Too Big To Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves. By Andrew Ross Sorkin. Viking; 624 pages; $32.95. Allen Lane; £14.99. Buy from Amazon.com, Amazon.co.uk
LAST year, as Lehman Brothers tottered, there was briefly hope that Barclays Bank would ride in with an 11th-hour bid. But the British government, fearful of contracting the American cancer, took fright and blocked it, helping to seal the investment bank's fate. As American officials absorbed the news, an exhausted and exasperated Hank Paulson, the then treasury secretary, muttered that the British had “grin-fucked us.”
Andrew Ross Sorkin's fly-on-the-wall account of the great panic of 2008 is littered with such colourful anecdotes. It is meticulously researched, drawing on interviews with more than 200 of those who participated directly in the events it covers, including their handwritten notes and tape-recordings of critical meetings. The result is a compelling reconstruction of the drama surrounding the government seizure of Fannie Mae and Freddie Mac, Lehman's collapse, the rescue of American International Group (AIG), the subsequent market pandemonium and the shoring-up of big banks' capital with public funds.
At the centre of the action stands Mr Paulson (when not kneeling to beg congressional leaders to support his bail-out), flanked by the fresh-faced but hard-nosed Tim Geithner, who in 2009 took over as treasury secretary, and the professorial, unflappable Ben Bernanke, chairman of the Federal Reserve. Though prone to dry-heaving when under pressure, and despite being horribly sleep-deprived, Mr Paulson acts decisively, if not always wisely, as he responds to what he calls “an economic 9/11”. The same cannot be said of Christopher Cox, then the dithering head of the Securities and Exchange Commission, the investment banks' main regulator, which Mr Paulson dismisses as “like the gang that can't shoot straight.”
As told by Mr Ross Sorkin, a business writer at the New York Times, the policy response was even more seat-of-the-pants than it seemed at the time. The $700 billion figure for the Troubled Asset Relief Programme was plucked from the air, the roughest of guesstimates. Regulators would back a merger one minute, only to cool on it the next for reasons that baffled bankers. The level of government intervention was deeply distasteful to the Republican Mr Paulson. But, as Mr Bernanke tells him: “There are no atheists in foxholes and no ideologues in financial crises.”
This white-knuckle improvisation was evident across Wall Street, too. Pushed to think creatively, a desperate AIG uses bundles of dusty stock certificates from its vaults as collateral for a $14 billion loan from the Federal Reserve. With Morgan Stanley desperate for an investment from Mitsubishi, but markets closed for a holiday, the Japanese firm issues a $9 billion cheque to seal its commitment.
Just as remarkable is the combination of hubris and ineptitude of those running the most troubled firms. Lehman's boss, Dick Fuld, sacked or sidelined those who gave warning about its dizzying debt levels and dangerous exposure to commercial property. He scuppered a life-saving deal with the South Koreans by barging clumsily into negotiations being run by a key lieutenant, which were delicately poised. AIG's executives did not know how big the insurer's balance-sheet hole was, and sometimes did not seem to care.
One of the best sections comes after Lehman's bankruptcy and AIG's takeover, as other firms struggle for survival. The remaining standalone investment banks, Morgan Stanley and Goldman Sachs, haemorrhaging cash as clients run for the exit, engage in an increasingly surreal series of mating dances with various commercial banks, before finding temporary salvation by turning themselves into bank holding companies. The book makes clear how close Goldman came to death: if Morgan Stanley went under, its arch-rival was “30 seconds behind”, reckoned its boss, Lloyd Blankfein.
Faced with extinction, these firms tried to change the very rules under which they had thrived for so long. They lobbied successfully for a ban on short-selling. Morgan Stanley's John Mack hypocritically branded the practice—which his firm had long financed as a prime broker—“immoral if not illegal”. For all the fear, Mr Mack seems to have been exhilarated by the experience of battling to save his firm.
The book has flaws. It sometimes gets carried away with detail. Do we need to know that AIG's boss was standing in a hallway in boxer shorts when he received an important e-mail? Mr Ross Sorkin is too quick to regurgitate self-serving recollections, such as the sympathy Mr Geithner feels for office workers packed into the Manhattan ferries whom he spots while jogging one morning. The verdict on Mr Fuld, that he was driven not by greed but by “an overpowering desire to preserve the firm he loved”, seems too gentle.
For the most part, though, “Too Big To Fail” is too good to put down. It does not profess to examine every issue exhaustively. It is the story of the actors in the most extraordinary financial spectacle in 80 years, and it is told brilliantly. Other blow-by-blow accounts are in the works. It is hard to imagine them being this riveting.
This article appeared in the Books and arts section of the print edition
Sorkin, a business reporter and columnist for the Times, tells the story of how the financial crisis unfolded from the perspective of some of the giants of finance, who, seen close up, appear to be disconcertingly petty. Sorkin’s analysis is fairly perfunctory (it doesn’t go much beyond the “seeds of disaster” coming “together to create the perfect storm”), but his action scenes are intimate and engaging. Lehman’s Richard Fuld is deluded to the point of derangement; John Thain, the head of Merrill Lynch, starts talking about compensation in the middle of a save-the-country meeting; Henry Paulson, the Treasury Secretary, twice becomes physically ill. Whenever things look bad, someone suggests calling Warren Buffett, whose role in the book is a bit like that of Charlie, at the other end of the Angels’ speakerphone. Again and again, Buffett politely defers, until, finally, as he heads to a Dairy Queen with his grandchildren, he agrees to give Goldman Sachs five billion dollars. ♦