Too Big To Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves

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Review: Too Big To Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System from Crisis—and Themselves, by Andrew Ross Sorkin

Posted on September 20, 2011 by garfieldbookreview

Andrew Ross Sorkin is one of The New York Times’ chief financial reporters, and he’s written an account of the 2008 crisis in such detail that it often feels like real time. My knowledge of economics comes from a couple graduate-level courses, people I know who work at investment banks and reading books like these (which is to say, I’m a dilettante), but Sorkin’s book felt so insider-y as to beg the question: Does all this really matter? After all, these assholes got what they needed from the government and now it’s back to business as usual. History’s already repeated itself, so what’s the point of recounting this perilous moment in our nation’s history without the benefit of more hindsight? After reading the book’s afterword, I finally understood (sort of) what Sorkin was trying to do, but it shouldn’t have taken me 600 pages to get there.

Too Big To Fail, which is meant to read like a thriller, starts off with the guy we slowly realize is the least-biggest asshole, JP Morgan CEO Jamie Dimon, fretting over the top-secret meeting at the New York Fed to come up with a private-sector solution to save Lehman Brothers before it goes under—which, as we all know, it did, filing for Chapter 11 bankruptcy a few days later. Dimon terrifies his board by proposing worst-case scenarios of Merrill Lynch going down, Morgan Stanley going down, and even the Holy Grail of investment banking, Goldman Sachs, being forced to file. This prospect is supposed to strike fear in the hearts of layreaders, let them know how truly serious this situation was, but we’re to be forgiven for the little tumors of rage that begin sprouting up in our temples—even those of us who supported the bailout at the time and consider ourselves “above” giving in to populist anger. (That said, there’s always been such a patronizing air on the part of finance guys—so few of them are women, of course—that the real reason for the public’s fury at Wall Street is about not much more than bitterness. Hey, these self-made kings can’t help it if they’re smarter and richer than everybody else, and besides, they work hard for their multi-million dollar bonuses and abominable tax loopholes. One thing I’ve come to learn about very high-achieving people is that they almost always believe they work harder than absolutely everybody else, and are therefore entitled to whatever perks come their way. It’s bullshit, of course, but this misconception is built on a fulcrum that certainly won’t be brought down by a mere financial crisis and the failure of a couple of investment banks.)  

But I digress. After Dimon’s prophesy, we move back to March of 2008, when Bear Stearns, the first of the Big Five investment banks to suffer, is faltering. Eventually, the government facilitates JP Morgan’s purchase of Bear for $2 a share, and crisis is staved off for yet another day. Then Fannie Mae and Freddie Mac start running into trouble—trouble that, as much as it pains me to do so, I blame the Clinton Administration for—and the government saves them. Then Lehman happens, and the government doesn’t help, blaming the British government for Lehman’s failed merger with Barclays, and Lehman files for bankruptcy as AIG is fending off bigger and bigger collateral calls and realizes it won’t survive the week unless the taxpayers step in. But being privy to all the behind-the-scenes details—and Sorkin is really an amazingly meticulous reporter—still doesn’t elucidate why Lehman was allowed to collapse and AIG wasn’t. Sorkin tacitly ballyhooes the “Goldman Sachs conspiracy theories”—the idea that Treasury Secretary Henry Paulson, former CEO of Goldman Sachs, chose to let one of his old firm’s biggest competitors fail but saved AIG because the insurance giant owed Goldman many many millions of dollars—but despite all the anecdotes about how tired and despondent Paulson, Timothy Geithner, Ben Bernanke and the whole team were, we aren’t disabused of the conspiracies. There’s no real reason to be. Because Paulson signed an agreement when he became Treasury Secretary stating he wouldn’t do any business relating to Goldman for a whole year? Because he cashed out his Goldman stock before joining the Bush Administration? Because we’re just supposed to take it on faith that Those In Charge did everything they could possibly think of doing to save Lehman? As Matt Taibbi, arguably the best, most honest journalist working today, has repeatedly hammered home, these guys can say they tried everything because nobody except them really knows what that means. Even genuinely smart people who don’t work in finance struggle to comprehend the nature of collateralized debt obligations, credit-default swaps, short selling versus naked short selling and all the other financial tools/tactics that created this crisis in the first place. I’ve heard way too many pompous political science students claiming they “get it” because they Wikipedia’d a few terms to sound smart at parties, but they really don’t. I wonder if the bankers even get it, since their supposed financial brilliance completely blew up in their faces. So of course we’ve got to trust those people who say they can fix the problem, because they were the ones who created the problem in the first place, and hence are the only ones who have the best shot of defining what it is that really happened.

