Saturday, January 16, 2010 at 7:16AM
It took a while but I finally finished Too Big to Fail. This is a big book about the 2008 financial melt down and bankruptcy of Lehman Brothers. The author does an amazing job of taking us through events in 2008 that we have already heard so much about. He makes the book work by recreating the conversations between the players in such a lifelike way that you feel you are there. Sure he did a great deal of research -- but part of me has to think there was a fair amount of artistic license taken. Even so I highly recommend the book and I have a much better understanding of our financial system and these events from reading it.
Key take aways:
- When you hear "That will never happen" -- look out! Ten years earlier the geniuses at Long Term Capital Management were saying that about interest rates, and this time it was real estate. Who knows what it will be next time, but when the markets start to think that naturally occurring cycles are no longer occurring naturally -- go to cash fast.
- Henry Paulson is not as bad a guy as I thought. The then Treasury Secretary was on the top of my list of corrupt people before reading the book and by the end I came to the conclusion that he was not such a bad guy. Even so we would be fools to think his bias towards Goldman Sachs was completely neutralized -- clearly his being there helped that firm.
- Goldman Sachs is a truly remarkable firm -- not so much remarkable as in good but remarkably good at what they do. And what they do is take care of themselves. Their tradition of sending their retired leaders to Washington is pretty smart. They were also smart enough to see the water draining out of the system and made repeated significant efforts to protect themselves -- both by using their influence and raising mountains of capital.
- Street fighters like Dick Fuld of Lehman Brothers are not well equipped to make it through a catastrophe like this credit crisis. His major weakness was his long string of successes fighting against everyone and prevailing. It left him with no friends and no way to see the truth in what was happening.
- The people in the government are at a distinct disadvantage. The smartest ones have ties to their former firms so they can't really be trusted to look out for the public and the ones without wall street experience don't really know what is going on.
Here are some other reviews of the book.
In the end the point of the title comes out. The only way we are going to solve the many problems of our financial industry is to figure out how to make sure no one is Too Big to Fail. The author does not address that in the book.
Another good book in this vein is When Genius Failed.