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Big, and Not a Failure (Book Review)

If you’re still trying to figure out where to point the finger on last year’s financial crisis, Andrew Ross Sorkin’s “Too Big Too Fail” will offer some guidance, but not enough.

Beginning with the tightening of the credit markets in the fall of 2007, Sorkin, a New York Times reporter who heads a daily Wall Street blog called Dealbook, leverages his breadth of sources to portray a comprehensive view of the year leading up to the fall of Lehman Brothers and near-collapse of the entire financial system last fall.

Dick Fuld, revered and pitied last year after his Lehman Brothers fell, is portrayed as a fearful leader, inclined to promote and follow the guidance of those who pander to him. He allows his bank to load up on bad assets and remains in denial about their existence, to the point of shoveling them into a separate entity that he seems to think will give investors the impression that they have nothing to do with Lehman. The move only serves to send panic into the markets and triggers Lehman’s final collapse on September 15.

Hank Paulson, the Treasury secretary, is painted as the hero, working tirelessly and passionately to save the banking system he worked in his entire career. For him, the potential for any bank to fail is a personal affair, and he works behind the scenes as a broker to get the banks to help each other out, believing that if they don’t, the entire system could collapse. But you’ll question some of his actions, such as meeting with executives from Goldman Sachs, where he was previously CEO, on an off-the-record “casual” occasion in Russia.

Paulson’s vigor is pastime compared to the militant drive of Tim Geithner as portrayed by Sorkin. A government lifer, Geithner marshals his influence to put the pressure on various bank executives to find rapid, take-no-prisoners solutions to their troubles.

Ben Bernanke is the graybeard of the group, wise and contemplative. He doesn’t do much, which seems to indicate lack of involvement, but when you recall that Bank of America’s Ken Lewis said that both Paulson and Bernanke put the squeeze on him to acquire Merrill last year, this portrayal is suspect. It seems to me to mean simply that Bernanke didn’t talk to Sorkin, so he didn’t have much to say about him.

And Sheila Bair? She’s an opportunistic, self-involved limelight-stealer, according to Sorkin. But it’s also apparent that she, unlike most of the rest of them, didn’t lose her cool and let panic drive her actions.

Warren Buffett ducks in and out of the narrative, as desperate bank execs repeatedly turn to him for a loan. It’s the Bank of Buffett as the last sound financial institution in America.

The most likable character is perhaps John Mack, CEO of Morgan Stanley, who is old-school bureaucrat, all heart and gut. In a scene near the end of the book, the climactic event in which six of the top bank CEOs are thrown into a room at the Fed to find a way to avoid Wall Street armageddon, Mack ditches his ego and signs the government’s deal to give over a stake in his bank. The other execs see his move as too compulsive and each calls their board to discuss — only, in the end, to sign as well.

The entire narrative centers around attempts to keep banks from failing, and who does what to help or hinder the process.

In light of what’s happening this week in Washington around regulation of the banking system, you’re likely to come away wondering the point of the meetings, memos, stimulus package, etc., since the system itself hasn’t changed. The banks were simply given loans, in effect, to make it through a rough patch. You’ll question the motives of the main characters, and wonder if anyone really has a handle on a banking system based on financial instruments too complex for anyone to nail down. The only thing you may be sure of is that this book, with its rich detail and driving narrative, is itself too big too fail.

Tags: banks, book review, financial crisis, Wall Street