A book review: "Too Big to Fail" by Andrew Ross Sorkin

I’ve spent most of my working life in the banking industry, in one way or another.  In the late 70s, pleading poverty as a newly married man earning (even by those times) a pittance, I moved from a highly respected and now defunct London stockbroker to the investment banking arm of the world’s (then) biggest bank, based in its London office.  Over the ensuing thirty odd years, I worked in the dizzy and incredibly profitable world of “casino banking”, as it’s now dubbed, and without setting the world alight I did ok financially and mostly enjoyed my life’s work.  It had its ups and downs – two more Wall Street behemoths decided at different times that they no longer wanted me to darken their doors and disposed of me like a used tissue: it meant nothing to them as they raked in their billions but crippled me financially as my mere five figure salary disappeared overnight to be replaced with UK unemployment benefit.  Never particularly generous under any government in my lifetime, it was barely enough to pay the bills, and it’s fair to say that now, nearly twenty years further along life’s bumpy road, I’m still paying off the final bills from those heady days.  But I can truly say I have had the last laugh – neither of those two Wall Street behemoths exist now.  Both fell in disgrace, after getting their fingers caught in the till (figuratively speaking) in major financial scandals in the late nineties and early noughties.

Which brings me neatly along to “Too Big to Fail”, Andrew Ross Sorkin’s superb book about the financial crisis of 2007/8, the fall of Lehman Brothers and related events that still send shock waves through the system and dominate our financial lives to this day (and no, I never worked for Lehman – but know people who did).

It’s an excellent book.  The subject itself could be very dry and difficult to understand for anyone who has not worked in the business, but Sorkin brings it all to life with a writing style that takes it from the financial pages of the FT or WSJ and into the realm of John Grisham.  It reads like a thriller, and a good one at that, and the intricacies of the deal making that brought about the crisis and that Wall Street bankers and the US government then used to desperately try to salvage something from the impending disaster are laid bare and clear to understand.  The story rattles along at a cracking pace, with all the foul and abusive language you would expect from people under immense (and often self-inflicted) pressure laid bare.  The petty jealousies and dislike bordering upon hatred between multi-million dollar CEOs are vividly portrayed.  There are some nice little vignettes too – like Treasury Secretary Hank Paulson, close to breaking point, throwing up into a waste bin in House Leader Nancy Pelosi’s office – that portray a humanity that is often ignored in accounts of those days.

Few people come out with much credit.  For instance, Dick Fuld, Lehman’s combative CEO, comes across as greedy and barely competent – managing a trading desk might have been fine for him, but running the massive house of Lehman was clearly beyond his powers, and his indecision and stubborn insistence that someone would come to the rescue, and his anger when that failed to materialise and the axe fell, is impossible to feel any sympathy for.  Tim Geithner comes across as overbearing and unsympathetic, with a blinkered insistence that he is right and everyone else wrong that is at best misplaced.  Ben Bernanke is presented as a highly intelligent and scholarly man, but one who is perhaps a little too divorced from the rough-and-tumble of the trading floor to grasp fully what is going on on his watch, seeking a solution in statistics and history when perhaps something more tough, even brutal, was called for.

Ever since those days, “banker bashing” has been something of a global sport, and every politician with aspirations for high office has jumped on the bandwagon……usually with little or no knowledge of either the industry or what actually happened.  It has always seemed to me misplaced, and I’ve blogged about it a number of times over the past few years, taking a consistent line.  Without question, at the top of the pile, where the salaries are huge and the corporate jets two-a-penny, there have been (and still are) bad apples, greedy and incompetent men and women, whose sole interest is the total sum of their bank balances (whether they be on- or off-shore).  “Risk” is not a consideration, unless it is to their own assets and well-being.  The man in the street is of no concern – even when said man in the street is slaving away on a perhaps meagre salary on the bottom rung of their own corporate ladder – the man in the mailroom or lowly filing clerk contributes in his own way to the firm’s profitability, but too often this goes unnoticed and unremarked by those at the top.  The small man is also ignored by most commentators and critics of the industry, both then and now, and shamefully in my view tarred with the same brush.

