UFPPC (www.ufppc.org) — Digging Deeper CLX: May 23, 2011, 7:00 p.m.

Andrew Ross Sorkin, Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves (New York: Penguin Books, 2011). Updated with a new afterword. Originally published in October 2009 by Viking. [Thesis. The 2008 financial crisis was caused by "cheap money" and "ultrainterconnectedness." Too Big to Fail covers the financial crisis from Mar. 14, 2008, when Bear Stearns failed, to Oct. 13, 2008, when nine Wall Street CEOs accepted TARP bailout money; this edition also contains a brief afterword, dated Mar. 31, 2011. Too Big to Fail proposes to describe, in a Bob Woodward-style series of dramatic vignettes, "the reality behind the scenes" (6), set in context by short background pieces on the history of the people and institutions involved. The spotlight in the early part of the book is on Lehman Brothers and its supremely crass CEO, Dick Fuld; in the latter part the focus is on how Morgan Stanley avoided bankruptcy. Inside the federal government, Henry Paulson and Timothy Geithner (but not Ben Bernanke) seem to have been sources.] Author's Note. This book is "the product of more than five hundred hours of interviews with more than two hundred individuals who participated directly in the events surrounding the financial crisis" (xi). They "took part only on the condition that they not be identified as a source" (xi). This book aspires to be "the first detailed, momentby-moment account" (xii). The Cast of Characters and the Companies They Kept. 160 individuals listed. 8 pp. Prologue. On Sept. 13, 2008, Jamie Dimon, CEO of JP Morgan Chase, warns colleagues they need to prepare for Lehman Brothers, Merrill Lynch, AIG, Morgan Stanley, and Goldman Sachs filing for bankruptcy (1-3). The fundamental cause of the crisis was "cheap money . . . liquidity run amok" and "ultra-interconnectedness" (4; 5; 36). Chapter 1. Richard S. Fuld Jr., CEO of Lehman Brothers, fends off the first assault on the firm on Mar. 17, 2008 (917). Fuld's early career, mentored by Lewis L. Glucksman (18-23). Traders: "The battle between bankers and traders is the closest thing to class warfare on Wall Street" (24; 23-24). In 1994, When Lehman becomes independent again after ten years of American Express ownership, Fuld takes the helm (24-28). Joe Gregory, Fuld's right-hand man, appoints Erin Callan CFO (28-30). Callan's conference call on Mar. 18 goes well (30-35). Chapter 2. On Easter Sunday, Mar. 23, Secretary of the Treasury Henry Paulson, who secretly brokered the deal, learns that Dimon wants to recut the Bear Stearns deal from $2 to $10 a share, lest shareholders reject it (36-39). In 2006, Paulson had been loath to leave his post as CEO of Goldman Sachs to become Treasury secretary (39-43). Paulson's unusual background and rise to Goldman CEO in 1998 (43-47). His character (4749). Paulson's view of Lehman and relationship with Fuld (49-54). Fuld & Paulson encourage Warren Buffet to invest in Lehman on Mar. 28, but he doesn't (54-57). Chapter 3. Apr. 2: Timothy Geithner, president of the New York Federal Reserve, arrives in D.C. for a Senate Banking Committee hearing on Bear Stearns (58-60). Geithner's background

(60-66). Treasury's Robert Steel testifies on Bear Stearns (66-70). Jamie Dimon's career, with Sandy Weill as mentor—a relationship that eventually soured (7077). Dimon allows JP Morgan to be the conduit for a $30bn bailout of Bear Stearns (77-78). Chapter 4. On Apr. 11, Fuld attends a post-G7 private dinner at Paulson's invitation (79-83). At Paulson's behest, on Apr. 15 Neel Kashkari and Phillip Swagel, two Treasury advisers, present to Ben Bernanke a plan for the eventuality of a "total financial meltdown" (83-85; 90-93). Bernanke's background (85-90). Steel calls Bob Diamond, CEO of Barclays Capital, to inquire about his interest in acquiring Lehman (93-95). Chapter 5. Fuld and Callan to persuade CNBC's Jim Cramer to help strengthen Lehman's share price (96-100). David Einhorn, hedge fund manager, makes a mid-May speech arguing that Lehman is overvaluing assets (100-08). Chapter 6. On Jun. 3, Fuld's plan to attract Korean investment is leaked to the pres (109-11). Scott Friedman, the youngest member of Fuld's inner circle, accuses Callan (111-12). Hopes for the Korean deal (112-16). Employee Matthew Lee denounces Repo 105, an accounting trick used by Lehman (11618). Growing dissatisfaction with Joe Gregory (118-26). On Jun. 9 Lehman reports $2.8bn loss (126-27). Pressure builds, and Gregory and Callan are forced to resign (127-34). Chapter 7. Facing problems, John Thain at Merrill Lynch contemplates selling Larry Fink's Blackrock (135-38). Frustrated at Goldman, Thain took the CEO job at Merrill Lynch, replacing Stan O'Neal (138-50). Chapter 8. In mid-June, Bob Willumstad replaces Martin Sullivan as CEO of

