Too Big To Fail Archives - Bankers Anonymous

April 23, 2013April 24, 2013

The Meaning of Jon Corzine

With the announcement that MF Global Trustee (and former FBI chief) Louis J. Freeh will charge Jon Corzine for failing in his duty to oversee the company, the meaning of Jon Corzine shifts once again.

Prior to this announcement, I understood the meaning of Corzine primarily through the following investment aphorism:[1]

“One of the worst things that can happen to you or a client is an early investment that wins big. You will become overconfident of your abilities and proceed to lose much more in the future through imprudent decisions than you initially made on the winner.”

Corzine’s career is the epitome of this wisdom, although he combined it with an uncanny ability to “fail upwards.” A few salient points in his timeline illustrate his pattern.

The 1994 failure in Goldman’s Fixed Income department

1. He made partner as a government bond trader in the ‘80s, and later managing Goldman’s entire bond trading operation, but Corzine ramped up fixed income risk just when the wrong moment hit.

Interest rates rose sharply in 1994, prompting a bloody massacre of fixed income departments on Wall Street, including an existential threat to Goldman’s survival, due to losses.[2] Instead of firing Corzine for his astonishing imprudence, the partnership felt it had no choice but to elevate Corzine to Chief Executive, all the better to unwind the level of risk in the fixed income department. His elevation illustrated another finance aphorism:[3]

“If you owe the bank $1,000., they own you. If you owe the bank $100 million, you own them.”

Corzine, as described in William Cohan’s Money and Power, How Goldman Sachs Came to Rule the World, in a sense ‘owned the bank,’ as the partnership could not afford to lose him due to its exposure to rising interest rates. He was a massive risk taker in the lead-up to 1994, making extraordinary money in 1992 and 1993. But when it all turned bad, instead of being fired, Corzine was rewarded with the top job at Goldman, paired with Hank Paulson to temper Corzine’s risk appetite.[4]

Summer of 1998, Long Term Capital Management, and Corzine’s attempted rogue portfolio trade

2. With the August 1998 Russian ruble-bond default and Solomon Brothers’ swap desk liquidation, most of Wall Street faced major exposure to the insolvent Long Term Capital Management, the first Too-Big-To-Fail hedge fund. The New York Federal Reserve attempted a private sector “bail-in,” requiring cooperation and an infusion of capital from each of the Wall Street firms, via a Godfather-style meeting of the families, hosted by the New York Fed.

Corzine, however, nearly managed to personally blow up the whole bail-in, achieving the rare trick of pissing off not only the rest of Wall Street but the entire Goldman partnership as well.

While the Fed urged cooperation between banks, Corzine attempted a sideswipe of the portfolio out from under the rest of the Street. He secretly negotiated a purchase of Long Term Capital’s entire portfolio using Goldman’s capital[5], presumably believing the firm could make a profit by taking on the risk of the illiquid trades.

This attempt, ultimately unsuccessful, came at a delicate time for financial markets, suffering unexpectedly large losses on Russia and exposure to LTCM.

Goldman, in particular, had been planning an IPO that Fall, which Corzine’s actions undermined. The IPO was delayed by market conditions, but also by the frightening style of rogue trading risk which Corzine engendered with his move. The firm leadership of Paulson, along with deputy heads John Thain and John Thornton, engineered a coup against Corzine’s leadership as a result.

Corzine seemingly never saw a risk he didn’t try to take, which ultimately proved too much for the partnership. They allowed him to stay nominally in charge through Goldman’s IPO in June 1999, with the understanding that Corzine would be professionally sidelined after that. His political career began shortly after.

MF Global and lack of risk controls

3. After unremarkable stints as Senator and Governor of New Jersey[6], Corzine landed the top job at MF Global, a medium-sized brokerage.

We now know Corzine continued his pattern of 1994 and 1998, in which he doubled-down and tripled-down on risks, in the face of extraordinary losses. Although his trading led to huge losses, somehow his ability to fail upwards did not derail his own personal career.

