Unlocking Real Value Blog

Book Review: My Top 10 Thoughts on “Too Big To Fail”

I decided to read “Too Big to Fail: The Inside Story of How Washington and Wall Street Fought to Save the Financial System – and Themselves” by Andrew Ross Sorkin after it was recommended by a friend. Up until now I have avoided reading many of the books on the financial crisis – maybe you can call it overload.

Well – you need to read this book! Not since reading “Barbarians at the Gate” (about RJR Nabisco)  have I enjoyed a business book so much. Yes, there was certainly some gossip in the book which made it all the more intriguing and enjoyable. But there are also many lessons to be learned and I have not been able to stop thinking about its continued relevance.

Here are my top thoughts and observations on this book – please read it and let me know yours. (Note – these are in no particular order.) I also apologize in advance for the length of this blog – but there is so much to think about in this book!

10 – Wow – we were really close to a total meltdown of the entire financial system! I mean really close! I knew this before – but now I know a lot more of the details. And we are very lucky that the solutions ultimately worked (namely the decision to use some TARP money to loan banks money). It’s still hard for many of us free marketers to stomach bailouts – as it was hard for those in power to do at the time – but I am more convinced now than ever that it had to be done.

9 – It could happen again – actually will probably happen again – and it may be quickly. To be honest, I’m not sure that we learned a whole lot from the experience; it doesn’t seem to have greatly affected the behavior of many. This is the scariest thing to me. We continue to create derivatives of derivatives and products like triple-leveraged ETFs and nobody – and I mean – nobody really understands what they are. This leads to my next observation:

8 – Title and position are not necessarily correlated to knowledge. We all know this intuitively, but the fact is that many of the CEOs of the largest banks and financial institutions had no idea what was on their own books. The sophistication of the products at some point greatly surpassed most people’s ability to understand them. Everyone accused the leaders of Wall Street of being greedy; while this is probably true to some extent, part of the crisis was not about greed but more about mis-management. Business schools certainly failed us! Risk management? Didn’t exist!

7 – I have more respect for Tim Geithner than I did before (I don’t want to give too much away here – read the book!)

6 – Conflicts of interest are so rampant that to even pretend that they can be avoided is naive. I didn’t know that Hank Paulson got a special waiver which nullified his agreement not to deal with Goldman Sachs (the firm he used to run) during his tenure as Treasury Secretary, did you? If I had a dime for every time they mentioned GS in this book……

5 – Luck pulled us out of this as much as anything – which is scary for the future. The way the government came up with the $700 million for the TARP program would have made Houdini proud! So scary though – what if they had been a few hundred million shy? What if Paulson had not been Treasury Secretary?

4 – It still doesn’t make sense to me – or most people in the book I think – why Lehman was allowed to fail and others were not. Luck of the draw? Personal vendettas? Dick Fuld’s personality?

3 – So many random decisions were made – many which luckily worked out for the best. But this does not bode well for the future. We continue to allow bubbles to expand without knowing the true implications. I don’t think we learned a whole lot from what happened. Maybe this is human nature. Maybe this is where greed comes in. I’m not sure. Municipal bonds, student loans .. what will cause the next crisis? Will luck pull us through again? And it will have to be luck because I don’t see any evidence that anything has really been put in place as a backstop.

2 – TARP started out as a 3-page bill that was expanded to about 50 pages. Certainly there were not enough details in the original heat-of-the-moment proposal. Last year’s financial services reform (and health care reform) bills were in the thousands of pages, many of which were probably never read – or understand. Maybe we use 100 pages as a goal moving forward? There is something to be said for short and sweet – and clear and understandable!

1 – We the people – us little people – really have no control.  I hate to agree with those that have always claimed that individual investors, for example, are at the mercy of the institutions. In some respects, what has happened over the past few years has verified that the system is really rigged. Maybe that is inevitable in a system that has grown so large and bureaucratic.

I still need to think through this book – I will probably have more thoughts at a later date. In the meantime, please read the book!

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