Too Big to Save? How to Fix the U.S. Financial System [Hardcover]

Robert Pozen (Author), Robert J. Shiller (Foreword)

Book Description

ISBN-10: 0470499052 | ISBN-13: 978-0470499054 | Publication Date: November 9, 2009 | Edition: 1

Industry luminary Robert Pozen offers his insights on the future of U.S. finance

The recent credit crisis and the resulting bailout program are unprecedented events in the financial industry. While it's important to understand what got us here, it's even more important to consider how we should get out. While there is little question that immediate action was required to stabilize the situation, it is now time to look for a long-term plan to reform the United States financial industry.

That is where Bob Pozen comes in. Perhaps more than anyone in the industry, Pozen commands the respect and attention of the public and private sector. In this timely guide, he outlines his vision for the new financial future and provides actionable advice along the way. To Pozen, there are four high-priority problems that must be addressed, and this book puts them in perspective

• Analyzes alternative models for government stakes in banks
• Recommends a new board structure for large financial institutions
• Examines the importance of broader Fed jurisdiction over systemic risks
• Proposes a way to revive the securitization of loans

With Too Big to Save, you'll learn the likely future of the finance industry and understand why changes have to be made.

Editorial Reviews

Review

“For the last two years I've been receiving requests -- email and otherwise -- for a readable, educating book on the financial crisis. And while various books on the crisis have had their merits, no one of them has fit that bill. Until now. Robert Pozen's Too Big to Save? How to Fix the U.S. Financial System is the single best source for figuring out what happened. It is the go-to book if you are a non-specialist and want to understand: how credit default swaps work, the significance of Basel II, mark-to-market, how the various Fed bailouts operated, the meaning of the toxic asset plans, and many other matters.”
—Tyler Cowen/ September 2009, http://www.marginalrevolution.com

"Should be required reading on Capitol Hill."
—Kevin Hall, McClatchy Newspapers

"Pozen’s book offers significantly more than a factual recitation of events leading up to and during the credit crisis. Beyond that, it offers a comprehensive framework for analysis and concrete proposals for appropriate regulatory responses. Broadly, Pozen’s aim is not – or not only – to tell the story of the crisis, but rather to analyze how the crisis can illuminate and inform the appropriate relationship between government and financial markets. Pozen describes specific regulatory innovations intended to keep pace with the speed and complexity of financial innovation. He offers, that is, the analysis sorely lacking in more journalistic accounts of the crisis. In that regard, his book is one of the few in the growing literature arising out of the crisis that should inform any serious discussion of new financial regulation."
—Alisa Greenstein, The Hedge Fund Law Report, October 2009

"Pozen seems to be right (or at least in broad agreement with me) the overwhelming majority of the time. And as you can also see, he makes a lot of recommendations, on everything from accounting standards to insurance regulation. Tyler Cowen is quite right to give the book a rave review."
—Felix Salmon, blogs.reuters.com/felix-salmon, November 2009

"This is a book for investors who want to understand the details of our financial landscape, and who also want to consider arguments on restricting mortgage-lending practices, whether financial derivatives and hedge funds should be regulated or the revival of loan securitization, among others." (SmartMoney, November 2009)

“There has not been a more timely and important book written this decade. … In summary, Too Big to Save is comprehensive, rigorous, and descriptive as well as prescriptive. The US economy is too important a global player to be ignored, and Pozen’s analysis in ‘Too Big Too Save’ is too important to not be read. This book is truly a gem and a strongly recommended read.”
—Sean Cameron, The Harvard Law School Forum on Corporate Governance and Financial Regulation ( http://blogs.law.harvard.edu/corpgov , November 2009

“The best finance book I've read so far this year (and I've read a slew of them) is Robert C. Pozen's Too Big to Save? How to Fix the U.S. Financial System. … I can't think of anybody who has covered such a range of issues so efficiently or so well.” (Brad DeLong, ( http://delong.typepad.com, November 2009

"TOO BIG TO SAVE? asks and answers the questions weighing on every American's mind...a highly readable and well-paced narrative...a valuable guide to a wide audience of readers, from American voters who felt disenfranchised by the events of September 2008 and are looking for an accessible resource to further inform their perspective, to professionals who seek a single source for an engaging account of the crisis and its implications for businesses today and tomorrow."
—Elizabeth Leonard, Forbes.com, December 2009

