on June 4, 2011
The problem with this book is not just that the author makes virtually no effort to explain why the whole financial system would have collapsed in 2008 absent huge taxpayer bailouts, other than in a few sentences in an epilogue. The problem is that throughout the book he uncritically channels the explanations for the collapse provided by the titans of Wall Street. The CEOs blame the government, the profit-seeking hedge funds and the shorts, never themselves. They come up with ludicrous justifications for billions in salaries and bonuses that fund their lavish lifestyles. You can almost hear Sorkin's pain when he describes how much the net worth of the Lehman CEO, Dick Fuld, declined, and how he has to consider selling his wife's art collection. The fact that he had redeemed hundreds of millions worth of stock ($482 million according to Fortune magazine) as his company was disintegrating around him barely gets mentioned. The accounting tricks used to prop up these paragons both to take their toxic assets temporarily off the books and to underreport the real compensation to executives go unmentioned. After reading this you also wonder what it is that these people actually do to earn these billions. Sorkin uncritically says that this money is necessary to "retain the talent." But Bank of America decided to pay $38 billion for Merrill Lynch after doing due diligence for a total of two days. Was this actually a demonstration of "talent"? The only sense you get of these people is that they're all scrappy testosterone-filled climbers from disadvantaged backgrounds who still feel a deep need to prove themselves and who also want to belong to an all-male club. Government regulators also belong to the same club; any of these CEOs can get any government official they want on the phone within a few minutes. Virtually every quote from a CEO has the "f" word somewhere in it, and women are persona non grata except for wallflower wives, who are either crying at some decision by their husbands that turns out to be brilliant (p. 40, 171), or are waiting patiently at home to stroke their egos. The two women who have anything to do with this story, Erin Callan, the Lehman CFO, and Sheila Bair, the FDIC Chairwoman, are disparaged in the meanest possible terms. Callan was a "diversity hire" (p. 112) whom Sorkin further maligns by repeating unsubstantiated rumors that she slept her way to the top. (p. 120). She "knew precious little" about her subject matter and "had no background in accounting whatsoever." (p. 29). A tax lawyer, with no background in accounting? Sure. She's ridiculed for having a framed cover story from a Conde Nast magazine on her wall; so she's also vain. Bair is similarly ridiculed as a "showboat," a "grandstander," and, worst of all in this all-male club, "not a team player." Sorkin is a talented writer, but New York Times reporters should do better than serve as propaganda mouthpieces for the ruling class that has fooled so many of us and stolen so many of our resources.
on December 1, 2009
The book details the events, the people and the conversations that roiled the banks in 2008. The book does not really discuss why the events happened. If you're looking to understand why these banks fell, this is not the book to read.
The book is very readable and even at 539 pages, a person can finish it quickly. Another plus is that unlike most NY Times reporters, the author keeps most of his opinions out of the story until the last 2 pages.
His opinions are:
The government allowing Lehman to go into bankruptcy was the catalyst that caused the floodgates to open. This is probably why he spends a lot of the book developing the Lehman story.
He's ambivalent about whether the government players could have prevented the collapse of the banks or even if they did the right things when they did act. But he's quite clear that more banking regulation was needed then and is needed now.
One can disagree with his opinions, but he does well to leave most of them till the end of the book.
A few criticisms:
As mentioned, he does not discuss why exactly these events happened. In the epilogue, he briefly mentions 4 events that percolated over 10 years that conspired to cause the perfect storm in 2008. But he could have spent a chapter (prologue) describing these events and how they conspired to cause the problem. Apparently he's not a banker or an academic, so maybe he didn't feel qualified to do this.
Second criticism: In a few places prior to his epilogue, he lets us know his (negative) opinion of some players. It's obvious his disdain for Chris Cox and Sheila Bair. But he's particularly vitriolic towards the Wall Street Journal editorial page. I thought that as a chronicler, the author should have omitted his opinions of these people/institutions. Except for these incidents, he does largely keeps his opinions out of the manuscript until the last few pages.
Overall, a quick read that details the players and the chronology of events. If all you need is to understand the crisis, then this book should suffice.
on November 18, 2009
This is an excellent book that reads like something that Dan Brown might have written. But its real. The part that amazed me was the level of detail Sorkin was able to get about behind the scenes conversations that took place. Stuff about how people such as Dick Fuld of Lehman reacted to the problems when it was becoming clear that the company was going down and he was in denial. How Paulson was reacting to things when there were no rules about what to do.