Up until MF Global became the eighth largest bankruptcy of all time, the meaning of Corzine seemed to be about his almost Forrest Gump-like success, in the face of amazing failure. His Midwestern affable, bearded, demeanor masked an unlimited appetite for investment risk. Sometimes it worked, sometimes it didn’t, but either way Corzine kept on moving upward.

We know in retrospect that Corzine’s pattern of unrelenting risk-taking continued at MF Global, and that ultimately some wrong-way bets on European sovereign bonds pushed the firm into chapter 11 bankruptcy.

We also know some $1.6 Billion in customer funds were misplaced in the final days of MF Global, for which I’ve argued Corzine should be in jail.

A new meaning of Jon Corzine

Following the debacle of MF Global, and in the light of the 2008 credit crisis, however, Corzine’s career came to represent something darker and more insidious.

Unlike failed chief executives Dick Fuld of Lehman Brothers, or Jimmy Cayne of Bear Stearns, Corzine actually oversaw the misplacement of customer funds, not just the destruction of shareholder value.

We forgive – mostly – the leaders who drove their firms into the ground through errors in judgment, or risk management, like Fuld and Cayne. Shareholders lost, but shareholders took equity risk and our system rightly allows for losses like that.

Fuld and Cayne lost personal fortunes invested in their own firms, as they should have, and suffered for the loss in their reputation.[7]

But we should not forgive those who commit the fiduciary sin of misplacing customer funds, like Corzine.

I make a distinction between these so that we do not lose sight of the different types of losses, and the consequences. It bothered me, up until now, that Corzine was not pursued more aggressively for the loss of customer funds.

Too Big To Fail executives

For me, Corzine additionally offered the ultimate lie to the public about executive compensation. Namely, if you’re so essential to your business that you deserve, say, $12.1 million per year in good times,[8] how can you not retain the liability and responsibility when things go horribly wrong?

In what way did you earn the upside profitability, but not deserve the downside liability?

If you’re so good at what you do, then you need to be held personally liable when $1.6 Billion in customer funds go missing.

All of which is to say that I’m extremely pleased to see MF Global Trustee suing Corzine for his responsibility in the failure of his firm.

MF Global, the firm, was not Too-Big-To-Fail when it went under in September 2011.

Jon Corzine, the executive, until now represented a type of CEO who could earn profits and bonuses in the good years, without suffering personal consequences when things went wrong.

With the latest news, however, I’m encouraged that at least one Too-Big-To-Fail executive will suffer the consequences.

Please also see Arrest Jon Corzine Now

And Update on Jon Corzine by the MF Global Trustee

And One more rant on Jon Corzine

[1] All credit for this aphorism to financial planner David Hultstrom, whose ‘Ruminations on Being a Financial Professional’ is the best collection of pithy and wise investment advice I’ve ever seen collected in one place. See especially pages 9-12.

[2] Incidentally, I’m not in the prognostication business, but when you look at this simple chart of fixed income over the past 50 years, you see we’re at the very bottom of the rate cycle with very little to go from here. No risk manager alive has ever dealt with a massive move upward in rates, only short spurts in a secular move to lower rates. When the trend reverses, it will by U-G-L-Y.

[3] Attributed in different variations to John Paul Getty as well as John Maynard Keynes.

[4] I didn’t work in Goldman’s fixed income department until 1997, at which point Corzine ran the firm as senior partner, along with Hank Paulson from investment banking. Corzine was the bearded, affable, sweater-vest guy who would occasionally come down to the bond trading floor.

[5] Matched with capital from Warren Buffett’s Berkshire Hathaway.

[6] An associate of mine who dealt with Governor Corzine frequently complained about Corzine’s leadership in New Jersey. Although in agreement with his political persuasion, he found Corzine unwise politically and inconsistent to deal with.

[7] I actually wish we had more Japanese-style “begging of forgiveness” for corporate failure by chief executives. The promise of public shaming might help temper risk appetite.

[8] Corzine’s scheduled final executive package, before he wisely offered it back, in the wake of the Ch. 11 filing of MF Global.

