I guess I should start with an admission. I don’t know what effect the banking crisis had on my life. I was in college when it started and so my only real perspective is that life on my own has always been this way. Also, college mostly disillusioned me to the fact that having a degree meant getting worth while job without knowing someone or brown nosing, something that Too Big to Fail, by Andrew Ross Sorkin certainly hasn’t dissuaded any notions of. For me, this has always been life.
The housing and banking crisis, as I am aware of it, is mostly intellectual. Most of my exposure has come through previous readings, like the Signal and the Noise, which discussed this issue in terms of statistics and probability. There isn’t much I can do to adequately describe the subject matter of Too Big to Fail. First of all, it is a subject I know very little about. Exceptionally smart people spend their entire lives on banking and economics and don’t really seem to have a clear understanding of the complexities. Often, as Too Big to Fail exemplifies, getting it wrong. To ask that I understand this, if they cannot, by simply reading a summarized form in a 600 page book is unrealistic.
A few historical points:
- “Too Big to Fail” is a term that the Treasury created to define (or redefine) banks or financial institutions whose collapse would irreparably devastate the United States economy. Thus, the title of the book.
- Only Fannie Mae and Freddie Mac were actually bailed out (and really that was just the government taking over). Bear Stearns was allowed to collapse, as was Lehman Brothers. The other banks were either bought out by competition or secured loans (AIG) which they would need to repay.
- Goldman Sachs and Morgan Stanley changed from investment banks to bank holding companies, essentially declaring investment banking dead and gone.
- The 9 major bank in the US agree to TARP, essentially federalizing the banking industry.
- Mitusbishi UFJ provided a 9 billion dollar check to Wachovia to keep them from failing. As in, one check. Wow…
What this book does very well is examine, step by step, the players of the financial crisis from the late 2000’s, and how they reacted. Excruciating details, including dates and times of conversations, often quoted, fill in an otherwise impersonal series of events. There are so many people, the book itself spends 10+ pages listing all the players, that attempting to sort them all out is difficult. In this sense, it’s worth noting that the players are less important than an understanding of the events surrounding them. The players become easier it is to remember: who is who, who dislike who, and what each side is working towards.
I’m not going to cast this book as a Hollywood ending (None of us really know how this situation will play out. It’s still playing out.) If you really want to know, there’s plenty of information out there. But the people involved are just that: people.
A tendency exists to devalue the crisis of the creditors (an irony not lost on many key players in Too Big to Fail) because their sole purpose is to “make money.” Their problems exist should not be so horrible because they make millions and billions of dollars. This attitude and stance is more than a little disingenuous. The creditors and banks effect everyone, even we small folks, in our credit ratings and limits. Making this case, Too Big to Fail points out how much everyone in the world has riding on this system. Korea, China, the UK. Each of these powers is distinctly tied in to the success of the US creditors and bankers. As Nate Silver discussed in the Signal and the Noise, the complexities of global economics are so complex that most times noise is mistaken for signal. And, situations arise where there is so much signal that it is almost impossible to accurately correlate (as with many of the filings in this book).
My point is: everyone has problems. Devaluing others just because you don’t like or appreciate them doesn’t make them any less stressful for the person involved. And these are people.
Too Big to Fail does a very good job humanizing the people behind the scenes. Often in the media they are skewered for political reasons. Here they are real people, with real concerns and goals. Henry Paulson, a staunch Republican, agreed, as Secretary of the Treasury, to invest tax payer money into two of the largest institutions responsible for the financial crisis. Even Warren Buffett, known as the richest man in the world and an exceptional investor, makes sporadic appearances designed to inform the reader just how dire the situation has become. These are one of the many examples of the complexities of the people at work, demonstrating that nothing is as simple as the news makes it appear.
Well, there is one exception. This book makes Congress still look despicable and self serving. Of every sect, President Bush is shown as virtually a non-entity, existing on by proxy and, you know, happening to exist as President at the time, Obama is neutral, and Congress is the worst of the lot. The heroes are the bankers and even the worst of them is still human.
As one might except from a disaster novel, Too Big to Fail contains compelling drama, even when as a reader, we don’t necessarily understand the fine details. Tediously long mornings of critical briefings, clandestine meetings between powerful business men and political agents, well timed weather, shady figures trying to get more money. This tale has all the ear markings of a Hollywood story, only these events are real, they happened. As the aphorism goes “You can’t script this.”
Ultimately, Too Big to Fail is drama and humanity. Like the greatest works of art or science fiction, the humanity behind them drives the narrative. These are people with real concerns and real egos. Unless you’ve studied economics or banking or IPO’s or subprime mortgages (and I haven’t) the technical details are going to wind up a wash. That said, the book does a great job painting a picture that you don’t need to understand the greater technicalities of to understand. It does take patience, and certainly, I recommend reading the chapters in chunks so as not to be lost halfway through a given narrative. More than most books, Too Big to Fail depends on the reader trying to understand the process and the humans behind an action.