But probably the most interesting parts were how the different personalities were reacting while the ground was shifting under them. At the peak, many of the people involved were literally working 24 hours a day highlighted by a phone call made to Vikram Pandit, CEO of Citibank at 3 am telling how a deal he made at midnight for Wachovia had instead been trumped by another and that that deal had already been signed and blessed by the government. How major decisions were being made on the run and how solid institutions became institutions on the brink in a matter of hours.
The book also explains how companies like Barclays and China Investment Corporation were working behind the scenes as well how Paulson, Geithener and others in the government were scrambling to keep things from collapsing. There is a lot of Monday Morning Quarterbacking going on and some of the things these people did may not have been the best, but they pulled it off and we should all be grateful.
But there some bad guys, namely the short sellers and as usual some in congress. The book makes clear that out of control short selling added fuel to the flames that were occurring and that when we were facing this emergency some members of Congress were focused on their own butt instead of doing what was needed.
There is a huge cast in this book and its is sometimes hard to keep the people and their roles straight, but make the effort. You will be rewarded.
on December 31, 2009
Sorkin has done an admirable job of compiling a sort of play-by-play history of the recent financial crisis. He has interviewed all the key people and gives the reader a sense of how quickly events were taking place and how decision makers formulated policy as best they could in adverse circumstances.
However, the book is sorely lacking in any deep analytical insight and reads like a gossipy People Magazine version of the crisis...i.e., Dick Fuld telling his wife that "It's really over" as his eyes welled up with tears, or decriptions of tired investment bankers racing downtown to the Fed on only four hours of sleep. Relevant questions that are left unanswered might have been the following: What lead to the crisis? What does it mean to have a financial industry dominated by institutions that are "Too Big to Fail"? Should the financial industry be able to support the failure of a major institution without needing government intervention? Should the banks now be dismantled? Addressing these questions is clearly not the intention of Sorkin's book, but still, some analysis of the events would have made his book much more than a simple chronology of the daily movements of the key actors in the crisis.
Furthermore, even though the book is focused on the daily events, it is often confusing exactly what date in history to which Sorkin is referring and what the financial markets or a specific company's stock was trading on at that time. It makes me think that he is a bit too detached from the financial markets to have a good understanding of some the events that were taking place.
The book is also littered with both spelling and factual mistakes, which makes me think that Sorkin cranked out the book in not more than a thirty day stretch. Here is a sample of some obvious miskates that at least a copy editor should have caught: On page 70, "price" is spelled "pricve"; Page 310 reads "they need o be prepared"; and perhaps most embarrasing, page 85 reads "Alan Greenspan, who was to fiscal policy what Warren Buffett was to investing..." Greenspan, as Chairman of the Federal Reserve, was responsible for setting monetary policy, not fiscal policy, as the latter (tax policy and government spending) is determined by Congress. Also Buffett is still currently investing so it should probably be written as "is to investing."
In sum, its a rather disappointing book that, despite the catchy title, will probably add little value to one'e understanding of the crisis. However, if you happen to be on a beach and have just drank three cocktails, it might be just the book you're looking for.
on October 30, 2009
After reading two other well-publicized books on the real estate bubble and following market crash, I felt like I had been had. One book, primarily about Lehman, was shallow and written by an egotistical prima donna. The other was too technical and appeared to not have been edited well.
This book was written by a finanial author and is fair, thorough, and puts everything in perspective. It is well-written and flows for an easy read.
If you have any interest in financial history, this book belongs on your shelf along with other classics like When Genius Failed, Barbarians at the Gate, and the Smartest Guys in the Room. Ignore the poor ratings by those who were disappointed in the Kindle price. That is another issue.
on June 10, 2011
Sorkin wrote probably the definitive chronology of the financial crisis. He has unparalleled high-level connections, and he uses those connections to construct a pretty tight narrative of the events leading up to the market's collapse following the Lehman failure, and the immediate aftermath. He's not only good at finding sources, he's also great at writing a story in an accessible, clear and page-turning way.
So why only three stars?