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January 31, 2013April 4, 2014

The USA of I.O.U.

Every once in a while I read a finance article that sticks in my head and never goes away. An article about the historical intersection of debt and the United States from the New Yorker from four years ago by Jill Lepore is just one of these.[1]

The USA of IOU

Jill Lepore’s article explains that in many ways the United States was founded of the debtors, by the debtors, for the debtors.

We know from English literature that the United States represented a fresh start for insolvents from the lower and upper classes, which makes sense when we learn that both Dickens’ father went to debtor’s prison and Trollope’s father fled England to avoid it.

What I didn’t know is that as many as two-thirds of Europeans arriving in the Colonies were debtors, paying their way as indentured servants. The colonial governments of Virginia and North Carolina for their part, eager for laborers, passed incentives by promising 5 years’ worth of debt protection. The founder of Georgia, James Oglethorpe, specifically started the colony as a debtor’s refuge in 1732, as an alternative to English debtors’ prison.

Lepore makes the interesting comment that Founding Fathers Jefferson and Washington were so up to their necks in debt to London bankers that the Declaration of Independence from England not only served democratic Enlightenment ideals but also their own balance sheets.[2]

Debtor’s prison

Before reading Lapore’s article I had no idea that the English tradition of locking up debtors in prison jumped the Atlantic and came to the American colonies and the young United States. Debtors through colonial times and the first 40 years of the Republic routinely got locked up in brutal prisons, – often for very small amounts. There the debtor would stay, half-starved and dependent upon alms from passers-by, until someone – usually a relative – paid the debt.

New York became the first state in the nation to outlaw debtors’ prisons in 1831, paving the way for other states to follow suit.

Debtors’ prisons largely predated proper bankruptcy law, which makes sense as bankruptcy would always be preferable to prison.

Bankruptcy for Traders vs. Everybody Else

You are not going to believe this[3], but in the 1800 to 1830 period, financial traders typically received preferable treatment, by law, over everybody else, when it came to insolvency.

If you were a stockbroker in 1800s Wall Street, for example, or you engaged in financing merchandise shipping and trade, or trading in agricultural commodity futures[4], you could declare bankruptcy if the business went awry. But, if you were not a financier, you had no way of getting clear of your debts, and you might face debtors’ prison.

In essence when debts became overwhelming, Lepore explains, a bankruptcy law in 1800 allowed financiers to declare bankruptcy and receive a fresh start, freed of their debts. Presumably lawmakers justified this disparity through a logic similar to today’s “Too Big To Fail” principal. If the brokerage houses in turn of the 19^th Century Wall Street couldn’t work through their financial distress, well then my goodness, what would happen to the economy????[5]

Since the bankruptcy law only applied to traders, everybody else was liable to be thrown into debtors’ prison. Indefinitely, in fact, until their debts got paid. Not until 1841 did Congress pass a permanent bankruptcy law so that ordinary folks could declare bankruptcy in the event of insolvency.[6]

So, if you were wondering whether the bailout of Wall Street in 2008 while Main Street suffered represented the nadir of financial inequality and injustice, you’d be wrong. Early 19^th Century injustices were even worse. There, doesn’t that feel better now?

[1] Here’s a Scribd link to the article as well.

[2] Before reading Lepore’s piece I knew about the historical train of thought that the Founding Fathers were greatly motivated by selfish private interests, such as keeping taxes low and protecting their own private property, something that British sovereignty increasingly impinged upon in the years leading up to the Declaration of Independence. As a recovering banker, however, I find the we’re-up-to-our-necks-in-debt-let’s-cut-ties-with-our-bankers argument plausibly intriguing. I’m sure Jefferson and Washington were great guys and all, but any time you can simultaneously establish a radical new experiment in non-Monarchical government based on Enlightenment ideals and wipe out your personally huge debts at the same time? Wow, I mean, that’s a two-for-one. You kind of have to do it.

[3] Yes, that’s sarcasm.

[4] Yes, the concept and use of commodity futures are not hundreds, but thousands of years old.

[5] Does this sound familiar to anyone?

