*Too Big To Fail*

That's the new book by Andrew Ross Sorkin and the subtitle is The Inside Story of how Wall Street and Washington fought to Save the Financial System — and Themselves.  Last night I read through to p.132.  So far it seems to be the single best narrative of the crash and its aftermath.  I haven't seen anything theoretical or on root causes, etc.  I chuckled at reading this sentence, which starts with Dick Fuld of Lehman Brothers picking up the phone:

"I know this call may be a little unusual," [Treasury Secretary] Paulson began.  "You and I have been trying to kill each other for years."

I'll let you know if my judgment changes, but so far this falls into the "recommended" category, noting again that it is narrative not theory.

Addendum: Here is Yves Smith on the book, very good post.  See also Felix Salmon.


It looks interesting. Vanity Fair published an excerpt from the book:

I have not read this book but so far for me Johan Norbergs Financial Fiasco: How America's Infatuation with Home Ownership and Easy Money Created the Economic Crisis is the best.

Financial Fiasco: How America's Infatuation with Home Ownership and Easy Money Created the Economic Crisis (Cato Institute, 2009)
BOOK FORUM, Tuesday, September 1, 2009, 12:00 PM

Featuring Johan Norberg, Senior Fellow, Cato Institute; with comments by Dr. Anthony Sanders, Distinguished Professor

How was it possible that in a world where thousands of people regulated financial markets the whole system crashed down? And should we now give more power to central banks, government agencies, politicians, and regulators? Isn't that what brought us here in the first place? Financial Fiasco digs deep into the foundation of the economic meltdown, revealing how it was the product of conscious actions by decisionmakers in companies, government agencies, and political institutions, and by consumers. Financial Fiasco tells the compelling story of how rate-cutting by the Federal Reserve inflated the real estate market and fueled increased risk-taking in the financial markets; how new government policies to promote home ownership blasted air into the credit bubble; how new financial instruments, credit-rating requirements, and accounting rules intended to prevent cheating backfired; and much more. Financial Fiasco guides readers through a world of irresponsible behavior, warns that many of the "solutions" being implemented are repeating the mistakes that caused the crisis, and offers guidance on how to move forward.

It is ironic that during the housing bubble Goldman Sachs and other investment banks complained about Fannie and Ginnie having an implicit government guarantee enabling them to borrow for less, when they now have an implicit guarantee because they are too big to fail.

@ Bill regarding private insurance. Two words: adverse selection.

Andrew Ross Sorkin was interviewed by Charlie Rose on 10/19/09.
This is the transcript--

Charlie Rose's website--


The so called "Good Banks"--Morgan Stanley and Goldman--according to Sorkin-- were about to go under without assistance, LTCM argument notwithstanding.

The only big pocket in town was yours.

I just read this from wikipedia with a new appreciation for what it might mean in the context of Paulson and Fuld, keeping in mind that Paulson apparently forced Corzine out of his co-CEO of Goldman for committing Goldman to putting in $300M into bailing out LTCM (Fuld signed off on Lehman putting in $100M):

Goldman Sachs, AIG, and Berkshire Hathaway offered then to buy out the fund's partners for $250 million, to inject $3.75 billion and to operate LTCM within Goldman's own trading division. On September 23, 1998, the offer was rejected and the same day the Federal Reserve Bank of New York organized a bailout of $3.625 billion by the major creditors to avoid a wider collapse in the financial markets.

Basically Fuld had done what LTCM did on the 23rd in 1998 a half dozen times, and Paulson thought LTCM didn't deserve a second chance.

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