Well, frankly, because Sorkin is clueless as to the mechanics of the topic he's writing about. He has an extremely limited understanding of economics and finance, and doesn't really understand what his sources tell him. So he parrots their words without evaluating anything, and you never really understand why things happened the way he did. For instance, he knew that Lehman was next to go after Bear was bought, and that Lehman's collapse meant Merrill would be next. Was that true? Sure. But he has no clue why it was true. The fact of the matter is that Lehman probably had a sounder balance sheet than Merrill (of course, that's all relative; both were plenty rotten), and Citi's might have been the worst of all (as of this writing, in June 2011, they still may well be insolvent). So why did Lehman go while Merrill was bought? The answer (which Sorkin doesn't understand) was image (differentiating Lehman from Merrill) and liquidity (differentiating both from Citi). There was a buyer for Merrill and not for Lehman simply because Bank of America's CEO (Ken Lewis) coveted Merrill's retail brokerage business. Lehman probably had a better balance sheet, but had less brand recognition (the average American probably at least recognized the Merrill name and logo; not so for Lehman). As a result, Merrill was bought and Lehman died. Citi, meanwhile, was kept alive by 1) its access to the Fed's discount window, and 2) the ready source of liquidity it had from FDIC-insured deposits in its commercial banking arm. Not to mention the government couldn't really afford to let a bank with over $2 trillion in assets and thousands of counterparties to go under without the entire banking system, if not the world economy, collapsing. But Sorkin doesn't mention these problems because, frankly, he doesn't understand the basics enough to get to them (and these aren't really complicated concepts; anyone with an introductory finance course and intermediate macro from any undergraduate institution can get them perfectly easily).
But there aren't just errors of omission-- there are also errors of commission. Sorkin gets some details laughably wrong, as when he says that Treasury Bills yielding next to nothing reflects a drop in faith in the government. That is a failure so basic no high schooler should make it, much less a "respected" financial journalist. A low yield on Treasuries indicates HIGH, not low, demand for the product. The same way that a more credit-worthy borrower can get a lower rate on her mortgage than one who's been in and out of bankruptcy. The reason for that drop in interest rates is the simple fact that, during the panic after Lehman's collapse, investors got out of private sector stocks and bonds and moved into Treasuries, indicating a relative preference for government debt over private debt. But Sorkin's bungling of this issue is inexcusable (and copy editors' failure to catch it might be worse...).
Read this book for the narrative, but don't go beyond what his sources say, or you'll just find yourself badly misinformed and confused.
on July 7, 2011
I was sucked into buying this book after seeing the movie (Too Big To Fail) on HBO. The movie was interesting, and sparked my interest a bit in learning more about the financial crisis of 2008. I didn't quite connect all the dots in the movie, so I was hoping that the book would. I was wrong.
I'm going to be completely honest here, I'm only about halfway through this book, but I'm not sure I'll make it to the end. Like a lot of other reviewers have noted, it does a tremendous job building drama, but that is all it does. There is no insight, no analysis, no explanations, even on a basic level. I don't expect the author to give me the ins and outs of what a credit default swap or a mortgage backed security is. But SOME encyclopedia version, even in the form of a footnote, would really keep this book a bit more interesting. Lets start with what exactly an investment bank does, or how it does it? There has been much talk about "raising capital" so far. I know, capital is basically money or property (assets), but there is never an explanation of how this is done? Selling stocks, borrowing money, finding a bag of gold at the end of a rainbow? The way he talks about it, this "capital" just seems to materialize out of thin air. I'm at a point in the book where JP Morgan has asked Lehman Brothers for $5 billion in capital, possibly more, as collateral. As far as I know, they're competitors? Why would they need this? How would this be achieved? Instead of taking a paragraph to explain this, he takes a couple paragraphs to convey how terrified and unbelieveable and how emotional this was for the executives who just receieved the phone call with the demand.
It seems as though Sorkin has done some phenomenal research, but wrote this like he wanted it made into a movie, not a serious explanation of what actually happened. Oh, and on another side note, he jumps between timelines so often, I rarely know what month it is, and often question what year it is. This could have simply been resolved by putting more dates as headers for sections. Also, Sorkin throws about 1000000000 different names at the reader every page. Certain names are memorable and seen throughout the book, but then he'll start throwing out other names that were maybe mentioned once 200 pages before, and now we're expected to know who this is.
Obviously well researched, but it just falls flat and reads like a transcription of a video as opposed to an account of what actually happened, or why. Lots of great ingredients in this book, but there is no recipe to bring it all together.
on December 8, 2009
You will like this book if:
(1) You quickly grab the magazine People out of a stack that includes the WSJ and Economist.
(2) You like the way children's books have a purely linear plot trajectory without the bothersome nuance or multilayers of say an Iago character.
