The Return of the Master”, uses an exposition of Keynes’s insights to argue that much modern economics is bunk.

Some day a great novel will be written about the credit crunch, along the lines of Anthony Trollope’s 19th-century classic, “The Way We Live Now”. In the meantime, those who want to make sense of it all will have to make do with the factual analysis of John Lanchester, a British writer of fiction. His ability to explain complex stuff in a down-to-earth and witty style makes his short book, “IOU: Why Everyone Owes Everyone and No One Can Pay”, ideal reading for financial novices.

So many post-crisis books have now hit the stands that even the most voracious bookworm will have difficulty digesting them all. Which of them is the definitive account? Perhaps none: remember that J.K. Galbraith’s masterly work, “The Great Crash, 1929”, did not come out until a quarter-century after the event. Maybe we will have to wait just as long this time.

Reckless greed and ruthless ambition…and that’s just the bankers’ wives

The effusive acknowledgements at the end of Vicky Ward’s account of the final quarter-century in the 160-year history of investment bank Lehman Brothers give a pointed anecdote about the literary editor of the British newspaper on which she began her career as a cub reporter.

One day she admitted to this man that she would like to write a book. ‘Are you aware just how difficult that is?’ he asked.

At that moment, Ward made a defiant resolution: ‘I decided that by the time I was 40, I would have written a serious book on a significant subject.’

For her debut, Ward selected a particularly challenging story. The cast of characters listed, blockbuster-style, at the beginning of her text runs to seven pages. All these Harveys and Herberts, with their preppy diminutives, were players in an epic catastrophe, fuelled by greed and self-delusion, but notably lacking in the self-knowledge or retribution that provide the catharsis in classical tragedies.

The scale of Lehman’s downfall is at once gargantuan and minute.

On the one hand, the bank’s fall was both symptom and factor in the global financial crisis. On the other, the story has something of the quality of Hans Christian Andersen’s chilling fairy story about the scientist who observes a drop of water under a microscope and sees in it a myriad tiny organisms, fighting and betraying one another with all the energy their little forms can muster, unaware of the fact that they could all be swept away in an instant by a flick of a housemaid’s duster.

The story of the latter years of Lehman begins in the early 1980s with something almost like innocence – not a quality readily associated with Wall Street, but Lehman always saw itself as standing slightly apart from the common financial herd.

Richard Fuld

Protestors hold signs behind Richard Fuld, executive of Lehman Brothers Holdings

In 1984 the bank had just emerged from a vicious bout of corporate infighting. In the shake-out that followed, five men became preeminent: Dick Fuld, a foul-mouthed trader known as ‘the Gorilla’ for his sloping forehead and habit of grunting, and a quartet known as the Ponderosa Boys, in reference to the 1960s TV series Bonanza.

The Ponderosa Boys – Chris Pettit, Joe Gregory, Tommy Tucker and Stevie Lessing – were neighbours.

They drove to work together and their families socialised together. They were a band of brothers, led by Pettit, a former Marine, and they brought their ethos to the firm they ran.

Pettit was seen as ‘Messianic’. His code of personal and professional honour inspired those who worked with him and clearly enraptures Ward, who dates Lehman’s slide towards bankruptcy from the moment that Pettit lost sight of his ideals.

The death agonies of Lehman have provided rich pickings for a host of authors and film-makers, but for a reader from outside the hermetic world of high finance, the fascination of Ward’s account lies in the human stories and the quirky detail.

She excels at these: interminable accounts of meetings are lightened with vignettes: Hank Paulson’s holey socks; Henry Kissinger stirring sweetener into his iced tea with the eraser end of his pencil.

The tragic figure of Pettit, who lost his ideals, his solid family life and, soon afterward, his life in a freak snowmobile accident, haunts Ward’s pages (she even tries to contact him in a séance), and her account of the horror of being a Lehman wife is so chilling that one wishes she’d given it more than a single chapter.

One wife recalls being so desperate to avoid a corporate hike that she faked a broken leg – only for another, more ambitious, wife to turn up with a real broken leg and announce her intention of completing the hike regardless.

