View Full Version : Too Big to Fail

10-26-2009, 10:32 AM
After seeing Andrew Sorkin on the Charlie Rose show last week being interviewed about his book "Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System---and Themselves", I read the first half of the book this weekend. I should probably not star this thread until I am finished, but that will be later this week and it is a very interesting book. I have made it half way through the book, covering march 2008 until the bankruptcy of Lehman. Very interesting and somewhat enlightening. So far here are my impressions:

Surprisingly favorable impression of Paulson and Geithner through the first 6 months. They seemed to have been more aware of the devastation that was about to appear than anyone. And they seemed to have been genuinely motivated by the need to save the economy. No self-interest seem to come into play with these two. Paulson in particular does not want to "kick the can down the street" (ie put off solving problems until the next administration) and since he has the skins on the wall from his Goldman days, he uses his persona maybe as much as his authority to drive the wall street gangs when needed. Geithner, as president of the NY Fed, comes across as very much involved and a critical player in events. He suffers from the problem of being perceived as a young technocrat among the CEOs without any real experience, but he still makes them take him seriously.

Not surprising at all that Fuld of Lehman and too a lesser extent Thain of Merril were behind the curve in responding to the events throughout the crises. Fuld ends up a non-player in the couple of weeks before the bankruptcy filing.

Not surprising that AIG's situation was a complete mess and the parent company seemed to be very poorly run. Those guys were woefully behind in understanding the risks of what they were doing.

So far in the story, Dimon of JP Morgan seems to be the best motivated of the CEO's put personal/company interests aside to help out the bigger picture.

Big surprise that Bernake was much more in the background than expected. Now this seems in part because Sorkin did not get as much inside information about his activities and as such had to focus on others. But the impression was that the activities of the Fed up until the Lehman bankruptcy were much more driven by Geithner than Bernake.

I did not realize how close Paulson and Geithner were to orchestrating a non-government bailout of Lehman. They missed it by an inch. They had a buyer for the "good half" of lehman ready to go, Barclays (this part I knew) and they had the wall street firms ready to pony up $33B to backstop the bad assets of Lehman that would be spun off into a seperate company "****Co" (I did not know, or forgot about this half). The UK government would not play along and Barclay had to back out.

I highly recommend the book, it is a real thriller. I spend so much time reading analyst reports, economic newsletters, etc that I rarely read any books on financial topics anymore. This one is good.


edited to add:
Not suprisingly, Cox at the SEC comes across as being way out of his league.

10-28-2009, 09:32 AM
Well, I stayed up late last night and finished the book. I really recommend this book, it is very interesting. Overall impressions, while I will always be skeptical of some of the steps the government took last fall, I must say I do not find fault with Paulson, Geithner, and Bernake. I am convinced those guys really busted their ass and only had the best interest of the country is mind throughout the ordeal. There is the story about how Paulson was so exhausted during a meeting with congressional leaders that he turned pale and had to retreat to Pelosi's office. When Reid asked him if they should call a doctor he said no, just before he threw up in Pelosi's trashcan.

Of the big banks, Dimon and JP Morgan definitely come off as being the best, from both a quality of management perspective and from a "wanting to do the right thing" perspective.

Lewis at Bank of America comes across fairly positively. Although some of his business decisions were questionable (and these might be excused because no one had experience doing deals of that magnitude at those speeds), he did seem to genuinely care about helping out through the crisis. No whining or complaining when he was called to meetings in NY or Washington or told by Paulson,Geithner to pick up the phone and call someone. During the climatic meeting at the treasury of the 9 big bank CEOs when they were told they were taking TARP money, Thain actually asked about how executive compensation was going to be handled (this was expected by the government reps) and Lewis pointed out to the group they were crazy to even be thinking about that issue at such a time.

Goldman comes across fairly decently, perhaps the best run of the group, but also rather a self-centered company throughout the whole ordeal.

No surprise that CITI and Lehman come across poorly. Lehman, of course, was struggling for life and had to be self-centered. CITI was bad.

Buffet had an interesting role to play. Mainly as the investor who always said no. But at one time, when Paulson was trying to figure out how to implement TARP, Buffet faxed him a four page plan, that while not taken at the time seems to be the blue print for the PPIP program that Geithner implemented in March,2009. That was very interesting.

If you are like me and thing that entire corporate cultures filter down from the top, you will definitely get the feel for companies you do not want to do business with in the future, even on our small personal scale.

In general, we should be very thankful we had Paulson and Geithner (as chair of the NY Fed) running the whole show. They may not have made perfect decisions, but they new they had to try to take control of the situation. Most government officials, during an election year and during the ultimate lame-duck administration, would have been very timid about taking strong action. These guys were not and they seemed to work together very well.

Once again, read the book. Especially since the financial regulations reforms are now starting to be debated again in washington (is it just me, or has Obama really put this on the back burner too long?), it is very timely and informative.

edited to add:

One interesting thing came about with the CITI/Wells Fargo/Wachovia situation. If you remember, CITI had a signed deal with Wachovia and at the last minute Wells Fargo stepped in with a better offer and Wachovia backed out of the CITI deal and went with Wells Fargo. CITI promptly sued. When the (significantly) better deal came into wachovia's CEO from Wells Fargo, the CEO of wachovia pointed out he was going to get sued by someone, either his shareholders or CITI, so it might as well be CITI. Since the CITI deal required government backing and the Wells Fargo deal did not, the government supported him.

And as expected, Bair of the FDIC and Cox of the SEC, did not come across positively at all.