Notes from Too Big To Fail

It’s been a year and half since the turmoil of the US & Global financial markets really came to a head. I remember being throughly confused about everything that was going on. Words like sub-prime mortagage, credit crisis, bailouts, Fannie & Freddie, were thrown around. It’s a big deal and something that everyone in our generation should seek to understand.

I didn’t really understand what was going on and it was hard to stay on top of all the new developments. I like to get the whole picture – not just the facts but the context and a insight into the how and why it all happened.

Andrew Ross Sorkin’s book, Too Big to Fail is a wonderful segway into the this whole story. Sorkin introduces the major players of the crisis, their background, and the roles they played. The fact that he got so many in depth interviews with people featured in the book is a double-edged sword. On one hand, he can provide narrative and details that no one else can, on the other, he has an incentive to keep all this big shots happy so that his access remains unfettered. Even so, I trust his journalistic integrity enough to believe that we get a fairly accurate portrayal of what happened – and the narrative makes the complicated financial jargon easier to swallow.

I’m going to start with just some observations I had after reading the first 207 pages or so. Please forgive me if any of this sounds naive, simple or just uninformed.

  • there are five major types of “characters” on Wall Street: traders, (investment) bankers, insurers, commercial bankers, and hedge fund guys.

  • a major problem for many of the firms in the crisis was poor liquidity, or lack of cash on hand. The bailout $$ was needed to keep companies from collapsing due to insufficient funds

  • the lack of cash was due to an improper assessment of the risks involved in and the value of certain assets that were bought/sold/owned by these financial characters

  • it’s hard to keep talented people from jumping off a sinking ship, like many of of these companies were, especially when your compensation is closely tied to overal company proofs. Big bonuses were promised to key people in exchange for staying on and risking their reputations on a potential failed firm.

  • the people who end up leading major firms are a self-selected group of aggressive workaholics who really care about their performance, and even more about their reputation (both within the industry and externally)

  • these firms are marked by a paradoxical mix of meritocracy, nepotism, loyalty, and betrayal. You can’t make it to the top with out ability -but you also need a great deal of political savvy and some ruthlessness.

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