Lehman Brothers

A worker carries a box as she walks away from the office of the U.S. investment bank Lehman Brothers in London in September 2008

Another, while nursing a child with a seizure, was still expected to join a helicopter trip to inspect the site of a vast mansion that a senior Lehman’s executive was building. The head of global securities was told he must move to Asia, despite having a child with cystic fibrosis. These were the bellwethers of the change to come.

Ward tells her gripping story with energy. her shorthand characterisation – ‘self-described intellectual’, ‘tall, dark-haired banker’ – can seem glib, and her declamatory style, with its one-sentence paragraphs, while very much the house style of Vanity Fair to which Ward is a contributing editor, can read oddly on this side of the Atlantic.

But she has written a convincing book on a significant subject, and proved that patronising literary editor resoundingly wrong.

Book review: ‘The Devil’s Casino’ by Vicky Ward

By Stanley Bing

Sunday, April 18, 2010

THE DEVIL’S CASINO

Friendship, Betrayal, and the High-Stakes Games Played Inside Lehman Brothers

In the fall of 2008, the 150-year-old financial institution Lehman Brothers spectacularly melted down. The liquefied remains then ignited, joining the worldwide conflagration that became the great recession that is now either over or not, depending on whom you talk to. In short order, a host of formerly rock-solid institutions showed cracks that ran all the way from their foundations to the aeries occupied by their greedy, ineffective senior management. Firms that once represented all that was trustworthy in our financial system teetered, then fell. Even insurance companies that were responsible for the welfare of others were revealed to be the oldest permanent floating craps game in New York.

The situation has had at least one positive aspect. Those who hate selfish, lunk-headed, avaricious, shallow, backstabbing business weasels have entered a halcyon era in which every day has brought juicy new revelations that prove, if any proof were needed, that business people are truly the buttheads we always thought they were. Gone are the days of the hagiographic profile in newspaper, book or magazine of the slick billionaire who made his bones pushing numbers around on a spreadsheet and cutting heads with a chainsaw.

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Instead, a new growth industry has emerged to satisfy an acute craving for tales from the fiduciary crypt.

Today, every bookstore bulges with a variety of tomes dedicated to illuminating the dark underbelly of corporate capitalism and the dweebs who run it. Most of these books make for occasionally fun but depressing reading. Those who like being outraged for hundreds of pages can have a field day. But in the end, when the bodies have been swept away, a key question remains: What has been learned?

Vicky Ward’s “The Devil’s Casino” is an able new entrant into this crowded genre, and people who hate losers who are not their friends should enjoy it very much. It chronicles the sad and messy end of the House of Lehman in a relatively terse and fast-moving 270 pages, making it a mere social X-ray of a book by today’s standards of nonfiction heft, which often rivals the unsecured debt load of a failed bank. Ward carefully and skillfully tracks the last 25 or so years of the great, doomed enterprise, and her portrait of a business entity is often engaging, spicy and amusing. I particularly enjoyed the horror stories about those few, strategically challenged souls who had the temerity not to learn golf. Theirs was a demise that only outsiders to our fascist corporate golfing culture can appreciate. And the tick-tock of deals, fads, decisions and transactions that took place over a very long time can be exciting.

The book also does a fine job of sketching several outlandishly banal individuals who rose to prominence in the firm and ultimately were responsible, each in a different way, for its demise. In attempting to aggrandize and inject some drama into the characters in this saga, however, Ward may have achieved some unintended results. Her chief villain, naturally, has to be Richard Fuld, the chief executive, who is still hopping around on the media’s hotplate after the recent release of a 2,000-page investigative report on Lehman’s questionable behavior during his reign. Yet in spite of tales told out of school by a host of malicious Iagos who used to receive their bonuses from Fuld, and worshipped Fuld, and ate bonbons at the feet of Fuld, Fuld emerges, finally, as a pretty tragic and sympathetic creature, if something of a moral moron. What do you eventually feel about a guy who has to endure all this acrimony from mostly unnamed sources or those with whom he had a business beef? Me, I start to feel sorry for him.

You also have to feel tremendous empathy for the families of these driven Lehmanites, who essentially caught a full dose of Stockholm syndrome while trapped in this overheated casino. Wives of established moguls routinely snubbed those of guys who were suddenly being strangled by the internal grapevine. One beleaguered business spouse was forced to go through labor by herself because her husband had a conference call that just couldn’t be missed, you know. “But I wouldn’t get mad at him,” she told Ward: “If you made a personal choice that hurt Lehman, it was over for you.”