American International Group (AIG) (15154;167). Maurice Raymond "Hank" Greenberg, "the very model of an imperial CEO," expanded AIG into one of the world's largest financial companies but ran afoul of federal regulators (15457). AIG's "Financial Products" division "became Ground Zero" for the development of credit derivatives, collateralized debt obligations (CDOs), and credit default swaps whose implosion, despite the confidence of the "quants," caused the financial crisis (15764). Chapter 9. The Goldman Sachs board, meeting in St. Petersburg in late June 2008, discusses the possibility of acquiring AIG and has an off-the-record meeting with Paulson, also in Moscow by "a strange coincidence" (178; 168-80). Chapter 10. Fuld rehires Michael Gelband, a trader (181-82). Paulson's Fourth of July weekend at his island on the Georgia coast (182-85). GSEs Fannie Mae and Freddie Mac (185-87). Fuld turns to John Mack at Morgan Stanley (187-89; 192-94). GSE shares collapse after a leak about a possible government takeover (189-92). Fuld considers turning Lehman into a bank holding company or merging with Bank of America (194-97; 199-200). Paulson outraged at the idea of temporary emergency authority (198). On Jul 13, Paulson announces a plan for Treasury to purchase equity in Fannie and Freddie (200-01). Sen. Jim Bunning accuses Paulson of proposing "socialism here in the United States of America" (201-02). Paulson feeling desperate (203-04). Fuld is losing his self-control (204-05). Ken Wilson agrees to take a leave from Goldman to work for Paulson at Treasury (205-06). Ken Lewis of Bank of America not interested in buying Lehman (20608). Chapter 11. On Jul. 29, Willumstad of feels out Geithner's willingness to lend to

AIG (209-11). Fuld is in Hong Kong pursuing Korea Development Bank financing (211-12). Paulson hires Morgan Stanley to advise the government on Fannie and Freddie (212; 212-15). Fuld's intervention ruins a deal with KDB that is close to agreement (215-18). At Treasury, Steve Shafran (a social friend of Fuld's) is responsible for contingency planning for a Lehman bankruptcy (21820). In late August, the Fed summer symposium at Jackson Hole debates policy (220-23). Paulson plots the takeover of Fannie and Freddie (224-27). AIG discusses its problems with JP Morgan (227-29). On Sept. 5, Treasury presents nonnegotiable terms to Fannie and Freddie (230-32). Fuld speaks with Ken Wilson (232-33). Chapter 12. Lehman's shares drop when KDB's withdrawal from negotiations becomes public; the president, Ken McDade, fears for the mental state of the CEO, Dick Fuld (234-35). Political attacks on Paulson in Congress (235-37). AIG appeals to Geithner for a "primary dealer" license (238-40). Goldman calls Treasury, offering to "be helpful on Lehman" (240). Dimon talks to Bernanke (241-43). Panic spreads over Lehman's collapse (243-52). Chapter 13. Because of the reaction to the Fannie Mae and Freddie Mac takeover, a Lehman bailout is ruled out (253-98). Chapter 14. Bank of America rejects capitalization of Lehman, explores Merrill Lynch capitalization (291-341). Chapter 15. Sept. 14: Though U.S. investment banks were prepared to finance it, an attempt to arrange a takeover of Lehman by Barclays fails because of opposition by the U.K.'s Financial Services Authority, headed by Sir Callum McCarthy; Geithner is incredulous (342-53). Paulson, fearful, is reassured by his wife, who quotes

Timothy 1:7 (353-54). Fuld speechless (355). Sept. 15: Bank of America buys Merrill Lynch for $29 a share (355-57; 361-62). Lehman forced to file for bankruptcy (357-61; 362-63; 365-66; 368-71). Banks organize $100bn "borrowing facility" for themselves (36364). George W. Bush doesn't return call from his cousin, George H. Walker IV, head of Lehman's investment management unit (364). Fuld blames the Fed (374-75). Chapter 16. As Lehman files for bankruptcy, attention turns to AIG, but efforts to find a private plan don't pan out (376-92). At Geithner's initiative, Treasury bails out AIG, extending an $85bn credit line and taking 80% equity; Geithner instructs Willumstad on Sept. 16 not to file for bankruptcy, also telling him he will have to quit: "AIG had effectively become a linchpin of the global financial system"; "this was the only way to avert a financial Armageddon" (397; 401; 395411). Chapter 17. Geithner's inner thoughts (412-13). Morgan Stanley's back is to the wall (413-15; 423-26). Lehman sells U.S. operations to Barclays for $1.75bn (417-18). A Wachovia-Morgan Stanley merger explored (418-20). Sept. 17: as the credit system seizes up, Treasury returns to its emergency plan (420-23). Paulson gets waiver to deal with Goldman Sachs (426-28). As panic mounts, Paulson and Geithner pressure Bernanke (428-48). Chapter 18. Sept. 19: Paulson announces the $700bn Troubled Asset Relief Program (449-50). Geithner labors to save Morgan Stanley and Goldman Sachs; ultimately succeeding on Sept. 21-22, with the government granting bank holding company status to Morgan Stanley with—though the Chinese Investment Company was also interested —Mitsubishi providing $9bn in capital, Goldman Sachs also becoming a bank