"University economists are already teaching courses on the history of the financial crisis of 2008 and the policy responses that followed. Robert Pozen's new book could become required reading."
—Ross Kerber, Reuters, December 2009

"To command the weary reviewer’s attention, any new book on the aberrations of the financial community has to have a clear focus and make a compelling case. In Too Big To Save? Robert Pozen, chairman of mutual fund group MFS Investment Management and a former vice-chairman of Fidelity Investments, pulls off the trick. … The story of excessive risk-taking and leverage is lucidly told and accessible to the layman, with good explanations of securitisation, toxic structured products and the global dimension of the crisis. The policy recommendations are thoughtful and mostly full of good sense."
— John Plender, Financial Times, February 2010

"The first thing one can see from the book is how much of a genius Robert Pozen is. He has a clear grasp on many complex issues facing the US and world economy. Too Big to Save? is probably the best book about financial reform written so far."
—Jacob Wolinksy, GuruFocus.com, February 2010

"... thorough, intelligent and straightforward ..."
—Jim McTague, Barron's, March 2010

"While there are many books on the financial crisis, too many of them say too much about what went wrong and not enough about how to fix the problem. Bob Pozen's book Too Big to Save? (Wiley, 2009) breaks the mold. It not only analyzes the causes of the crisis with uncommon clarity, but also supplies a compelling road map for reform."
—Stephen J. Hadley, Harvard Business Review, March 2010

"If you’re only going to read one book on the financial crisis, this should be the one."
— Matthew Rees, The American, May 2010

From the Inside Flap

Mortgage defaults, together with excessivedebt and weak regulation, ultimately led to a major financial crisis in the United States in 2008. But how exactly did a steep drop in U.S. housing prices result in a severe financial crisis throughout the world? What did the U.S. government do right and what did it do wrong in responding to this financial crisis? And perhaps most importantly, what actions should be taken in the future to resolve this financial crisis and help prevent others from happening? In Too Big to Save?, Robert Pozen answers these and other key questions as he presents his vision for repairing the U.S. financial system.

Each chapter of this timely book analyzes the impact of the financial crisis on a major part of the U.S. financial system. Pozen first explains the globalization of the financial crisis through the sale of mortgagebacked securities around the world. He suggests how the securitization process should be reformed, including new approaches to credit rating agencies and credit default swaps.

Second, he assesses the impact of the financial crisis on the stock and bond markets. He criticizes the broad government guarantees of bank debt and money market funds, and calls for reinstating the incentives for large debt holders to scrutinize the condition of financial institutions.

Third, he evaluates the federal bailout of financial institutions by buying their stock and toxic assets. He shows how these bailouts constitute "one-way capitalism" whereby taxpayers bear most of the losses but stand to receive little of any potential gains.

Finally, he outlines what can and cannot be achieved realistically through international financial cooperation. For the United States, he proposes a concrete plan to address risks to the entire financial system and strengthen the functional regulation of each segment of the financial services industry.

Too Big to Save? will give you a sound framework to analyze the daily barrage of information about the financial crisis. It offers a blueprint for restoring the financial system without repeating the mistakes of the past.

See all Editorial Reviews

Product Details

• Hardcover: 480 pages
• Publisher: Wiley; 1 edition (November 9, 2009)
• Language: English
• ISBN-10: 0470499052
• ISBN-13: 978-0470499054
• Product Dimensions: 9.3 x 6.6 x 1.5 inches
• Shipping Weight: 1.3 pounds (View shipping rates and policies)
• Average Customer Review: 4.7 out of 5 stars  See all reviews (26 customer reviews)
• Amazon Best Sellers Rank: #539,362 in Books (See Top 100 in Books)

More About the Author

Robert Pozen is Chairman Emeritus of MFS Investment Management, the oldest mutual fund company in the United States, and a senior lecturer at Harvard Business School. He previously was Vice-Chair of Fidelity Investments. He has published numerous articles in the Wall Street Journal, the New York Times, and the London Financial Times. He has served in senior positions at public entities such as the SEC and the State of Massachusetts. He was a member of the President's Commission to Strengthen Social Security, and Chairman of the SEC's Advisory Committee on Financial reporting.