It’s tempting to conclude that what we’re dealing with here is not a cadre of crafty, evil wizards, but simply a bunch of petty, vicious schmucks. Take the genuinely unattractive figure of Joe Gregory, whose nickname was Uncle Joe, after Stalin. Certainly, the way Gregory rose to the top provides a cautionary tale for those who think corporate life is a meritocracy. But who really thinks that anymore? And what does all this Sturm und Drang have to do with the systemic attitudes toward risk and gain that brought the firm down? Very little, really. For it turns out that Ward’s heroes were as guilty as her villains.

This is particularly true of the book’s ostensible D’Artagnan, Chris Pettit, whom Ward, straining mightily, paints as a mix of George S. Patton and Vince Lombardi. “Pettit’s ethos so infused and inspired [the Lehman team] that a corporate video about the firm’s history referred to the period before his arrival as a chaotic, unenlightened time: ‘B.C. — Before Chris.’ ” The only problem with this analysis is that Pettit turns out to be a highly recognizable type to anybody who has worked with a former military man morphed into a corporate officer: yelling, cursing and in the end fighting for his enormous severance package just as hard as Ward’s supposed miscreants, and eventually drinking and screwing his way to his own destruction.

In fact, the frightening thing about “The Devil’s Casino” is, for all the author’s valiant efforts to elevate the tale, how ordinary it all seems, each act providing sad examples of what happens to regular people when they work too hard, drink too much and make too much money in a crazy ecosystem that rewards so many dubious practices.

And then, finally, there are the limitations of the corporate autopsy discipline itself. While Ward had access to much precious written material from corporate sources, she still uses tons of unattributed quotes from people who were in the know, got shafted and now have something to say about it. Dramatic interludes fraught with ostensible meaning are followed by parenthetical notes informing the reader that the principal actor in the anecdote completely denies its veracity. And, of course, those who cooperated with the exercise do better in the retelling of events than those who did not.

But who cares if a few fish in this barrel are wrongly shot? It’s all in a good cause. We’ve learned the lessons taught by Ward and her many contemporaries. Gone are the days when irrational, avaricious, petty people take inordinate risks for evanescent gains. Saner minds have prevailed. New regulations are in place to control the natural order of things when there is so much lucre around. Business as we know it has changed forever.

And if it hasn’t? If the rules are still pretty much the same as they were for Fuld and his gang, and show no genuine signs of improving? Why do we have the right to feel any better about ourselves than we do about those idiots?

Stanley Bing is the pseudonym of an officer in a Fortune 500 company. He writes a column under that byline for Fortune magazine.

The Big Short by Michael Lewis; The Devil’s Casino by Vicky Ward

Michael Lewis has written some of the best books I’ve read about money. Liar’s Poker was about his experiences on Wall Street in the 1980s. He traded bonds. He watched as the market for debt became a global casino. He told us about the “big swinging dicks” – the aggressive, risk-hungry traders he worked with. And he explained how investment banks had begun to unlock vast amounts of money by tinkering with mortgages.

That was 20 years ago. Since then, Lewis has written about the inner workings of technology companies and sports teams, and, recently, about his struggles as a parent. Meanwhile, the investment banks were still tinkering with mortgages, and still making massive amounts of money. They had created a huge, churning machine. At one end of the machine were people buying houses. At the other end was a river of money.

As we know, the machine broke down, causing a global financial crisis. In his latest book, The Big Short, Lewis takes us inside the machine and shows us how it worked. As you would expect, he does this superbly. We see how it created money out of the debts of millions of people who couldn’t afford to pay them. The machine is what we now call the sub-prime mortgage boom.

Essentially, the machine’s designers, the bankers, did some creative rewiring, which magically changed everybody’s incentives. Lenders didn’t have to worry about their borrowers defaulting, because the loans were passed on to investors. Investors didn’t have to worry, because they were insured. Insurance companies didn’t have to worry, because house prices were going up. For a long time, everybody was happy and optimistic.

Actually, not everybody was optimistic. As the machine got bigger and more unwieldy, certain figures in the world of finance began to think it would blow up. These people were outsiders – in some ways, the opposite of the aggressive traders manning the machine. There was an investor called Michael Burry, a shy introvert with a glass eye. There was a fund manager called Steve Eisman, who, as a result of the tragic loss of a child, had become one of life’s pessimists. There were two guys called Jamie and Charlie who had an office in a garage in California.