[6] Lepore relates the story of a clever insolvent who found a loophole in the bankruptcy law of 1800 that offered unequal treatment between traders and everyone else. With extraordinarily large debts that had previously landed him in jail, her hero John Pintard managed to get a temporary reprieve from prison through a loophole in the debtors’ prison laws. He took out an advertisement in a newspaper that he was doing business as a stock broker. Pintard then traded a single stock, pocketed the fifty-eight cents profit (later donated to charity), and filed for bankruptcy as a trader.

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November 7, 2012November 13, 2012

Four Reactions to the Election

Four quick thoughts now that the elections are over, from a recovering banker.

1. The equity indexes fell immediately at the open today, and remain down over 2% on the day. Do not let any talking head from the financial-industrial-infotainment industry try to suggest that this is in response to Obama’s election. Every trader on the planet knew that Obama had a 60% chance of winning as of last month, a 75% chance of winning as of last week, and a 90% chance of winning as of the final 48 hours.[1] Nobody who manages capital for a living was caught off-guard by the Obama victory, so nobody suddenly had to reposition their portfolio as a result this morning. Markets and the people with real capital who participate in them are forward-looking and probabilistic; equity markets already reflected widespread expectations of an Obama victory.

2. The next Treasury Secretary matters tremendously for the biggest financial-regulatory issue of the day – the unaddressed problem of Too Big To Fail banks. Secretary Geithner pre-announced that he would not serve in a second Obama administration[2] so the hunt for a new Treasury Secretary is now underway. Geithner’s utterly failed to address the TBTF problem and pushed the Obama administration into a business-as-usual, same-guys-in-charge approach to Wall Street reform. Secretary Paulson’s background as the former Goldman chief who grew up professionally with the rest of Wall Street’s heads played an inordinate role in selecting the winners and losers of the Credit Crunch of 2008, along with in providing the ultimate government backstop for the country’s biggest financial firms. Had Paulson come from any other industry – instead of finance – he would have seen what the rest of us saw: It’s unconscionable to allow firms to pay executive bonuses[3] in the same year that the firms were bailed out by taxpayers. Geithner continued Paulson’s protective approach to Wall Street banks, rather than seizing the opportunity to extract real concessions or reform when the industry needed the government to survive.

I’m not suggesting we put someone like Elizabeth Warren[4] in charge, but we need someone who can independently evaluate what parts of Wall Street need supporting and which parts need curbing. Somebody, in other words, who didn’t spend his or her entire life working on the Street.

3. The “Fiscal Cliff” and fiscal responsibility.

Obviously the FC now becomes the next hot topic for overheated punditry, at least until we pass the January deadline.

I’m not optimistic about the tone of the discussion nor about the possible results of fiscal compromise, but I do have my wishes.

I wish that, with elections for Congress now two years away, can we have less complete bullshit when it comes to fiscal policy positions? Would that be too much to ask?

One party’s leader says the solution lies in tax cuts. The other party’s leader says the solution lies in more generous social spending. One party’s leader says military spending is untouchable. The other party’s leader says transfer payments and social safety net spending is untouchable. All those proposals leave us in a worse fiscal position as a nation.

Hey guys? Can you treat us like grown-ups? We can handle a bit more truth than you’re giving us credit for. We know budget deficits have a terrible trajectory and only a combination of tax hikes and spending cuts will correct the course.

Say what you will about the 2016 Republican nominee, Gov. Chris Christie, he’s proved that refreshingly blunt and seemingly unpopular – but honest talk – can appeal to both sides of the political aisle. Let’s have some more of that as we drive, full throttle, toward the Fiscal Cliff.

4. Tax policy

I’ll have more to write about this shortly, but one of interesting lessons of Mitt Romney’s candidacy is how little the US electorate understands, or cares to understand, about our income tax policies.

By releasing only his 2010 and 2011 income tax returns, Romney effectively obfuscated his financial background. He signaled (albeit quietly) that his tax-planning strategies were so aggressive that their release would explode his electoral chances. And yet, I don’t think this cost him anything real in the end in terms of votes. He calculated – correctly! – that the electorate’s ignorance of current tax policies, and popular tax-planning strategies of the wealthy would protect him.

