Ex-Lehman Trader Says Fuld Snubbed Warnings on Housing Bubble

Bloomberg reports:

On the morning of June 7, 2005, some 45 traders and researchers gathered in a third-floor conference room at Lehman Brothers Holdings Inc. for a 7 o’clock briefing from Michael Gelband.

The global head of fixed income introduced himself and proceeded to drop a bombshell, writes Lawrence G. McDonald in “A Colossal Failure of Common Sense,” a scathing and sadly overheated inside account of how Lehman became a house divided that could not long stand.

“Mike said flatly that in his opinion the U.S. real-estate market was pumped up like an athlete on steroids,” says McDonald, a former Lehman vice president of distressed debt and convertible securities trading who says he was in the room that day.

This was not what Chief Executive Officer Richard S. Fuld Jr. wanted to hear. At the time, Lehman was still making a fortune by buying up mortgages, packaging them into collateralized debt obligations and selling them off. Yet Gelband was daring to broach an “unspoken question,” McDonald says: What if the property market crashes and we get stuck holding billions of dollars in securitizations we can’t sell?

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