So this isn’t just an account of how the Wall Street money machine worked. It’s the story of the people who could see that it couldn’t work for ever, and bet against it. Instead of making “long” trades – buying something and hoping it will gain in value – these people decided to make “short” trades. In other words, they looked for clever ways of betting against the market. If something is about to blow up, and you’re the only person who understands this, you buy insurance on that thing, because it must be underpriced. These people did that – and made tons of money.

One of the best things about The Big Short is the way Lewis captures an exact moment in financial history – the point when the market was set to crash, but nobody wanted to believe it. House prices were dropping. Homeowners were defaulting. The machine was sputtering. Banks, exposed to billions of dollars of risk, were about to collapse. Lewis, as always, takes us into the twisted emotions of everybody concerned. And as always, it’s brilliant.

And what about the bankers whose giant institutions stood on the brink of collapse? How were they, the deniers of reality, feeling? In another terrific book, The Devil’s Casino, Vicky Ward takes us into the heart of the denial machine. Hers is the story of Lehman Brothers, then Wall Street’s fourth largest investment bank, soon to be its biggest casualty. If Burry and Eisman were making “short” trades, the people at Lehman were long – they were the guys holding the toxic debts when they went bad.

Ward takes us into the world of these bankers, and shows us the lives they were leading in the years before the crash. At first, they saw themselves as “good guys” – bankers who would not become blinded by greed. But then they began to see how much money could be made and their lifestyles changed. They did not seem to be their old selves any more.

This is what Ward does so well: she shows us the world of private jets and helicopters, the women with personal shoppers and shelves full of unworn shoes. She shows us how it is that people, even though they are multi-millionaires, can still have an addict’s desperation for money. And then, of course, everything came crashing down. As you’d expect, nobody at Lehman was happy. But nor, oddly, was the now mega-rich Michael Burry. “This business,” he says in Lewis’s book, “kills a part of life that is pretty essential… it is something vital that is dead inside of me. I can feel it.”

Behind Lehman’s collapse, an inner circle of greed

At first glance, Vicky Ward’s “The Devil’s Casino: Friendship, Betrayal, and the High-Stakes Games Played Inside Lehman Brothers’’ appears to be merely the latest in a seemingly endless line of books about the financial crisis.

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But what’s remarkable about this narrative is that Ward, a contributing editor at Vanity Fair and frequent CNBC commentator, manages to humanize many of the central figures involved in the rise and fall of one of Wall Street’s largest firms, offering profound insight into the titans of finance whose recklessness, greed, and competitiveness brought the US economy to the brink of collapse.

The story plays out like a Shakespearean tragedy (Ward even includes a “Cast of Characters’’) in which the very principles upon which the firm was built prove to be its undoing. The number-juggling techniques Lehman staff members employed to mask the company’s vulnerabilities are mind-boggling and predictably maddening, but that’s not the heart of the book.

Instead, Ward focuses primarily on a group of four men who called themselves “The Ponderosa Boys,’’ one of whom, former Lehman president Chris Pettit, died in 1997 shortly after leaving the firm. They were friends (some from childhood) who came from modest upbringings, carpooling to Lehman’s Manhattan offices each morning from Long Island. They came to Wall Street wide-eyed, drawn by the lure of wealth, and vowed never to be corrupted by the money they would make. Ward chronicles, in dramatic fashion, their ascent through Lehman’s ranks, and the values, friendships, and marriages that dissolved as a result.

But “The Devil’s Casino’’ is by no means an absolution. Some executives, like Joe Gregory, president, chief operating officer, and original Ponderosa Boy, are pilloried, and deservedly so. Ward outlines Gregory’s extravagant lifestyle in jaw-dropping detail, noting his yearly personal spending budget ($15 million) and habit of using a seaplane or helicopter to get to work.

In fact, while chief executive Dick Fuld has become, in the public’s eye, one of the poster children of the financial meltdown and certainly the face of Lehman’s downfall, it’s actually Gregory, his number two, who emerges as the real villain behind the largest bankruptcy filing in US history: a power-hungry, snake-in-the-grass figure who used his authority to put a fence around Fuld and prevent those who might have proved useful from entering his boss’s inner circle.

