Engaging account of Wall Street on the brink

BOOK OF THE DAY: Too Big to Fail: Inside the Battle to Save Wall Streetby Andrew Ross Sorkin Penguin, pp 624, £14.99

WHEN A contingent of Japanese bankers dressed in impeccable black suits start taking pictures of themselves handing over a cheque for $9 billion in the Manhattan law offices of one of America’s biggest companies, you know that something out of the ordinary has just happened.

None had ever seen a cheque with nine zeros and those who held it felt it had to be the single largest sum ever held by an individual. Japan’s Mitsubishi Bank had just agreed to invest the money in US investment bank Morgan Stanley in return for a stake. An investment had been urgently needed to prop up the bank. It was the weekend so a cheque was the only option. The investment was enough to quell the bubbling waters to ensure Morgan Stanley remained afloat.

This is just one of the many bank-saving moments chronicled in Andrew Ross Sorkin's behemoth of a narrative, Too Big to Fail: Inside the Battle to Save Wall Street, about the near-collapse (and collapse) of the Wall Street investment banks in September-October 2008 after the US subprime mortgage crisis had triggered the worst financial crisis since the Great Depression.

In good times, the Big Five investment banks had survived and prospered. But in autumn 2008, the Wall Street game of leveraging large sums of cash into vast war-chests of unsustainable debt was proven to be a model well beyond repair.

Morgan Stanley and Goldman Sachs were the last two investment banks left standing following the rescue of Bear Stearns (by JP Morgan with US government support) in March 2008, the calamitous bankruptcy of Lehman Brothers the following September and the merging of Merrill Lynch with Bank of America.

While all the US investment banks feature in this ambitious book, Lehman’s, which was run (into the ground) by the pugilistic Dick Fuld, is central to this story. Fuld’s demise is worthy of Shakespeare’s most tragic heroes. While the US financial system had moved to save other firms, Ross Sorkin writes that Fuld could not understand why his was not afforded the same protections. “Until the day they put me in the ground I will wonder,” he said after seeing his shares, once valued at $1 billion, turned to just $65,000 when Lehman’s failed.

Sorkin cleverly reconstructs the crisis in hour-by-hour episodes detailing the often-sleepless meetings involving senior government figures, bankers and regulators that were frantically organised to save the system.

As a result the book is never dull. It reads like a military history with the central character, US treasury secretary Hank Paulson, portrayed as a war-weary general haphazardly strategising to protect the next beachhead. The awkward phone calls orchestrated by Paulson and New York Federal Reserve chairman Timothy Geithner (now treasury secretary to Obama), between rival bank bosses to encourage mergers are a study in clashing egos.

The book is long on detail but short on explanations as to why Wall Street had to be rescued, save for a brief synopsis. Sorkin concentrates on narrating what happened in detail rather than analysing why it happened.

However, as a first comprehensive behind-the-scenes narrative of this dramatic period in US financial history, this compelling and meticulously researched book is a fascinating study of crisis management and mismanagement.

Simon Carswell is Finance Correspondent of The Irish Times