Despite heightened resentment toward the wealthy, I observe the “99%,” for the most part, has no idea what they don’t know. They can’t even conceive of the many ways someone like Romney avoids paying his proportionate share of taxes. Romney knew that, and he was not about to wake that ignorant, sleeping giant by revealing his methods in the unreleased tax returns.

[1] Because professional traders pay attention to data and evidence, not pundits trying to hype a competitive race. Which is why Nate Silver is a the mutherflipping P.I.M.P. of the moment.

[2] And I have this sick feeling in my stomach that he’ll be Goldman’s next senior hire

[3] Bonuses are for success. Bonuses are optional. Bonuses should reflect private profit and should never be paid by borrowing from taxpayers. Only a deeply embedded executive like Paulson could have missed the implications of this.

[4] I know I may sound strident when it comes to Wall Street reform, but I actually admire the industry very much and I want it to thrive. Warren, by contrast, strikes me as overly ideological when it comes to Wall Street, incapable of seeing the positive.

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September 20, 2012December 20, 2013

The Citigroup Bailout – SIGTARP Part III

We love to criticize the wastefulness of bureaucracy, the agency ass-covering, and the naiveté of government officials. But it’s a surprising pleasure to read[1] The SIGTARP [2] review of the government’s response to Citigroup’s near-death experience and its bailout in the Fall of 2008.

Here we have a US Treasury position created for the purpose of reviewing the government’s own actions in the heat of the crisis, and we might be excused for bringing low expectations to the table. I have to admit, however, that my jaundiced eye opens wide with the quality of the analysis and indeed the downright feistiness of the SIGTARP report.

The report reviews the timeline of the crisis, the systemic need to bail out Citigroup, and the particulars of negotiating – actually, Treasury mandated – a $20 Billion preferred-equity capital infusion and a loss-absorbing backstop for a $300 Billion ring-fence around Citigroup’s riskier assets.

We do not know what would have happened without government intervention on behalf of Citigroup, but the SIGTARP nicely summarizes the case for Citigroup’s status as a Too Big To Fail (TBTF) Bank for those of us with short memories. Citigroup was at the time the largest currency exchange bank, the largest consumer finance lender, the world’s largest credit card lender, the 2^nd largest banking organization, the third largest mortgage servicer, and the fourth largest student lender, with over $175 Billion in uninsured domestic deposits.

SIGTARP shares numerous interesting details from the negotiations in October and November 2008.

First, the government needed to lie to itself and the public in the Fall of 2008 when it declared Citigroup a ‘healthy and viable’ banking institution[3], as a necessary condition for providing an initial $25 Billion capital infusion through the Capital Purchase Program (CPP) in October 2008.[4] Treasury Secretary Paulson and New York Federal Reserve Board (FRB) President Geithner clearly felt at the time that they could only get Congressional support for the CPP if it came with a large dose of self-deception about ‘healthy and viable’ banking institutions. Why would a ‘healthy and viable’ banking institution need an emergency $25 Billion capital infusion from the government anyway? It’s a Potemkin Village type absurdity, and SIGTARP lets us enjoy the irony.

Next, Treasury, FDIC, and the FRB cut a pretty good deal for taxpayers in negotiating with Citigroup. Most importantly, they announced to the public (and Wall Street) the ‘ring-fencing’ of over $300 Billion in Citigroup assets – government insurance against losses. By ring-fencing, they separated presumably toxic assets on Citigroup’s balance sheet, and declared these assets would be treated in a special way to limit Citigroup’s total losses.

