Street Freak: Money and Madness at Lehman Brothers
Insider memoir by a Lehman ETF trader.
Summary
Jared Dillian traded exchange-traded funds at Lehman Brothers from 2001 to 2008 and wrote this memoir of that period. It combines a trading floor account with a description of his own mental illness, which developed severely during his time there.
The trading material covers the ETF desk, which was a new business during his tenure, and the mechanics of market-making in a growing product where the arbitrage relationships between fund and underlying baskets were the source of the desk's profit. Dillian describes the culture of the floor, the compensation structure and its effects on behaviour, the internal politics of a firm where trading desks competed for capital, and the atmosphere in the final months as the firm's position deteriorated and employees held stock they could not sell.
The personal material describes obsessive-compulsive disorder and a psychotic episode that led to hospitalisation, and Dillian is direct about the relationship between the work environment and his condition without claiming a simple causation. He writes as a former Coast Guard officer who came to Wall Street from outside its usual pipeline, which gives him an outsider's view of the culture. The book is a memoir rather than an account of Lehman's failure, and readers wanting the latter should go elsewhere. Its honesty about mental health on a trading floor is unusual.
Key takeaways 7
- Exchange-traded fund market-making profits come from arbitrage between the fund and its underlying basket rather than from directional views.
- Lehman employees held large stock positions they could not sell, which meant the firm's failure destroyed their savings alongside their jobs.
- Compensation determined almost entirely by annual bonus produces behaviour organised around the calendar rather than around the business.
- Trading desks competing internally for balance sheet allocation makes the firm's capital allocation a political process.
- Dillian describes obsessive-compulsive disorder worsening severely in an environment of continuous quantified performance measurement.
- Outsiders to the Wall Street recruitment pipeline see the culture more clearly and are less protected within it.
- The firm's deterioration was visible to employees on the floor well before management acknowledged it.
Who should read it
Readers wanting a first-hand account of trading floor culture and its personal costs, rather than an analysis of Lehman's collapse.
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