"The Irony in Black Swans" What does Morgan Stanley's recommendation to "overweight" three months before the collapse of Lehman Brothers teach us?

Looking back at 2008, Morgan Stanley (Big Mo) issued an “Overweight” report, writing the most ironic footnote to the collapse of Lehman Brothers. This was not just a misjudgment in analysis, but revealed the original sin of Wall Street's sell-side research. (Background: Asia-Pacific Crypto Assets Adoption Report: India is far ahead, Japan has the strongest growth) (Supplementary background: Coinbase report: the Crypto Assets bull run is just about to come, with plenty of room for increase) At the high ground of the business battlefield, countless companies have risen and fallen, but few events like the 2008 “Lehman Brothers case” have cruelly leveled the authority that Wall Street carefully constructed. In that ruin, a report stands like a tombstone, inscribed with the arrogance and blindness of an entire era. Morgan Stanley published a research report titled “Lehman Brothers: Struggling but Not Down, Ready to Recover Profits!” just three months before Lehman Brothers filed for bankruptcy. Recently, many people on X platform have been discussing and reminiscing about this financial disaster, and photos of the report have been exposed. Source of the image: X platform @DarioCpx This report giving Lehman an “Overweight” rating appears absurd today, like a black comedy. At that time, the subprime mortgage storm had swept in like a tsunami, and another investment banking giant, Bear Stearns, had been forced to sell itself at a loss in March of the same year. The air in the market was filled with fear and doubt, yet the top analysts on Wall Street chose this moment to draw a roadmap to the golden shore for the rapidly sinking giant. Analysts assertively claimed that Lehman's “Liquidity and capital position remains solid.” However, 95 days later, this financial giant with a 158-year history collapsed, triggering a global financial crisis. This report has since become the best surgical sample for dissecting the internal driving forces and fragile links of Wall Street. The core question is not “Why did they go wrong?”, but a deeper one: “Under the structure of Wall Street, were they allowed to make correct judgments?” Is the report an objective analysis or an expensive marketing tool? First of all, we must place this report back into the real scene of its birth, the investment bank's sell-side research department. This is a structure with conflicts of interest from the genetic level. On the surface, the analysts' duty is to provide objective, independent investment advice to the investing public; but beneath the surface, they are a key gear in this huge “trading matching machine.” On Wall Street, the profit engine is the investment banking business, which includes IPO underwriting, merger advisory, and bond issuance. The clients of these businesses are the publicly listed companies that analysts study. Imagine, when your colleague is striving for a multi-million dollar underwriting contract with Lehman Brothers, you give it a “Sell” rating in your research report, which is like playing with a grenade in your own living room; the consequences include not just losing a huge business but also losing precious “Corporate Access,” preventing you (people from this company) from speaking with the management of this company, thereby completely losing the precious information advantage. This is the prisoner's dilemma; analysts' salaries and career prospects are highly correlated with whether their reports can maintain the relationship between the bank and major clients. Therefore, sell-side reports naturally tend to be optimistic. Data reveals this unspoken rule: according to market statistics, the number of “Buy” or “Strong Buy” recommendations issued by brokers is several times that of “Sell” recommendations. This Big Mo report, rather than being a misjudgment, reflects how this flawed system operates under pressure. You can understand why “Selling” is not as good as “Not writing a report”; those companies that rarely have research reports are the ones investors really need to be cautious about. The report is not the “truth” written for investors, but rather a lubricant serving the relationships of the entire interest community. Its true purpose is to soothe market sentiment, maintain system stability, and pave the way for potential capital. When financial statements become a carefully crafted play, the case of Lehman Brothers serves as a perfect footnote. Just before and after the publication of the Big Mo report, Lehman was massively using an accounting trick called “Repo 105.” This operation allowed Lehman to temporarily “sell” up to $50 billion in assets off its balance sheet at the end of the financial reporting period, making its debt ratio appear far healthier than it actually was. This is like a terminally ill actor taking a high dose of morphine before stepping onto the stage, presenting a radiant false appearance. What analysts received was this false script. When the foundational data for analysis is itself a performance, even the most sophisticated models can only arrive at absurd conclusions. This report, spanning dozens of pages and filled with jargon, serves not to reveal the truth to investors, but to package facts with complexity, creating an illusion of “risk being quantified and controllable” for the market until the black box completely explodes. Just before the crash, Wall Street collectively self-hypnotized. In addition to the dual misjudgments of structure and information, we must also face the most fundamental factor: human nature. No matter how many PhDs one possesses or how much money one manages, the elites on Wall Street are ultimately human, driven by cognitive biases and emotions; in the face of great uncertainty, their “expertise” is not a cure but can become an amplifier of collective errors. In June 2008, the collapse of Bear Stearns Companies was like a sudden earthquake, shaking the foundations of the entire financial zone. At such moments, admitting that another larger giant is also on the brink of collapse is psychologically unbearable. This not only threatens the stability of the entire system but also directly challenges analysts' self-identity as “experts.” Therefore, the conclusion that “Lehman is ready to recover profits” is less a result of analysis than a form of collective psychological comfort and self-hypnosis. Feel free to attach a few psychological terms; confirmation bias makes them more inclined to seek and believe evidence that supports “Lehman can survive”; while herd mentality marginalizes anyone who tries to give contrary advice under peer pressure. The real “advice” for decision-makers in investment is that the history between Morgan Stanley and Lehman Brothers serves as a mirror, reflecting the limitations of all financial analysis. Any research report, regardless of the authority of the institution it comes from, is not an exact reflection of the real world, but a painting drawn by the motives, tools, and biases of the institutional author. As decision-makers, investors, and entrepreneurs, we should not seek a totally trustworthy report, as such reports do not exist. Our task is to learn to interpret the person who writes the report. We need to understand why they write, for whom they write, and whether the environment they are in allows them to analyze the current storm honestly. The essence of financial analysis has never been about the science of numbers, but the art of interests, power, and human nature. Next time you receive a seemingly flawless analysis report, whether in the Crypto Assets market or the stock market, remember that “Overweight” recommendation from summer 2008.