The story of Lehman Brothers begins with the arrival in America of a Jewish immigrant from Germany named Henry Lehman. Rather than stay in New York, Lehman travels to Alabama, where he builds his empire on cotton trading. His younger brothers Emanuel and Mayer join him sometime latter. But the disruption of the Civil War eventually makes them look north, where their progeny will build one of the cornerstone institutions of American business.
The early Lehman story is that of almost fantastical survival against all odds. In spite of the assaults that came in various forms over the years, Henry’s death from yellow fever, the Civil War, and on, including the frequent financial crises and crashes of the 19th and 20th centuries, the business survived and thrived when others failed. Unlike many immigrants, Henry and his brothers managed not merely to survive but to spectacularly succeed. Chapman doesn’t offer much in terms of an explanation for the rise and the fall of the Lehman Brothers financial empire. For example, Henry got into cotton by the way of barter: when the wildcatting banking crisis came, Lehman’s general store turned into a cotton bank, impervious to the financial chaos. Chapman writes, “[t]he origin of the business that eventually became Lehman Brothers was solid practical goods that you could see and touch.” But how many other such business in the South, also built on tangible fundamentals, failed? Henry Lehman and his progeny were always in the right place at the right time: somehow, they made the right decisions in moments of crisis or else earlier and these decisions allowed them to ride out the financial storms. And he and his progeny kept making those right decisions.
It would be tempting to equate the company’s earlies successes with the moral integrity of its founders, and then to argue that the collapse of the bank had something to do with its selling the equivalent of financial junk, but who can measure one man’s moral identity against another’s? (Indeed, the founders of the bank were slaveholders.) Yet as Chapman deploys his readable and engrossing narrative, one cannot but help to feel that the old way of doing business was somehow better than what started to become the new normal in the late 1970s and onward: investment banking ceased to be an art and the work of the business imagination and became instead all about the hard sell of questionable stocks to the unsuspecting public and other insubstantial activities, such as the invention of complex debt products which eventually culminated in the financial meltdown. In the early part of the 20th century and thought the middle of the century, Lehman Brothers was at the forefront of “every emerging trend in America—from automobiles to movies to aircraft.” Lehman was not a quant nor did he rely on mathematic economics and its models to create debt products—he moved through upper echelons of business, art and politics and made deals. “Always connect,” that the motto of the old bankers. This was forgotten as the original Lehmans sold their financial empire and other men took over.
In the latter part of the 20th century, times have changed and with the changing times, the men themselves came to see the world in fundamentally different ways. One of the fundamental reasons for this change was a change in economic ideology—over the least 30 years, America has undergone a catastrophic process of industrialization while its main rivals, Japan, China and other rising economies that are now part of the new global economic order have done the reverse—all those nations has pursued an industrialization policy. Chapman notes in brief that Clinton wanted to pursue such a policy but was shot down by radical free market hawks. In this new world, the ways of the old bankers seemed as quaint as their gold-plated cigar boxes. The new era was that of unabashed trading, deal making and short-term thinking — all executed by traders high on cocaine, as Chapman relates the times before the 1987 meltdown.
Though men and times changed, some thing remain the same. In many ways, 2008 was like the 1920s crash again and banks that sold questionable financial products like the bucket shops of that earlier era. And the clarion call of the crash of 1987 went unheeded: then, as in 2008, the same process had been at work. Vast amounts of capital were being funneled back to the U.S., this time from China (in 1987 it was Japanese easy money that precipitated the crash of the saving and loan associations) and this easy money went into mortgages, debt that was repackaged as bonds and sold off. As people paid on their mortgages, the bonds offered handsome returns. But then the borrowers couldn’t pay and financial empires built on quant dreams got squeezed and died off.
Ultimately, the rise and fall of the bank was more of a fantastical convergence of the right people in the right moments making the right decisions, a synergy that cannot be replicated, than the result of planning or strategy. Few business lessons seem to obtain. Chapman writers, “Henry prospered because he had what people wanted.” But as an explanation of Lehman’s success, this is an empty platitude that explains little: so did all other successful small businessmen in Alabama provide what the people wanted, yet few had founded a financial empire. What does obtain is a warning of the dangers of doing things too fast, of failing to look at the big picture and of putting too much faith in the insubstantial models and other financial “innovations.”
The vast majority of the book deals with the history rather than the most recent events leading up to the collapse of Lehman Brothers in 2008. And it is this history that it the best part of The Imperious Rich. Chapman presents a telling narrative of the financial history of America by focusing on one player in its banking world. One of the things that becomes clear as a result of this narrative is that it is not the common people who are in charge, but the blessed people: the moneymakers and the bankers high among them. Chapman reveals just how interconnected high business and Washington behind-the-scenes politics were at the height of Lehman glory. And this makes the Lehman story deeply ironic: those who fled the oppressive rule of the kings of Europe, kings who claimed their right to rule came from a magical quality of their character, become royalty themselves, thanks to the fact that they had the inimitable talent for making money.