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
The cover illustration to this doorstopper account of the credit crisis is a picture of a dinosaur, suggesting that within we will learn about deadly but doomed beasts, whose evolutionary deficiencies will consign them to extinction. It's not a bad visual metaphor for investment bankers, except that they are still here.
Andrew Ross Sorkin's blow-by-blow account of the unfolding of events in the US, when financial titans up to and including Goldman Sachs were days, or even hours, away from running out of liquidity, gives a handy dramatis personae of those inhabiting Wall Street's Jurassic Park, in the manner of a compendious Russian novel. A reader uninitiated in the detail of the crunch will need it: there are seemingly endless descriptions of the men (and one or two women) involved. Take the following: "Jamie Dimon's black Lexus pulled away from the curb of his Park Avenue apartment to head down to the Fed at just before 8am. Dimon, who sat on the back seat returning emails on his BlackBerry, had just gotten off a conference call with his management team… telling them to prepare for the bankruptcies of Lehman Brothers, Merrill Lynch, AIG, Morgan Stanley and even Goldman Sachs. He knew he might have been overstating the case, but figured they needed to be prepared. He was The Man Who Knew Too Much."
This sort of thing can become a little wearing, as can the description of virtually any man in his mid-40s or 50s as "remarkably youthful", as if the likes of the then 47-year-old president of the federal reserve, Tim Geithner, should have been trundling around Wall Street with the aid of a Zimmer frame – but I suppose one should cut some slack for a 32-year-old wunderkind author.
Sorkin's portrayal of Erin Callan, former Lehman's finance director, is typical: she is a "striking blonde" with "Sex and the City" stilettoes, suspected to be romantically involved with the man who hired her, a suggestion made without a shred of substantiation. The bigger problem, though, is the claim of authorial omniscience, admittedly based on more than 500 hours of interviews with 200 people.
The book, which has been billed as the defining account of the credit crunch, has caused a media storm in Manhattan: Sorkin's colleagues on the New York Times are reported to be angry at his failure to credit the newspaper's scoops. US business reporter Charlie Gasparino of CNBC is upset at a quote attributed to Lloyd Blankfein, the head of Goldman Sachs, calling him a "rumour monger", as is the bank. Blankfein has been heard to grumble since about Sorkin's self-professed mind-reading abilities. There has been sniping, too, that the author is too cosy with the people he writes about, both in the book and the NYT: the likes of Jamie Dimon and John Mack (CEO of Morgan Stanley, nickname: "The Knife") turned up at his book party, hosted by Vanity Fair magazine.
Sorkin's account deals with the frenzied few months starting on 17 March 2008, when Lehman Brothers chief Dick Fuld was summoned back by then treasury secretary Hank Paulson from a trip to India because of the collapse of Bear Stearns. It ends in mid-October of that year, with Paulson finally accepting that he had to "cross the Rubicon" with a bailout for the banks.
Sorkin does offer some genuinely telling detail. Fuld, the self-centred, foul-mouthed, but deeply loyal man who took Lehman to its destruction, is summed up in one anecdote: while hiking with the asthmatic son of a colleague, the boy panicked and was being guided to safety by his father and Fuld. The party met another walker who looked at the 10-year-old boy and commented: "My, aren't we wheezy today." Fuld turned on him and shouted: "Eat shit and die! Eat shit and die!"
From a UK perspective, there are fascinating insights into less-than-flattering US views of us. John Varley, the intelligent and decent boss of Barclays, is dismissed by Paulson as a "waffler" and a "weak man". Paulson declared the British had "grin-fucked us" after the chancellor and the Financial Services Authority declined to allow Barclays to take over Lehmans on the grounds it was too risky – meaning we did the dirty on the Americans while smiling to their faces (I had to look it up). Bob Diamond, the American investment banking supremo at Barclays, is equally disparaging about his adopted home, where he can claim his bonuses with non-dom tax privilege: he BlackBerried his friend Bob Steel to moan about "little England".
A clue to the difficulty politicians had in dealing with the crisis is in the very small gene pool shared by the two worlds. Dubya's brother Jeb worked as an adviser to Lehmans' private-equity arm and his second cousin George H Walker IV was on the executive committee. Hank Paulson's brother Richard also worked for the firm; as a former employee of Goldman Sachs, Paulson was tied up in knots over his subsequent dealings with his former employer. And what is not in the book is as striking as what is: in these pages, we do not meet so much as a single sub-prime borrower facing foreclosure.
So is Too Big to Fail the best book about the crisis? For my money, Fool's Goldby Gillian Tett is a more sophisticated read; from a UK perspective, Alex Brummer's The Crunch is more engaging; and Graham Turner's No Way to Run an Economy is more provocative. But it's unfair to expect any one book to serve such a huge, multilayered subject and Sorkin has provided an entertaining addition to the crunch-lit genre. Its final message is a worrying one. Unlike the dinosaurs on the cover, the Wall Street raptors are far from extinct, despite their greed and folly; those who remain are doing better than ever. "Perhaps most disturbing of all, ego is still very much a central part of the Wall Street machine," Sorkin says, noting that the survivors have been left with a genuine sense of invulnerability. Jurassic Park may be less populous, but how long before the sequel?
Ruth Sunderland is business editor of the Observer