Saturday morning I did a favor for a friend, skimming and critiquing a mediocre fictional political thriller. And then, with a sigh of relief and a sense of anticipation, I entered the complex real world where personal relationships, firm rivalries, government policies, and Armageddon scenarios both took the world’s financial system to the brink and (we trust) saved it from collapse. Andrew Ross Sorkin’s Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System from Crisis—and Themselves (Viking, 2009) tells a story we thought we already knew. It turns out we knew only its public face.
Sorkin, a well-respected reporter for The New York Times, provides background on the main characters in the drama, both people and firms, as they make their entrance and shares the assessments of others when appropriate (some blunter and more profane than others). For instance, Robert Steel, deputy secretary of the Treasury and a Goldman alum, always said to staffers seeking advice on how to deal with their new boss: “One: Hank’s really smart. Really smart. He’s got a photographic memory. Two: He’s an incredibly hard worker, incredibly hard. The hardest you’ll ever meet. And he’ll expect you to work just as hard. Three: Hank has no social EQ [Emotional Quotient], zero, none. Don’t take it personally. He has no clue. He’ll go to the restroom and he’ll only halfway close the door.” (p. 48)
The cast of characters in the crisis, by the way, was large and their relationships incestuous. Rivals lived in the same building and ate at the same restaurant. They both depended on and deeply distrusted one another. Strong banks tried to solidify their positions through cheap, strategic acquisitions; the weak were either in denial or ready to offer themselves up on the takeover altar. Everyone feared Goldman Sachs; many had worked there at some point in their lives. Lurking in the background, threatening to engulf the entire financial system, was AIG.
Early in the crisis, as traders began to hammer away at financial stocks, Dick Fuld, the dysfunctional CEO of Lehman, was quick to blame short sellers for all the woes of his firm. A ban on short selling, he argued, would give Lehman room to breathe, which was all it needed. Fuld was not alone in pointing the finger. John Mack ranted that a raid on Morgan Stanley’s stock was “immoral if not illegal.” (p. 420) His CFO was more Darwinian, describing short sellers as “cold-blooded reptiles [who] eat what’s in front of them.” (p. 421)
Short sellers, of course, didn’t bring down Lehman. The firm was in trouble long before they entered the picture. I didn’t realize, however, how close Lehman came to being rescued and how, despite the best efforts of bleary-eyed Wall Street bankers, the plan was scuttled.
Throughout the cascade of crises, the public and private sectors were in constant communication. Phone call after phone call, meeting after meeting. Although government teams were lean, bankers often moved in hordes. Greg Curl, the chief deal maker at Bank of America and a possible successor to Ken Lewis, brought more than a hundred bankers to New York from Charlotte to work on the Lehman deal. Once that deal was dead, he sent them home, only to need them back some four hours later to look into a deal with Merrill.
Sorkin’s 600-page book is gripping. He fills in a story harrowing in its own right with behind-the-scene details and enough dialogue to make it read like a novel. There are even tidbits of comic relief, such as the disclosure that Hank Paulson’s pension from Goldman Sachs after he turns 65 will be a whopping $10,533 a year. (p. 424)
Too Big to Fail is not a morality tale with heroes and villains; in fact, after countless nights of sleep deprivation everybody becomes grey and haggard. Neither Wall Street nor Washington is glamorous. As I read this book I often thought of John Le Carré.