Bloomberg News

Lawrence McCarthy, Who Saw Swaps Danger at Lehman, Dies at 49

December 11, 2013

Lawrence McCarthy, a senior managing director at Cantor Fitzgerald LP who, as an executive at Lehman Brothers Holdings Inc., was said to have predicted that credit-default-swap traders were “working on bringing down the whole world,” has died. He was 49.

He died yesterday at Roosevelt Hospital in New York. The cause was an aneurysm, his ex-wife, Suzanne McCarthy, said in a telephone interview. He had been in ill health with a heart ailment, she said.

“We lost a good man and a good friend and a good family man, one of the most well-known names in the distressed community, and a great co-worker,” Adam Vengrow, co-head of New York-based Cantor Fitzgerald’s credit fixed-income group, said in an interview.

McCarthy joined Cantor Fitzgerald in June 2012, following stints as co-head of levered products at Chapdelaine Credit Partners and head of proprietary U.S. distressed bond and bank loan trading at Lehman Brothers, according to a Chapdelaine Web page. He was at Lehman from 2003 to 2007, leaving a year before its bankruptcy, according to his page on LinkedIn.com.

He was a major character in Lawrence McDonald’s 2009 book, “A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers.” McDonald, who wrote the book with Patrick Robinson, had reported to McCarthy as a Lehman vice president in charge of bond trading. McCarthy was “one of the most fearless traders to ever work on Wall Street,” McDonald wrote.

Enron View

McDonald wrote that McCarthy was a childhood friend from Falmouth, Massachusetts -- “a whip-smart kid” who “got a pretty hard time at school partly because he was so small and partly because he was frequently seen reading the Wall Street Journal when he was in seventh grade.”

While at Wasserstein Perella & Co., McCarthy saw the “real shaky” underpinnings of Enron Corp. late in 2001 and had his clients sell before the company collapsed, McDonald said.

Later, while both men were at Lehman Brothers, McCarthy voiced some of the earliest skepticism that the U.S. housing boom could continue, according to McDonald. He wrote that McCarthy in 2005 placed a $500 million bet against Beazer Homes USA Inc., which in December 2008 reported a loss five times larger than analysts had projected.

McCarthy “believed that very brilliant financiers who worked on the inside of major corporations and set out to baffle, bemuse and generally bamboozle the outside forces that sought to regulate them were, as a rule, a whole lot cleverer than the regulators,” McDonald wrote.

Leaving Lehman

As for Lehman’s own demise, McDonald said McCarthy dissented loudly as the firm continued to bet on the U.S. housing market in the form of collateralized debt obligations. McDonald quoted McCarthy saying at a 2007 meeting, “I know a little about gambling, and I know a lot about risk. We have too much. Far, far too much.”

McCarthy, at his going-away party from Lehman in June 2007, “mentioned that the CDS (credit-default swap) traders were currently working on bringing down the whole world,” McDonald wrote.

Lawrence Edward McCarthy was born on Oct. 22, 1964, and raised in Falmouth. His father, Larry M. McCarthy, was an executive at banks including State Street Corp. in Boston, Suzanne McCarthy said.

After graduating in 1987 from Providence College in Rhode Island, he worked as a clerk at MassMutual Financial Group in Boston, then moved to New York to work at Wasserstein Perella. Following a job at Chase Manhattan Bank, he joined Donaldson, Lufkin & Jenrette.

‘Very Proud’

“Larry would be honored that he’s being acknowledged,” Suzanne McCarthy said from her home in Palm Beach Gardens, Florida. “I really believe he felt he made a difference to a lot of people, and he was very proud of all the work he did. He’s left us too soon.”

Outside work he was a “Boston sports fan to the core,” she said, and an outdoorsman who enjoyed sailing, fishing, hunting, tennis and golf.

In addition to his former wife and father, he is survived by his mother, the former Gay Van Wormer; two daughters, Devon Gay McCarthy, 19, and Emma Carolyn McCarthy, 16; and a brother, Scott McCarthy.

To contact the reporters on this story: Laurence Arnold in Washington at larnold4@bloomberg.net; Mary Childs in New York at mchilds5@bloomberg.net

To contact the editors responsible for this story: Charles W. Stevens at cstevens@bloomberg.net; Alan Goldstein at agoldstein5@bloomberg.net


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