Needless to say, the story doesn’t begin with Bear Stearns but with the slow chipping away at Depression-era banking regulations, with the Clinton Administration’s ill-fated but good-hearted push to expand home ownership, with the proliferation of these too-big-to-fail giants because that’s what will apparently keep America competitive and the Chinese at bay. Sorkin doesn’t do a very good job at painting the big picture. The details of the rescues are fascinating in their own right, yes, but how did things even get to this point? From Sorkin’s book alone, we really have no idea—and we really, really need to know. You can picture Too Big to Fail being passed around on trading floors or among certain sets of curious academically-and-historically-minded Americans, but frankly, the book isn’t written to reach most people. Don’t get me wrong, I’m not implying he should have written a mass-market dumbed-down version of events just so more people would read it, but I am saying Sorkin’s book seems specifically targeted to “insiders.”

And not even political insiders. I was shocked at how briefly Sorkin covered Congressional deliberations over the $700 billion bailout of financial institutions. I suppose, when I picked up this book, that I imagined a longer version of that wonderful New Yorker piece, “Eight Days,” that chronicled the creation and passage of the Troubled Asset Relief Program (TARP) and all the infighting the package engendered. To say Sorkin gives the politicians short shrift is a huge understatement. They barely factor in at all. The focus remains on the CEOs and on Treasury officials, who expect Congress to just pass TARP and let them get on with the business of saving the world. And, of course, there are plenty of quotations from the finance guys implying that Congress just doesn’t understand the seriousness of the issue. Again, we come back to the same old bullshit: These bankers are smarter than everybody else, so we should just trust them—because we have no choice. It really borders on criminal. The book’s scenes involving members of Congress are few, and when they do appear, they include the familiar anecdotes about all the senators gulping in the face of potential apocalypse (oh no, we’ve got to do something or the world will come to an end!), Barney Frank ranting about fat-cat bankers, and John McCain suspending his campaign and how pissed off everybody was about that. An alien descending upon Earth to learn about these foreign creatures would, after reading this book, assume that Congress was not only peripheral, but looked upon with utter contempt by the people who really rule America. And Sorkin misses a grand opportunity to elucidate why this picture is so utterly fucked up.

http://garfieldbookreview.org/2011/09/20/review-too-big-to-fail-the-inside-story-of-how-wall-street-and-washington-fought-to-save-the-financial-system-from-crisis%E2%80%94and-themselves-by-andrew-ross-sorkin/

Wall Street's crisis

Book of revelations

Oct 29th 2009 | from the print edition

Paulson: decisive if not always wiseAP

Too Big To Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves. By Andrew Ross Sorkin. Viking; 624 pages; $32.95. Allen Lane; £14.99. Buy from Amazon.com, Amazon.co.uk

LAST year, as Lehman Brothers tottered, there was briefly hope that Barclays Bank would ride in with an 11th-hour bid. But the British government, fearful of contracting the American cancer, took fright and blocked it, helping to seal the investment bank’s fate. As American officials absorbed the news, an exhausted and exasperated Hank Paulson, the then treasury secretary, muttered that the British had “grin-fucked us.”

Andrew Ross Sorkin’s fly-on-the-wall account of the great panic of 2008 is littered with such colourful anecdotes. It is meticulously researched, drawing on interviews with more than 200 of those who participated directly in the events it covers, including their handwritten notes and tape-recordings of critical meetings. The result is a compelling reconstruction of the drama surrounding the government seizure of Fannie Mae and Freddie Mac, Lehman’s collapse, the rescue of American International Group (AIG), the subsequent market pandemonium and the shoring-up of big banks’ capital with public funds.

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At the centre of the action stands Mr Paulson (when not kneeling to beg congressional leaders to support his bail-out), flanked by the fresh-faced but hard-nosed Tim Geithner, who in 2009 took over as treasury secretary, and the professorial, unflappable Ben Bernanke, chairman of the Federal Reserve. Though prone to dry-heaving when under pressure, and despite being horribly sleep-deprived, Mr Paulson acts decisively, if not always wisely, as he responds to what he calls “an economic 9/11”. The same cannot be said of Christopher Cox, then the dithering head of the Securities and Exchange Commission, the investment banks’ main regulator, which Mr Paulson dismisses as “like the gang that can’t shoot straight.”