If there is a fault with the book it lies in its failure to weave the small fry into the narrative.  Its focus, correctly, is with the dealmakers who caused the mess and then repeated past mistakes trying to unwind a parlous situation.  The weekend long number crunching sessions trying to identify the bits of failing companies that might just be worth salvaging and buying for a buck are well documented (and at times amusingly so), but the efforts that were undoubtedly going on way down the food chain to try and track and accurately value increasingly complex businesses, by ordinary men and women on “normal” wages rather than the obscene rewards of their alleged “betters” are hardly mentioned.  In fact the nearest instance to this is a section where the antiquated systems and procedures being used by the ailing AIG to run its affairs are roundly condemned – and given the state that company was in, quite rightly.   This is understandable, since there is no glamour to be had in the back office, but to this reader (who has spent a lifetime labouring away in that world) it is a sad omission.  Remember, when the companies fell, into bankruptcy or takeover, thousands of perfectly respectable and ordinary nine-to-fivers (if such an animal existed in Wall Street circa 2008 actually existed) found themselves unemployed, their pension funds worthless and with little or no pay-off to keep them going through their next job search – and I know from recent experience how difficult that process is.  During the global financial crisis that followed these events, finding another position must have proved incredibly difficult – especially with the last entry on the CV reading “Lehman Bros”.  Meanwhile, the senior managers and directors who had caused this mess drove away in their Lincoln Continentals or Porsches or Mercedes, with millions stashed away in their bank accounts, to their estates in the Hamptons, to lick their wounds and re-surface a few months later, aided and abetted by their friends back in the industry.

And this is sad.  According to some columnists and commentators, ignorant unwashed Occupy activists and “revolutionaries” like Russell Brand, and shamefully most politicians, “bankers” are the scum of the earth.  We’re not.  The overwhelming majority of bankers are genuine hard-working individuals who take pride in their work, put their customers first and are generally ill-rewarded for their efforts.  And yet we are all lumped into the same pile as the Fulds and Milkens and Leesons of this world, the greedy and incompetent deal-makers and shysters. 

Like it or lump it, the world cannot run without bankers, global finances are much too closely interwoven for that, at every level from government finances to my sister’s old age pension.  As the events of 2008 clearly demonstrated, if one link in the chain breaks more are sure to follow, and the resultant difficulties take years to recover from.  People who should know better should really move on from the cheap political point scoring that banker bashing still provides, and work at changing these misleading perceptions.  It hurts that an industry I’ve spent my entire working life in is now rated so badly when it used to be a career to aspire to, and all because of the misadventures and stupidity of a small number of individuals.  

Regulation is not the complete answer.  Banks have never been so closely regulated as they are now, risk management never so complex, and yet still the lessons do not seem to have sunk in.  GM has seen its car sales boom in the last twelve months according to reports yesterday, but a lot of this is down to their finance arm providing sub-prime auto finance (cheap loans and credit agreements to the non-US reader) that are proving unaffordable to some customers and defaults are on the rise.  This is exactly one of the contributing factors that led to the crisis in 2008, except for sub-prime auto loans read sub-prime mortgages.

No, the whole mindset of people in the finance industry needs to change.  That will take a generation, probably.  But the mindset of the banker bashers needs to change too – an acceptance that not everyone working in banking is a criminal would be a start.  A refusal to take on unaffordable finance terms when buying a car or a house or a holiday would help too.  Soundbite politicians could perhaps stop taking pops at an “easy” target and focus on real policies to get elected, then once elected adopt measures that rebuild a still ailing global economy rather than pile more misery on people already crippled by an arguably failed austerity policy.  But that would be to admit defeat, and no politician will ever admit to being wrong.

And people really should read this book.  Knowledge is a good thing, and “Too Big to Fail” brings a clarity to a complex subject that even Russell Brand might understand.  Who knows, it may even prompt him and his ilk to moderate their views.  It may even help to bring about that change in mindset I referred to.  And this would be a very good thing.