From the December 01, 2010 issue of Futures Magazine • Subscribe!

The Last of the Imperious Rich

The Last of the Imperious Rich: Lehman Brothers, 1844-2008 Portfolio
By Peter Chapman
Penguin
$27.95; 308 pages

Anyone who wants to know how Wall Street really should work, and how influential it has been and can be to American society at large, should read Peter Chapman’s “The Last of the Imperious Rich: Lehman Brothers, 1844-2008.”

The ignominious demise of this once great and powerful firm has already been told well by Vicky Ward, Lawrence McDonald, Andrew Ross Sorkin and Ken Auletta. What makes the Chapman book worth reading is the occasionally loosely woven tapestry of financial, political and social history that puts this sad story in a light that informs a casual reader, explains to a serious reader and tells a Wall Street practitioner how and why Lehman Brothers was, at least until the 1980s, an integral part of American history. It then tells how short-sightedness, ignorance, arrogance and greed on the part of traders changed the firm and eventually blew it up.

In 1844, Heyman Lehman (pronounced Lay-Man) immigrated to the United States from a small town in Bavaria where his father was a cattle dealer and wine merchant. On board ship, he was listed as Henry Lehman (pronounced Lee-Man) and upon arrival went to Mobile, Ala. because the city was a U.S. center of the western world’s most profitable commodity – cotton.

Henry spent a year as an itinerant peddler. Chapman notes that peddling was then considered “the Harvard Business School of the day.” This fact is one of the thousands that make this book so valuable because it puts the reader into the minds of the people who, generation after generation, made American financial history.

In 1850, Henry and his two younger brothers founded the firm Lehman Brothers. Henry’s practice was to hold his capital in commodities rather than paper money to avoid the many bank failures that plagued the early U.S. from time to time. He did the same for his customers, who found him fair and honest. It is a reputation the firm cherished, until the 1980s.

Cotton proved profitable. The firm grew, prospered and branched out into commercial paper, lending, advising, mergers and acquisitions, and in the 1920s, underwriting. In fact, in 1925 Julius Rosenwald asked the firm for a loan of $5 million to expand his business that would later merge with George Sears’ company to become Sears, Roebuck. Instead, Lehman suggested he go public and raise $10 million by selling shares. Not a new idea, but the “white shoes” firms believed only in basic industries. They shunned dealing with Jews and did not understand how financially important retail was to the American economy. Ever quick off the mark, Lehman Brothers “seized the day” as they had since 1850.

Chapman’s “The Last of the Imperious Rich” is perhaps misnamed, because the firm was never imperious until in fell into other hands in the 1980s. That said, one should read it, taking one’s time. This book’s historical emphasis should open one’s mind to many ideas that could guide one’s conduct as a trader or anyone else engaged in business.

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