In Ward’s telling, then-Treasury Secretary Hank Paulson did everything he could to save Lehman Brothers in its final weekend, making the decision to let it go only in the 11th hour, with troubled insurance giant AIG looming ahead. Ward also notes the seldom-reported fact that Paulson’s brother worked for Lehman and lost everything because of the bankruptcy filing on Sept. 15, 2008.

Impressively researched, the book includes interviews with a childhood neighbor of Fuld’s, as well as a gym trainer who worked with the Ponderosa Boys in the 1980s. Even Gregory, whose lawyer reportedly banned him from being interviewed, is represented; an anonymous source presented Ward with his and other executives’ personal diary accounts of the history of the company.

The writing becomes tedious only when Ward, out of necessity, employs financial jargon to discuss in detail the issues that brought Lehman to its knees, for which, in fairness, there are no simpler explanations.

“The Devil’s Casino’’ offers a fascinating glimpse into the culture of one of the most powerful firms on Wall Street. One hopes that the history it chronicles will also serve as a cautionary tale for the financial industry’s still-uncertain future.

Liz Raftery is a freelance writer based in New York City.

The Long Knives at Lehman

The Devil’s Casino:
Friendship, Betrayal and the High Stakes Games
Played Inside Lehman Brothers
By Vicky Ward
Wiley; $27.95; 270 pp

Othello had Iago. King Lear had Goneril and Regan. The Lehman Brothers tragedy also had a villain, to hear Vicky Ward tell it in her gossipy book, The Devil’s Casino: Joseph M. Gregory betrayed a friend and revered Lehman leader, T. Christopher Pettit.

In 1996, writes Ward, a Vanity Fair contributing editor, Gregory persuaded Lehman CEO Richard Fuld to demote Pettit, his top deputy. “In less than a year, Gregory had changed from Pettit’s acolyte to his Brutus,” she writes, adding that the episode “is still called the Ides of March by senior Lehman executives because it occurred on March 15, the day Julius Caesar was killed by his former friends in 44 B.C.”

In case a mid-’90s office coup seems irrelevant to Lehman’s 2008 meltdown, read on. Ward succeeds in showing how the avarice and egotism that precipitated the biggest bankruptcy in U.S. history were rooted in a rivalry among five men who rose to power at Lehman after it was acquired by American Express (AXP) in 1984. Along the way she presents a now familiar take on Fuld, who oversaw Lehman for almost 15 years: “He was not the great general that Gregory wanted him to be, but a man who either was invisible or needed to be told what to do by a stronger subordinate.”

Ward is more interested in personal foibles than in profits and losses. Drawing on accounts written by Lehman executives and extensive interviews, she presents a history spiced with shouting bankers, desperate wives, and one hurled adding machine.

Of her five main characters, Fuld is the best known. The other four—named the “Ponderosa Boys” after the ranchers in the TV show Bonanza—were Pettit, Gregory, Thomas Tucker, and Stephen Lessing. Together they carpooled, went to the gym, and climbed the ranks. The lead Ponderosa Boy, Pettit, was a West Point grad who earned two bronze stars in Vietnam. He rose the fastest, becoming a partner in 1982 and, essentially, Fuld’s co-leader. Like a tough father, he inspired workers even as he ripped into them, writes Ward, who makes no attempt to hide her admiration.

These five men transformed Lehman’s culture, taking their cue from Lewis Glucksman, the bond trader whose feud with Peter G. Peterson led to the Amex takeover. One by one, bankers such as Steve Schwarzman fled, leaving Fuld as the most senior member of the merged firm, Shearson Lehman Brothers.

With Pettit on hand to keep the troops in line, Fuld had the lonely role of battling Shearson boss Peter Cohen over leverage and bonuses, Ward shows. That was Lehman at its finest, she argues. “The duo was unstoppable,” she says. But Fuld’s increasing isolation and aloofness, teamed with his later loss of Pettit’s support, mark the beginning of Lehman’s end.