As told by Mr Ross Sorkin, a business writer at the New York Times, the policy response was even more seat-of-the-pants than it seemed at the time. The $700 billion figure for the Troubled Asset Relief Programme was plucked from the air, the roughest of guesstimates. Regulators would back a merger one minute, only to cool on it the next for reasons that baffled bankers. The level of government intervention was deeply distasteful to the Republican Mr Paulson. But, as Mr Bernanke tells him: “There are no atheists in foxholes and no ideologues in financial crises.”

This white-knuckle improvisation was evident across Wall Street, too. Pushed to think creatively, a desperate AIG uses bundles of dusty stock certificates from its vaults as collateral for a $14 billion loan from the Federal Reserve. With Morgan Stanley desperate for an investment from Mitsubishi, but markets closed for a holiday, the Japanese firm issues a $9 billion cheque to seal its commitment.

Just as remarkable is the combination of hubris and ineptitude of those running the most troubled firms. Lehman’s boss, Dick Fuld, sacked or sidelined those who gave warning about its dizzying debt levels and dangerous exposure to commercial property. He scuppered a life-saving deal with the South Koreans by barging clumsily into negotiations being run by a key lieutenant, which were delicately poised. AIG’s executives did not know how big the insurer’s balance-sheet hole was, and sometimes did not seem to care.

One of the best sections comes after Lehman’s bankruptcy and AIG’s takeover, as other firms struggle for survival. The remaining standalone investment banks, Morgan Stanley and Goldman Sachs, haemorrhaging cash as clients run for the exit, engage in an increasingly surreal series of mating dances with various commercial banks, before finding temporary salvation by turning themselves into bank holding companies. The book makes clear how close Goldman came to death: if Morgan Stanley went under, its arch-rival was “30 seconds behind”, reckoned its boss, Lloyd Blankfein.

Faced with extinction, these firms tried to change the very rules under which they had thrived for so long. They lobbied successfully for a ban on short-selling. Morgan Stanley’s John Mack hypocritically branded the practice—which his firm had long financed as a prime broker—“immoral if not illegal”. For all the fear, Mr Mack seems to have been exhilarated by the experience of battling to save his firm.

The book has flaws. It sometimes gets carried away with detail. Do we need to know that AIG’s boss was standing in a hallway in boxer shorts when he received an important e-mail? Mr Ross Sorkin is too quick to regurgitate self-serving recollections, such as the sympathy Mr Geithner feels for office workers packed into the Manhattan ferries whom he spots while jogging one morning. The verdict on Mr Fuld, that he was driven not by greed but by “an overpowering desire to preserve the firm he loved”, seems too gentle.

For the most part, though, “Too Big To Fail” is too good to put down. It does not profess to examine every issue exhaustively. It is the story of the actors in the most extraordinary financial spectacle in 80 years, and it is told brilliantly. Other blow-by-blow accounts are in the works. It is hard to imagine them being this riveting.

http://www.economist.com/node/14743362?story_id=14743362

Summary of Too Big to Fail if (SYM == "REV") { document.writeln(""); } else { document.writeln(""); } Reviews for Too Big to Fail if (SYM == "EXC") { document.writeln(""); } else { document.writeln(""); } An Excerpt from Too Big to Fail

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A real-life thriller about the most tumultuous period in America’s financial history by an acclaimed New York Times Reporter

Andrew Ross Sorkin's website

Andrew Ross Sorkin's interview on Charlie Rose

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Andrew Ross Sorkin delivers the first true behind-the-scenes, moment-by-moment account of how the greatest financial crisis since the Great Depression developed into a global tsunami. From inside the corner office at Lehman Brothers to secret meetings in South Korea, and the corridors of Washington, Too Big to Fail is the definitive story of the most powerful men and women in finance and politics grappling with success and failure, ego and greed, and, ultimately, the fate of the world’s economy.

“We’ve got to get some foam down on the runway!” a sleepless Timothy Geithner, the then-president of the Federal Reserve of New York, would tell Henry M. Paulson, the Treasury secretary, about the catastrophic crash the world’s financial system would experience.

Through unprecedented access to the players involved, Too Big to Fail re-creates all the drama and turmoil, revealing neverdisclosed details and elucidating how decisions made on Wall Street over the past decade sowed the seeds of the debacle. This true story is not just a look at banks that were “too big to fail,” it is a real-life thriller with a cast of bold-faced names who themselves thought they were too big to fail.

http://us.penguingroup.com/nf/Book/BookDisplay/0,,9780670021253,00.html