(3) You really think that despite the press reporting that the little time left in W's administration made it impossible for Paulson to accomplish much as Treasury Secretary (2006 to the end), Paulson took up the challenge of doing something big (see pg. 43 "Nothing could have played more effectively to his [Paulson's] immediate sense of buyer's remorse [on becoming Treasury Sec.]--and motivate him to overcome the challenge."). Really? Paulson decided "I'll show 'em" and set in motion the financial collapse? That isn't even what the author intended but that is what the page says.
I actually really expected and wanted to like this book. I was shocked at how bad it was. It is obvious the author is more interested in political connections and market timing of the book than actual reporting (with Fuld as the primary source).
Maybe the mystery of complex derivatives clouds what's wrong with this book, so here is a simple thought experiment that explains it. Imagine you wanted to learn about the Exxon Valdez oil spill in Prince William Sound in 1989. You pick up a book written by a reporter for the New York Times who interviewed everyone involved in the spill. You have the following basic questions: Was Prince William Sound ecologically pristine or already spoiled prior to the spill? Was Prince William Sound considered a tricky run for tankers? What actions did the captain of the Valdez take immediately before it ran aground? Did Exxon prepare a risk assessment for this run? Did Exxon discuss double-hulled tankers specifically for this run to prevent oil spills? Did BP, Shell, or Chevron run tankers through this same run without incident? Is there a company that has always avoided spills?
Sticking with this thought experiment, about fifty pages into the book you realize the author has passed by these basic questions. Instead, the book merely interlaces into the post-spill chronology trivial facts such as: what the lighthouse officer who took the emergency call from the Valdez ate the night before the spill, what the captain of the Valdez claimed was the biggest marlin he caught off the coast of South America, or what the Exxon executive who was sent to Alaska to manage PR said he shot in 18 holes of golf at Torrey Pines the day before the spill (there is about 1 per page in "Too Big to Fail"). The book then spends its remaining pages on this linear post-spill chronology of Exxon officers meeting with government officials. These conversations focus on how best to clean up the spilled oil. An epilogue does gloss over, untied to any actual reporting, what might have contributed to the spill. You are left wondering why you bothered to read the book.
With so much media glittering about, and much of it worth paying attention to, it stinks to get fooled by poor quality media. The lesson is that nonfiction books in print for only a few months are rarely harshly reviewed. A hopeful note is that these Amazon customer reviews of Dan Brown's latest fiction did seem to outpace any planted 5-star reviews. And a New York Times op-ed contributor wasn't afraid to hammer Brown on that book in the Book Review. But it is less likely to occur with nonfiction. If you are still reading these comments, I hope you save yourself from reading "Too Big to Fail" because it makes no attempt to analyze: What caused this financial crisis? What actions did these CEOs take before the crisis? How extraordinary were these responses to the crisis and how did they diverge from prior responses? Can future crises be avoided? What was different about JP Morgan, Chase, and Co.?
Seriously, how hard would it be for a financial reporter to sit down with the financial records of all the major banks and investment banks and put together a mortgage-backed derivatives exposure graph for each company that shows where JP diverged? The post-crisis stock values of JP (JPM) and Citi (C) suggest this information is available in the public domain. Thus, the only plausible explanation for why the book avoids these questions is the author's lack of financial acumen. In view of this problem, the People magazine style reveals itself to be not just expedient but obligatory.
The resulting storyline is simply, "Paulson said 'we are going to do...' and then the CEO responded '...'" without the context of: What caused the crisis?; How extraordinary was that response by Paulson in the context of prior crises?; Is Paulson's response likely to be successful 5 years from now?; Is another crisis likely? Without any effort to analyze these larger and more basic questions, the storyline is indistinguishable from a children's book.
The lack of reporting in "Too Big to Fail" mirrors the lack of real worth in the pure arbitrage of mortgages. I defy anyone to post something they read in this book that was new information that changed their view of the cause of this financial crisis. Assuming no one is able to cite anything new, defenders of the book are left to claim it as a behind the scenes account of the events. How useful is that information when the important question is why some financial institutions were deemed in late 2008 too big to fail? I don't think a behind the scenes storyline adds anything to the larger and more basic question of what exactly makes an institution too big to fail.