When the spinoff from Amex came in 1994, Pettit was the last threat to Fuld’s leadership of the new investment bank. Though the troops were loyal, a stew of personal and professional distractions made him vulnerable; his brother was dying of brain cancer, and his marriage was crumbling. Meanwhile, Gregory was fuming because Pettit was protecting the heads of two underperforming divisions, Ward writes. He was also livid after Pettit scolded him over his handling of the Mexican peso crisis. So Gregory got Fuld to demote Pettit.

“It took a remarkable amount of push from me and Steve Lessing to get Dick emboldened enough,” Gregory wrote in an unpublished “Modern History” of Lehman that Ward cites.

“How am I going to do this…?” Fuld asked Gregory and Lessing before the showdown, according to Gregory.

Within a year, Pettit had resigned, and died in a snowmobile accident. His departure left no one to hold Fuld in check, least of all Gregory, who would become president and chief operating officer. Fuld’s isolation and Gregory’s elevation set the stage for Lehman’s demise. As the credit bubble swelled, Fuld was shut in his 31st-floor office, spending billions on commercial real estate and bullying those who urged him to pull back.

Unfortunately, Ward allows unnamed sources to lob insults. She also casts in the best light those who gave her the most access. Gregory, who was ousted himself in Lehman’s final days, spoke to her in one fleeting phone call. He didn’t respond to a request for comment from Bloomberg News.

This Week’s Hot Reads

This Week’s Hot Reads

This week: a fascinating look at how and why we make the choices we do, a German novelist’s stunning coming-of-age story, a deeply honest memoir about a woman finding herself on the Great Plains, the latest from mystery master Jonathan Kellerman, and Vicky Ward’s eye-opening account of the men who made and destroyed Lehman Brothers.

The Art of Choosing
by Sheena Iyengar

A fascinating look at the unexpected and complex psychology of human choice 

Twenty-first-century life is all about choice, but is that really such a good thing? The answer may be more complicated than it seems, according to psychologist Sheena Iyengar, who explores the psychological and social factors behind the choices we make every day, from what groceries we buy to who we date. Iyengar explains the science of choice with both precision and her signature wit, drawing numerous comparisons to Malcolm Gladwell, who raved of her work, “No one asks better questions, or comes up with more intriguing answers.”

Broken Glass Park. By Alina Bronsky. 366 pages. Europa Editions. $15.

Broken Glass Park
by Alina Bronsky

A sharp, observant debut novel from an anonymous author

In Broken Glass Park, a debut novelist who writes under the pseudonym Alina Bronsky tells the possibly autobiographical story of Sacha, a 17-year-old living in Berlin after leaving Moscow. As Sacha navigates her new life, she also dreams of writing a novel and works on planning revenge against her stepfather, who murdered her mother and left her an orphan. Dealing with universal themes in the context of very modern problems, Bronsky adds an exciting new voice to the literary world. “Bronsky… narrates a brutal story with a sharp, canny voice” and called it “a stark, moving tale of resiliency and survival,” wrote Publishers Weekly.

Claiming Ground: A Memoir. By Laura Bell. 256 pages. Knopf. $24.95.

Claiming Ground 
by Laura Bell

A refreshingly honest memoir from a woman who found her calling among the animals of the America Plains

In the James Frey era of tell-all memoirs, Laura Bell has crafted a refreshingly down-to-earth look back at her unconventional decision to leave her comfortable Southern upbringing to live on a ranch in Wyoming. It was hailed by Kirkus as “a work of descriptive virtuosity and a hard, honest pull through rough emotional terrain—an exemplary memoir.” Working as the only female herder, Bell endured harsh physical labor as well as solitude, both of which she discusses with restraint, wit, and perspective. As Bell learns how to care for herself and others through her work with the animals, she brings the reader alongside her on her journey to reclaim her sense of self.

Deception: An Alex Delaware Novel. By Jonathan Kellerman. 352 pages. Ballantine. $28.

Deception: An Alex Delaware Novel
by Jonathan Kellerman

One of America’s favorite mystery writers is back with his most intriguing character

Jonathan Kellerman is one of the best crime writers working today, and his 25th Alex Delaware novel doesn’t disappoint. This time around, Dr. Delaware pairs up with his old partner, Detective Milo Sturgi, to investigate sex and murder among the social elite of Los Angeles. As they pair are stonewalled by members of high society, they have little evidence to go on other than a DVD left next to the body of a murdered woman. It doesn’t take long to become engrossed in Deception and the Orlando Sentinel wrote, “Jonathan Kellerman’s novels are an obsession; once started it is hard to quit.”

