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¶ … Big to Fail by Andrew Ross Sorkin
Andrew Ross Sorkin's book Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System -- and Themselves (Viking, 2009) presents a dramatic and informative account of the disastrous collapse of some of the nation's largest, wealthiest, and oldest financial firms on Wall Street. The book details the complex negotiations involving the heads of Lehman Brothers, Goldman Sachs, and officials in the federal government, some of whom had long previous relationships with those firms before assuming public-sector positions of trust. In some respects, that aspect of the story told by Sorkin may be the most significant as well as the least thoroughly investigated.
Specifically, U.S. Treasury Secretary at the time was Henry "Hank" Paulson, previously the CEO at Goldman Sachs was legally obligated to limit any involvement with his old firm after taking office in Washington. Without actually stating it, Sorkin seems to all but suggest that Paulson may have violated at least the spirit and perhaps the letter of that understanding. Referring to the plight of Lehman Brothers CEO Richard Fuld, Sorkin writes:
"Richard Fuld, as tightly wound as ever, was raging in his office on...
Lehman Brothers' stock had opened down 12%, to an eight-year low, in response to a rumor that the Pacific Investment Management Company, the world's biggest bond fund, had stopped trading with the firm. Speculation also was swirling that SAC Capital
Advisors, Steven A. Cohen's hedge fund, was also no longer trading with Lehman.
"You've got to call these guys and get them to put out a statement," Mr. Fuld
said…The constant stream of bad news was hampering Mr. Fuld's efforts to raise more capital. He and his investment banking team had been reaching out to at least a dozen prospects -- Royal Bank of Canada, HSBC and General Electric
among them -- but was coming up empty. Increasingly desperate that morning
"I feel like I'm playing Whack-a-Mole," he complained to his peers -- Mr. Fuld
decided to call his old friend John Mack, the chief executive at Morgan Stanley,
the second-largest investment bank after Goldman Sachs."
Later, writing about a meeting of all the principals at Mack's mansion in Rye, New York, Sorkin continues:
"In the middle of the conversation, Mr. Fuld's cellphone rang, and to…
Mr. Taubman had other worries. Maybe they were being used to help Lehman goose its stock price? "If I were their guys, I'd want to put my own spin on this."
In combination, those passages (and other hints throughout the book) leave wide open the question about whether or to what degree the Treasury Secretary honored his legal obligation.
If there is a weakness to Sorkin's work, it might be that it fails to provide a more detailed explanation of the underlying problems throughout the financial derivatives market that gave rise to the problems responsible for Lehman's and Goldman Sach's and AIG's predicaments. By contrast, Michael Lewis's The Big Short: Inside the Doomsday Machine (W.W. Norton, 2010) and Moneyball: The Art of Winning an Unfair Game (W.W. Norton, 2011) both do a better job of explaining how mechanisms devised in those firms (such as so-called "credit default swaps") that were designed very specifically to circumvent regulatory policies prohibiting taking out insurance on certain kinds of investment outcome losses (Lewis, 2010; 2011). It was precisely those decisions that laid the groundwork for the risk environment exploited by Goldman Sachs and AIG that ultimately triggered their collapse and that almost took down the entire American economy when the housing bubble burst, virtually instantaneously obligating the issuers of those non-insurance types of insurance policies against the drop in mortgage derivatives to make good on those agreements (Lewis, 2010; 2011). While Sorkin presents a dramatic look into the interpersonal exchanges and relationships at the center of the circumstances leading up to the infamous Wall Street bailout, works such as those by Lewis do a better of job helping lay readers actually understand how those events actually occurred.
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