Securitization Addiction Helped Lead to Lehman's Collapse: Former Executive
Securitization was like an addictive drug for Lehman Brothers, creating a high that couldn’t last, a former managing director of a Lehman Brothers subsidiary told CNBC.
“Securitization was like financial heroin,” said Gary Kaminsky, a former director of Neuberger Berman. “It was so easy to make a lot of money, originating, trading, distributing product, that at the field general level there was no incentive to make people aware that the musical chairs were going to stop at some point.”
Kaminsky says that was part of the company culture which helped bring about its collapse.
As long as the firm was making money, there was no motive for employees to report problems, Kaminsky said. It was inevitable the addictive behavior going on at Lehman would eventually begin to fill their balance sheet and drive leverage up.
Kaminsky, who shared his insights on the one-year anniversary of the collapse, also placed some of the blame on the company's board of directors.
“The way I understand fiduciary responsibility is that the board of directors is responsible for maintaining and modifying what’s happening at the company level, not just going to a couple of board meetings a year and a golf club, playing golf and having dinner,” said Kaminsky.
Defining the duties of the board of directors, especially their role during a crisis, is key in preventing future financial catastrophes and is one aspect that needs to be considered as financial regulation moves forward, he said.
“Boards work for the shareholder, management works for the board,” said Kaminsky. “Lets not forget that in the way corporate structure is created.”