The Devil’s Casino: Friendship, Betrayal, and the High-Stakes Games Played Inside Lehman Brothers. By Vicky Ward. 296 pages. Wiley. $27.95.

The Devil’s Casino
by Vicky Ward

A Vanity Fair journalist lifts the veil on the bizarre back-story of Lehman Brothers’ collapse

With the US still reeling from the fallout of the financial crisis, Vicky Ward has put together a definitive look at the forces that brought down the now-infamous Lehman Brothers, from an unprecedented insider’s perspective based on the diaries of the firm’s executives and candid interviews with high-ranking sources. Ward sheds light on the four childhood friends (known as the “Ponderosa boys”) who planned to take the financial world by storm while keeping their heads on their shoulders, and how quickly the second part of the plan fell by the wayside amidst a brutal corporate coup and bumbling mismanagement that brought the firm down. The Devil’s Casino serves as both an impressive work of investigative journalism and a cautionary tale of the culture surrounding American finance.

The Devil’s Casino traces the demise of financial giant Lehman Brothers

Book review: The Devil’s Casino, Vicky Ward, Wiley & Sons

The Devil’s Casino traces the demise of financial giant Lehman Brothers
The Devil’s Casino

Picking up where Ken Auletta’s Greed And Glory On Wall Street left off, Vicky Ward’s The Devil’s Casino traces the story of US financial giant Lehman Brothers from its takeover in 1984 to its demise in 2008.

It’€™s divided into two sections: the rise and fall of inspiring chief operating officer Chris Pettit and the subsequent descent into paranoia, arrogance and dysfunction that led to the company’€™s bankruptcy as a result of the sub-prime mortgage crisis; while the second half focuses on the magnetically appalling Joe Gregory, the company’€™s former president.

Ward’s book is unlikely to tell anybody interested in global financial matters anything new but that doesn’€™t detract from the fact this is a fascinating, deftly paced tale.

Book: Lehman No. 2 more guilty than Fuld

LEHMAN TALE Joe Gregory exposed.

Move over, Dick Fuld.

The most treacherous man on Wall Street is his Lehman Brothers second-in-command — former President Joe Gregory.

At least that’s how Gregory is portrayed in an upcoming book, “The Devil’s Casino,” by Vanity Fair contributing editor Vicky Ward — which details the Phoenix-like rise and tragic demise of the 158-year-old bond house.

Although Fuld gets his fair share of blame in the Wall Street novel, but it seems Ward lays much of the blame for poisoning the venerable firm and undermining its “one firm” credo at the feet of Gregory.

Ward says that Gregory has told people that he had nothing to lose in bringing a $233 million claim against the bankrupt Lehman’s assets. “Fuld disagreed: They’d all gotten rich but they’d lost the firm,” Ward writes.

Best described as John Grisham’s “The Firm” meets Michael Lewis’ financial yarn “Liar’s Poker,” Ward’s book pulls few punches in its unrelenting depiction of Gregory. It casts him as the villain of Lehman Brothers, whose underhanded manipulative nature throughout much of his 30-year tenure at the investment partnership ultimately helped set the stage for the firm’s Sept. 15, 2008, bankruptcy.

At the time, the firm had $639 billion in assets, making its filing the largest bankruptcy in history.

Ward’s tome hinges on diaries from key executives recorded five years before it would become a cautionary tale and exclusively obtained by Ward.

Ironically, the recordings that help the author craft the part-historical tale/part-high tension soap opera were requested back in 2003 by Gregory, who wanted to put together a modern history of the firm.

He later abandoned the mission because the portrayal of the firm cast Gregory and Fuld as detached, shallow managers focused more on flash than substance.

Ward’s book goes back some 30 years ago to the nascence of the firm, focusing on a band of friends including Gregory and former Lehman exec Chris Pettit — a charismatic Vietnam veteran who helped craft the modern Lehman Brothers but lost his moral compass and ultimately died in a snowmobile accident after Gregory helped push him out of the firm.

“The Devil’s Casino,” which hits the shelves April 1, comes after a lot of post-Lehman credit tsunami books already have been released, and Wards ends up culling from a lot of other source material.