Crash course

This comprehensive account of what befell the financial system in 2008 is fit for the silver screen.

By
May 21, 2010 22:57
4 minute read.
Too Big to Fail

Too big to fail. (photo credit: Courtesy)

Too Big to Fail
By Andrew Ross Sorkin | Viking | 600 pages | $32.95

He had been there before, thought John Thain, chairman and CEO of Morgan Stanley, as his black GMC Yukon pulled up to the building. On Saturday, September 13, 2008, America’s top bankers crowded into the New York Federal Reserve building. Their task: to save Lehman Brothers and with it the entire US financial system.

In 1998 the “families,” as treasury secretary Hank Paulson called the biggest Wall Street firms, had also been summoned to the Fed to rescue Long Term Capital Management, a hedge fund whose dangerous trades posed systematic risk to the market. Thain had been there. Jamie Dimon, in 1998 a Citigroup executive and in 2008 the chairman of JP Morgan, had been there too.

But there were others who were missing from the meeting. Richard Fuld, CEO of Lehman, had been there in 1998 but was now being asked to stay away. Jimmy Cayne of Bear Stearns was absent, his firm having been sold to JP Morgan in March 2008. The missing “family” members represented the havoc that had played itself out in the American stock market in the spring and summer. For one of the few times in history the fiercely capitalist American financial system was being summoned by the federal government to heal not only its own woes but the woes that might be let loose on America should it fail.

Andrew Ross Sorkin’s Too Big to Fail is one of the few comprehensive accounts of what befell the financial system in 2008. Sorkin is a business reporter and columnist for The New York Times. Normally the business section of the newspaper or the legions of books that appear on the business shelves of book stores do not make for enjoyable reading. There have been exceptions, such as Barbarians at the Gate, Bryan Burrough’s and John Helyar’s 1990 classic about RJR Nabisco, and When Genius Failed by Roger Lowenstein. Following in the footsteps of these fast-paced action-packed narratives, Sorkin weaves a tale fit for the silver screen.

The story begins in March 2008 with the takeover of Bear Stearns, a plucky Wall Street investment bank. Treasury secretary Hank Paulson and Fed Chairman Ben Bernanke had stepped in, ordering the firm to be sold over the weekend, before markets opened on the Monday, so as not to allow the firm’s financial meltdown to spread. As part of this unprecedented federal intrusion into the marketplace, the government had provided JP Morgan with a $29 billion loan to make up for any losses caused in the acquisition. This strange intervention was supposed to be a one time measure, like the efforts to save Chrysler in 1979 through a government loan guarantee. But unlike 1979, the problems of 2008 spread further than one firm.

Although the government pressured Lehman Brothers to make a similar deal, the impulsive CEO Richard Fuld procrastinated. Sorkin describes Fuld as “zealously conducting his jihad against short sellers [investors who bet on a stocks decline]” and ignoring the real problems facing his firm.

Cooler heads attempted to head off the catastrophe. Dimon of JP Morgan tried to “play the role of John Pierpont Morgan, who helped rescue the nation following the Panic of 1907.” He asked the assembled bankers “how many of you would kick in $1 billion to stop Lehman from going down?” Lehman’s executives warned of “Armageddon” if their firm was allowed to fail and others spoke of a “cancer” spreading across the world.

In the end Lehman whined that “nobody’s saving us.” It seems a hutzpa for a CEO and his lieutenants who knowingly led their firm down the risky road of investing in sub-prime mortgages and never bothered to set aside money to pay for potential losses to blame their problems on the lack of government intervention and on “rumors” affecting their stock price. But this is exactly what happened.

The roller-coaster narrative takes the readers from the corridors of power in Washington to the boardrooms of America’s greatest firms. Sorkin is able to provide an exciting story through having conducted more than 500 hours of interviews with 200 individuals who “participated directly in the events surrounding the financial crises.” Readers with only a cursory interest in the world of finance will find this exciting stuff.

The main drawback of Sorkin’s tale is that in his quest to give a fast-paced recreation of the drama he does not provide a larger perspective on what went wrong. There is no discussion of the sub-prime mortgage crisis that helped spawn the problems. There is also no insight into exactly what led to Lehman’s failure or the reason why AIG, an insurance powerhouse, suddenly found itself with no cash on hand just a day after the Lehman bankruptcy.

As Sorkin relates, the story behind the 2008 crises, and our current economic woes, is that “behind every problem lurked another problem.” The author is not only fair to the executives and officials involved, he is sympathetic to many of them. Even Fuld, who has been painted as capricious elsewhere, is seen as a man driven “by an overpowering desire to preserve the firm he loved.” Wall Street bankers, elsewhere seen as greedy, are here painted as men and women who had a great deal of their own money invested in the firms that went belly up.

This book is the best financial reading published in recent years and is sure to remain a benchmark resource on the crises.


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