holding company; "The two biggest investment banks in the nation had essentially declared their business model dead to save themselves" (486; 450-86). Chapter 19. As financial markets continue to fall, political leadership falters and the Mitsubishi deal almost unravels (487-521). Chapter 20. Oct. 13, 2008: Paulson, Geithner, and Bernanke, and Sheila Bair of the FDIC convene nine Wall Street CEOs at the Treasury Building and pressure them to accept TARP money in return for preferred stock; all nine agree (523-31). Epilogue. "In the span of just a few months, the shape of Wall Street and the global financial system changed almost beyond recognition. Each of the former Big Five investment banks failed, was sold, or was converted into a bank holding company. Two mortgage-lending giants and the world's largest insurer were placed under government control. And in early October, with a stroke of the president's pen, the Treasury—and by extension, American taxpayers—became part owners of what were once the nation's proudest financial institutions" (533). Problems and political backlash in the aftermath, with Goldman Sachs a special target (534-38). Decisions remain controversial, particularly about allowing Lehman to fail (538-42). There is now an opportunity for meaningful reform (542-43). Afterword [dated Mar. 30, 2011]. Wall Street has returned to prosperity (545-47). Warren Buffet argues there is no culprit responsible for the crisis, and so far none has been identified—not even Fuld (548-50). In April 2010 the SEC charged Goldman Sachs and one of its employees, Fabrice Tourre, with securities fraud, which Goldman settled for $550m (550). Criticism of government (552-53). But "the

prevailing wisdom has become that [the 'bailouts'] worked" (553). There has been some meaningful reform, but "big banks are even bigger and they are still as interconnected as ever" (554). In the fall of 2009 John Mack acknowledged that "We cannot control ourselves. You have to step in and control The Street" (555). Acknowledgments. This book was the suggestion of Sorkin's wife, Pilar Queen, and written in the year following the crisis (557). Family, colleagues at the Times, publisher, agent, friends, and sources (558-60). Notes and Sources. Methodology (561-62). 41 pp. Bibliography. 28 books. Index. 14 pp. About the Author. Andrew Ross Sorkin is a reporter and columnist for the New York Times. He edits DealBook, an online daily financial report. He has twice won the Gerald Loeb Award for business journalism, the second time for this book. [Additional information. Andrew Ross Sorkin was born in New York City on Feb. 19, 1977. He graduated from Scarsdale HS and holds a B.S. degree from Cornell (1999). He has worked for the New York Times since his senior year in high school; he has written some 2000 articles there, including 120 front-page articles. In 2000 he became the paper's chief mergers and acquisitions editor, a position he still holds. His newsletter, DealBook, has more than 200,000 subscribers and won the 2008 EPpy Award for Best Business Blog. He has appeared frequently on TV as a talking head and briefly hosted a PBS talk show. Filming of an HBO version of Too Big to Fail began on Oct. 22, 2010, starring Paul Giamatti as Ben Bernanke, William Hurt as Hank Paulson, Billy Crudup as Timothy

Geithner, and Dan Hedaya as Barney Frank. Release date tonight: May 23, 2011.] [Critique. Too Big to Fail has one great merit, in addition to its dramatic and historical interest: it demonstrates the extent to which Wall Street financial interests dictate the policies of the U.S. federal government. The author never articulates this concept, however, and it is dismissed by figures in the book as a "conspiracy theory." But since Sorkin documents how very close the relationship between business and government is, it may be simply that participants, the author included, are unable to see the conspiracy, just as a goldfish is unable to see the water in its bowl. — Since another recurrent theme of the book is how the personal feelings of Wall Street titans play a role in their management decisions, the impression that emerges from Too Big to Fail is of a dominant oligarchical class whose foibles play as large a role in American life as those of the emperors did in the Roman Empire. Strong passions and crude

ambition are, Sorkin suggests, the sine qua non of success on Wall Street: "'Sit down, Gordon, and shut up,' Greenberg told him. 'I'm in charge now'" (156). A leader breaking the law is being "[h]eadstrong and combative" (157). — On technical issues, Too Big to Fail is weak. Sorkin's explanations of finance are so laconic as to be unintelligible; e.g. "derivatives . . . are, in simplest terms, financial instruments that are based on some underlying asset, such as residential mortgages, to weather conditions" (158; it's hard to know what an untutored reader will make of this, especially since Sorkin rendered his explanation unintelligible by omitting the words "the ability of" after "based on"). Readers get abundant details about things like office furniture, styles of dress, personality conflicts, etc.—but interestingly, in the midst of the Dominique Strauss-Kahn scandal, never about the sexual proclivities of business leaders, which are never mentioned. — Too Big to Fail received glowing reviews from mainstream reviewers.]

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