Customer Reviews

Most Helpful Customer Reviews

18 of 20 people found the following review helpful:

5.0 out of 5 stars The Most Important Book on Financial Reform: A Must Read, November 9, 2009

By 

Sean Cameron "Sean Cameron" (New York, NY) - See all my reviews
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This review is from: Too Big to Save? How to Fix the U.S. Financial System (Hardcover)

Bob Pozen's book, "Too Big to Save: How to Fix the US Financial System" is the most important books on financial reform written to date. The book not only provides an overview of how the US economy entered into a deep recession, but also a comprehensive plan for reform and a return to growth. Filled with original insight, the book clearly explains the failure of our modern capitalist society that has morphed into one-way capitalism that penalizes taxpayers who do not participate in upside gains but are exposed to losses from bailed out financial institutions. The book offers pragmatic advice for policymakers and important guidelines for all readers to understand the nature, causes, and appropriate reforms associated with the current US financial crisis. There has not been a more timely and important book written this decade.

Furthermore, Bob Pozen approaches each potential idea of reform with a well-reasoned perspective on the legal, economic, political, ethical and cultural implications of such reform. Pozen has a unique ability to describe complex phenomona such as the housing boom and bust and explosive growth in the use and complexity of financial derivatives with ease. His grasp of the complex issues is second to none, and his ability to convey these complex ideas in easily understandable, succinct prose is remarkable. Pozen's suggestions for reform - including reducing moral hazard problems, strengthening boards, and improving the regulatory system - present feasible, necessary steps that policymakers must head to improve financial markets and the real economy.

"Too Big to Save" is comprehensive, rigorous, and not only descriptive but also prescriptive. The US economy is too important a global player to be ignored, and Pozen's analysis in "Too Big Too Save" is too important to not be read. This book is truly a gem and a strongly recommended read.

12 of 13 people found the following review helpful:

5.0 out of 5 stars Back to School, January 24, 2010

By 

M. Mirsky - See all my reviews
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This review is from: Too Big to Save? How to Fix the U.S. Financial System (Hardcover)

Robert Pozen's "Too Big to Save?" has already received a number of enthusiastic notices on Amazon's pages by readers who know a lot more about economics than I do. And due disclosure mandates that I state that I am related to the author--but both of these disclaimers are in fact recommendations. Like most members of the general public I depend on newspapers for knowledge about topics I don't read in any depth about--I am a novelist and a professor of English, writing at times about architecture, literature, or Biblical scholarship. I have a bank account, some stocks, a few bonds, and in the present recession realized that I could neither trust the media or conventional wisdom to guide my own finances, let alone the choices being made by elected and appointed government officials. In the quickly moving present crisis, every book on the past is almost immediately outdated, but what struck me in the past weeks reading "Too Big to Save?" is how current it is about what is playing out in the headlines right now, and perhaps a few steps ahead. Just how the crisis at AIG came about, how many mistakes were made in its resolution, why Ben Bernanke's present disclaimers ring hollow, and the complications of Executive Pay issues, are not adequately put into context in a narrow column of the New York Times, and certainly not on Web news sites. Robert Pozen's analysis of the crisis however, gives one a shrewd seat at the table of the insiders and makes one boil at the sheer arrogance and bone-headedness of the club that helped cause this crisis. A dozen friends have hammered at me that the dollar is on the way out and that the Euro and the Yen, and China, are the future, but the last chapter of "Too Big to Save?" calls that into question, based on hard statistics. I know Robert Pozen's reputation as a quiet and skilled negotiator whose experience as an Associate General Counsel at The S.E.C, a former president of Fidelity Investments, and his present position as Chairman of MFS Investments, gives him a perspective on the broader outlines of American financial regulation. What brought me up short in "Too Big to Save?" was the depth of anger implicit in its pages, an anger that many of us feel, shocked and outraged by the cavalier attitude of economists who were the beneficiaries of media platitudes and politicians of both parties who simply caved in to Wall Street wishes. Take the following biting quote on the credit default swaps that brought on the collapse:

"The value of such multilayer products depended on the actual payment record of the mortgage pools underlying the tranches of mortgage backed securities, because that record measured the default risk that was being insured against by the CDs. However, debt securities based on CDS were several steps removed from the actual mortgages. When these mortgages were subprime loans of dubious quality, the layering helped to obscure the weak foundation of these products. Steve Eisman, a professional investor, characterized the trances of such multilayer products as 'the equivalent of three levels of dog [feces] lower than the original bonds.'"

