For anyone working in the financial industry, the events that unfolded in 2007/2008 were nothing but extraordinary. During that time, I had just started my first semester in college and barely knew anything about the financial industry. Every day, I would catch the express train and read about another bank either being acquired or going bankrupt. Soon, it wasn’t just banks in US but globally. After reading about all these banks biting the dust, I would dispose of the newspaper and go back to my day as if nothing had happened.
Things are different now. I have worked at a sell side and a buy side and I can’t afford to not know the details of the financial crisis. I knew bits and pieces after reading so many articles over the years but I needed one detailed source that would walk me through all the major events of the crisis. And this is where Too Big To Fail (TBTF) by Andrew Ross Sorkin comes in. TBTF is an amazing book which covers the financial crisis in extraordinary amount of detail. Sorkin does a wonderful job by giving his readers insights into all the meetings that were held at the Fed, Treasury and investment banks by some very powerful people. Sorkin provides his readers with a great opportunity to know the details of the conference calls that were being held to decide whether or not to takeover a bank, whether or not a company needs to declare bankruptcy before market opens the next day, and whether or not Congress will pass a new bill that can potentially put an end to the crisis.
The book’s main character is Henry Paulson who was the secretary of Treasury in 2008. TBTF revolves around Paulson’s actions to contain the damage and prevent banks from failing one after another. The book opens with JP Morgan deciding to buy Bear Stearns for merely $2 a share with government’s assistance. For this, government got a lot of negative publicity which made the government very careful about any further intervention. This is why Lehman Brothers was allowed to fail.
TBTF enlightens its readers with Paulson and Dick Fuld’s (CEO of Lehman) countless attempts to find Lehman Brothers a partner or buyer as its share price kept plunging. Almost half of the book is about the fall of Lehman Brothers. It’s interesting to read behind the scene details of all the talks and negotiations that were held to avoid Lehman from going bankrupt. Lehman had its hopes set on getting some assistance from Korean Development Bank but when that didn’t work out, it all came down to an acquisition by either Bank of America or Barclays. My favorite part was learning of the meeting that was held at the Fed just days before Lehman went bankrupt. This meeting, organized by Paulson and Tim Geithner (president of Federal Reserve of New York at the time), consisted of CEOs of all the top banks and was intended to find a ‘private’ solution to saving Lehman. The government made it clear that it will not provide any assistance to Lehman so the banks had to work together to come up with a solution. It didn’t work and you know what happened next.
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Paulson made one last pitch that to many in the room sounded more like a threat: “This is about our capital markets, our country. We will remember anyone who is not seen as helpful.”
Lehman’s collapse triggered a series of events as investors’ trust continued to falter. Here is a another quote from the book which highlights the importance of trust in the industry:
“As sophisticated as the world’s markets have become, the glue that holds the entire arrangement together remains old-fashioned trust. Once that vanishes, things can unravel very quickly.”
The rest of the book is about government deciding that it had to intervene to stop the madness. The book covers struggle of AIG, Wachovia, Morgan Stanley and even Goldman Sachs.
Countless debates have been held about whether the actions that the government took were right or not. Should they have let Lehman fall? Should they have bailed out all these banks when they had brought all this on themselves buy making risky bets? Should the regulators have done a better job and stopped these banks from making risky bets in the first place? These debates can always go on but I don’t think many people fully understand or appreciate the effort government made during the crisis. The clock was ticking every day as Paulson tried to find solutions for one bank after another. First it was Bear Stearns, then Lehman, then AIG and it went on till government decided that it couldn’t just react to problems as they came and had to take a big decisive action. It was thrilling to see how talks between some of the most powerful people in the financial industry had to be held and deals had to be made at the last minute to save companies from failing the next day.
To sum it up, Too Big To Fail by Andrew Ross Sorkin, is a detailed account of events during the financial crisis. I have learned so much about the crisis and the financial industry through this book than I could have ever imagined. I throughly enjoyed Sorkin’s writing style. He did a great job by bringing together multiple events happening at the same time so that the readers could get a comprehensive picture. Do not be intimidated by the book’s length! You will appreciate it! You can buy the book from Amazon.