Maybe it is asking too much, but could a reporter with good sources and good analysis of empirical data show mathematically what line exactly in the sand Paulson and Bernanke committed our financial system to uphold as too big to fail? Then, using that mathematical model the even more interesting question becomes: would any Great Depression era financial institutions even have been deemed that big, ie, too big to fail, had Paulson and Bernanke applied that mathematical formula to the Great Depression? Restated, does the present top-heavy nature of our financial institutions (which might be even more pronounced than during the Great Depression) make the system indistinguishable from a state-run system and mean too big to fail is with us for good and antitrust laws should break up these institutions, or does the empirical analysis reveal something else? Those are the questions that I hoped a New York Times reporter would dig into, but the gulf between this book and those questions is: too big to describe.
A final thought, did anyone ever suggest to Paulson or Bernanke a less than dollar for dollar bailout -- the recent Greek "haircut" bailout showed how this could be used, but why didn't Sorkin devote even a page to this question?
on February 21, 2011
This book is mislabeled. It should be "Too Big to Read." Andrew Ross Sorkin obviously did extensive research before setting this book to print. He is an excellent writer as well. The problem with this tome, it my opinion, is that it didn't really leave me with the impression as to what really caused the financial melt-down on Wall Street. Lehman Brothers was allowed to fail, and other investment banks were not. I don't think 539 pages are required to tell this story. It was too much of what happened, as to why it happened.
on February 1, 2010
This is Woodward-style reporting that re-creates dialogue verbatim, skims along the surface of events, and yet virtually never addresses what it means, how we got here, and where we should go from here. Rather than any depth of inquiry, what the reader gets is descriptions of the maneuverings of extremely arrogant and rich men as if they were celebrities in show business. Moreover, the book largely assumes that the reader understands the mechanisms of banks, the FED, the FDIC, the SEC, and the Dept. of Treasury. At least for me, this reflects a pathetic lack of intelligence and nerve that hides behind journalistic artifice. It is a superficial, timid, and insider view of one of the most colossal failures in both business and policy of modern times.
The failings of this books are legion. First, the author offers virtually no overview of the institutions, preferring to explain them off the cuff, so the reader gets no sense of context or how they might work. Second, the financial instruments (derivatives, mortgage securitization, etc.) are also explained inadvertently, adding to the confusion that non-specialists feel, and many acronyms remain unexplained. Third, the author completely fails to cover the role of the rating agencies and how they became as corrupted as Arthur Andersen did, trying to play with the big boys. Fourth, the author gives little explanation of the policy instruments, regulations, and other tools available to policy-makers. Fifth, the author assumes that the reader understands how the players feel and see things - I was confused innumerable times when he labelled some incident "humiliating", or someone became a "laughing stock", or some other emotion that appeared abruptly and without context.
Thus, I can only assume the author wrote for businessmen who know all about these issues already, who wanted a blow-by-blow chronology of every obscure remedy and tactic that was considered, i.e. every little negotiation or ploy or hope or merger plan. It is boring and incomprehensible - what they would mean is glossed over. Now, I write about businesses for a living and I wanted basic explanations, but found virtually none. It was tremendously frustrating, given that the book is almost 600 pages!
So far as I could tell, beyond the particular mechanisms themselves, the crisis arose because: 1) by ideological preference, regulation was lax and unenforced, which 2) enabled bankers to aggressively develop techniques that provided fees (i.e. short-term profit) while increasing the liquidity of normally illiquid assets like mortgages; 3) these instruments, buttressed by AIG insurance, flowed so easily that the major institutions became intertwined so that they were all dependent on eachother as if the legs of a massive house of cards (creating only the illusion of reducing risk with "free market" mechanisms); 4) mortgages and credit were so loose that many homeowners lived way dangerously beyond their means. Once the real estate market cooled (i.e. house prices began to fall, bursting a speculative bubble), the entire system began to teeter. To remedy this, the only thing that the government could fall back upon was hasty dealmaking (mergers, sales, etc.) and injections of liquidity to prevent insolvencies that would cause the entire system to collapse. We came very close to a collapse that would have dwarfed the Great Depression.
I can only imagine how a better journalist with some intellectual and emotional depth - say, a Halberstam - would have written about this as a morality tale that also explains the context and institutions and practices more clearly. Afterall, the entire direction of modern capitalism is in question and we may be at the most important crossroad of this generation. Terrible mistakes were made at taxpayer expense, we didn't learn from past mistakes, and now the firms are showering bonuses on the players with the presumption that all is again well. Etc.
I cannot recommend this book. WHile I found some useful items in it, most of it can be skimmed for the handful of valuable nuggets that are sparely scattered throughout the book. It is an unbearably mediocre performance.