Such language speaks to the outrage, let alone the mea culpa, we should be hearing from Republicans and Democrats. Politicians on both sides of the divide share the responsibility for what happened. "Too Big to Save?" speaks the kind of straight talk that instantly evokes confidence, a confidence sadly lacking in politics today. One reader on Amazon called the book a college course, and perhaps it is, a rigorous one for the neophyte in American economics. It was not a field of study I was attracted to as an undergraduate, and the irony seems to be that any number of professors of economics forgot what Robert Pozen presents as its basics, but sometimes it's necessary for many of us to go back to school
"Too Big to Save?" is not interested in simply apportioning blame. The power of the book is not only its analysis of just what went wrong, the drama of hubris with which the author indicts the last and present generation of experts with sharp and pithy quotes that enliven the narrative, but in proposing solutions. I don't agree with every last one of the latter, but I can't see considering any others without first correcting what Robert Pozen has identified as obviously and dangerously wrong.
To address specifics though--I'll quote a passages which speak volumes in a chapter about derivatives. "Too Big to Save?" is tracing the attempts of the chair of the Commodities Futures Trading Commission to rein in speculation:

"Brooksly Born, the CFTC chair in 1998, became concerned about this regulatory void in light of the huge growth in swaps contracts and other types of privately negotiated derivatives. But her views were curtly dismissed by then Federal Reserve Chair as well as then SEC Chair Arthur Levitt and then Treasury Secretary Robert Rubin. As Michael Greenburger a senior CFTC offical at the time, explained, 'Greenspan told Brooksly that she essentially did not know what she was doing and she'd cause a financial crisis. Brooksly was this woman who was not playing tennis with these guys and not having lunch with these guys. There was a little bit of the feeling that this woman was not of Wall Street.'
"On May 7, 1998 the CFTC issued a concept release raising questions about whether certain types of OTC derivatives should be regulated. Although the release did not actually propose any rules, it was met on the same day with a highly unusual joint statement by Greenspan, Levitt, and Rubin expressing 'grave concerns' about the release and its possible consequences. On June 5, 1998 the trio publicly called on Congress to to prevent the CFTC from acting in this area until other senior regulators developed their own recommendations. On July 30, 1998 the Senate Agriculture Committee held a hearing to extract a promise from Born to cease her efforts to regulate OTC derivatives. If not the Committee threatened to impose a moratorium on further CFTC actions. When Born defended the need for CFTC regulation, Greenspan responded with ideological fervor. 'Regulation of derivatives transactions that are privately negotiated by professionals is unnecessary... Regulation that serves no useful purpose hinders the efficiency of markets to enlarge standards of living...' Though unheeded at the time, Born's foresight was recognized a decade later; in 2009 she received the John F. Kennedy Profiles in Courage Award."

I've told my children and my friends--you have to read this book. I've sent out snippets of paragraphs to them--on hedge funds, derivatives, credit swaps, the instruments that I never busied myself to understand, foolishly thinking that the banks and their whiz kids did. Those who closely follow financial markets may know much of what the book details but "Too Big to Save?" is required homework for the rest of us who vote, invest, own a house, or want to pick a way through the rhetoric to understand who is responsible and what can be done to safeguard our finances.

11 of 13 people found the following review helpful:

5.0 out of 5 stars Interesting and insightful, November 9, 2009

By 

Kathleen Miskiewicz - See all my reviews
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This review is from: Too Big to Save? How to Fix the U.S. Financial System (Hardcover)

Too Big to Save is a clear and straightforward account of the financial crisis in 2008 and 2009. As Pozen states, the book is aimed at intelligent readers, who are not financial experts. The book sets out to answer three key questions: How exactly did a steep drop in U.S. housing prices result in a severe financial crisis throughout the world? What did the U.S. government do right and what did it do wrong in responding to the financial crisis? What actions should be taken in the future to resolve this financial crisis and prevent others from happening?

Pozen accomplishes these goals. The book is easy to read and not only synthesizes the background and history of elements of the financial system (for example, of Fannie Mae and Freddie Mac, of credit default swaps, and of the 2008 Bailout Act), but goes much further. It includes detailed analysis and critique, and concrete policy proposals. Pozen explains complex concepts in a clear and understandable manner. The book is insightful and accomplished. The book also contains a helpful glossary.