Sunday, September 5, 2010
Too Big to Fail-A book review
This is the second book on Wall Street that I have read. The first one was "Barbarians at the Gate". That was about the madness surrounding the leveraged buyout of RJR-NABISCO. "Too big to Fail" by Andrew Ross Sorkin, a NYT reporter, is a book about madness at the systemic level.
This book covers the period from March 2008 when the first major institution Bear Stearns went under to the time the US Government decided to buy directly into banks, in effect nationalising them.
Its about the people at the top;Hank Paulson, US Treasury Secretary, Geithner, then the NY fed President, Ben Bernanke, the FED chairman and the CEOs of Banks that were considered "too big to fail"
The book covers the fall of four big finanical institutions during the finanical crisis and the role played by the government officials, wall street bankers and Congressmen in preventing another Great Depression by enacting the Troubled Assets Relief Programme (TARP).
The first one is Lehmann Brothers. In this the CEO, Dick Fuld is the villian. He has been portrayed as someone who was too proud to realise that his company will go under and resisted ideas of merging or being acquired by bigger banks. Till the realisation sunk in, Lehmann was in some way "forced" to declare bankruptcy by the government.
The next bank to face the music was Merill Lynch. This time however the guys at Merrill sold out to Bank Of America. Along with Merill, AIG was also into deep trouble and had to be helped out by the Federal Reserve, raising the issue of moral hazard.
After Merill, Morgan Stanley had to ask the Japanese company, Mitsubishi to help them out by selling a stake of USD 9 Billion. This amount could not be wired as it was a holiday in America and hence a check was written of the same amount.
The book uncovers the greed that one associates with Wall Street. Greed that undid a lot of bankers.
It gives a good account of how intertwined the financial system is, not only in terms of banking transactions but also in terms of people. One day, a bank is advisor to another bank, and the next day becomes a potential acquirer!
This crisis was yet another jolt to the "American Free Market System". Just like the Great Depression, this crisis required massive government intervention to normalise things.
Though its a 600 odd page book, its not heavy reading. Written in simple plain English without using complicated financial terms, this book is modelled on the "Barbarians at the Gate". A good read for those who want to understand how Wall Street works and how twenty odd people and the institutions they headed went to hell and back within a year!