Here’s the clever part about the ring-fence; Citigroup remaining on the hook for the first $39 Billion in losses, with a combination of Treasury and FDIC absorbing the majority of the next $15 Billion in losses, and the Federal Reserve Board absorbing the rest of the loss risk via non-recourse financing. While the announcement emphasized the government insurance for Citigroup’s riskiest CDOs, RMBS, CMBS, and auto loan ABS, loss-scenarios suggested only Citigroup would bear the losses on the portfolio.[5]

If you can’t figure, as neither Citigroup nor the market could out at the time, what the bank’s biggest loss could be on its portfolio, then the market would assume the worst and treat Citigroup as a soon-to-fail entity going the way of Bear Stearns, Lehman, and AIG. But if you can precisely define, as the ring-fence did, the upper limit of the bank’s losses, then the market understands the known limit and the self-fulfilling prophesy of expected losses leading to financial wipeout can stop. So, that’s clever.

Following this announcement, as intended, markets credibly believed Citigroup to be TBTF, with a perceived government guarantee on a huge portion of its riskiest assets. The stock-shorting activity reversed, CDS spreads tightened, and we saw no world-wide run on Citigroup’s bank deposits.

SIGTARP’s feistiness surfaces most particularly in reviewing not only the actions of government leaders, but their disagreements with each other and with its review. Numerous times throughout the report, we learn of requests by FDIC’s Sheila Bair to change or redact statements in the report. We also learn that Citigroup successfully withheld a listing of its ring-fenced assets from publication by SIGTARP, citing propriety information[6], but SIGTARP is not afraid to respectfully disagree.

SIGTARP’s summary of the story emphasizes the ad hoc, but ultimately correct, decision of government leaders to massively intervene on behalf of Citigroup. SIGTARP calls out our own government for what they failed to make Citigroup do; this distinguishes the report and makes for good reading.

SIGTARP gets to the heart of unsolved problems with the government interventions of 2008. Citigroup, along with more than a dozen financial institutions, today remains TBTF. Which means we could repeat the same crisis we all just survived.

Not only that, but SIGTARP rightly states that the last bailout may increase the likelihood and severity of the next crisis, because the moral hazard problem also remains with us today. High-risk takers, namely Citigroup creditors and counterparts, were not punished in the bailout, so they may reasonably expect to under-price similar credit and counterpart risk in the future, believing that the government provides an invisible safety net underneath high-wire risk taking.

Even short of a repeat crisis, we know that the implied government guarantee for TBTF institutions constitutes a massive subsidy to Citigroup and its brethren via lowered borrowing costs and collateral costs. This subsidy provides huge advantages over smaller financial firms, but, more troublingly sets the taxpayer up for unlimited liability for private institutions, with little discernible public benefit. Citigroup, the big red umbrella, is still not paying us citizens for the giant insurance policy we offer them.

I don’t criticize the government, and neither does the SIGTARP, for preventing a Citigroup collapse in the Fall of 2008. I do blame the US government, and thankfully SIGTARP does too, for allowing TBTF banks to continue their invisible but nevertheless powerful draw on free taxpayer support.

Ultimately, as SIGTARP rightly (and depressingly) points out, we cannot know the cost of this Citigroup bailout until we know the cost of the next bailout, partly born out of this one.

Two concluding thoughts make me optimistic, however.

First, although SIGTARP is part of the government, it plays the ombudsman role fairly, critically analyzing what other parts of the government have, and have not, done since the acute crisis subsided. There’s hope in a system which can criticize itself and thus correct its future course. Course change is hard, but a report like SIGTARP’s makes it possible. I made this thematic point in an earlier post, but it’s worth emphasizing. I’m not sure we’re improving, but I am sure that critical thinkers within the system, like SIGTARP, give us a chance at improvement.

Second, throughout the narrative of Citigroup’s near collapse and rescue, we see instances of massive government intervention but not a massive government power grab. This too bears remembering. The United States has a tradition of public official respect for private enterprise, which is both understood and credible – but not always recognized by politicians wanting to score points. [7]

A market collapse and an overwhelming government bailout naturally give rise to conspiracy theories on the political fringes. Many, if not most, societies in the rest of the world would fit the Citigroup events into a conspiratorial, but ultimately unhelpful narrative. The specific history of Citigroup as told to us by the SIGTARP, however, reminds us that even if the government did not get everything right, they actually did pretty well, considering.

Please also see SIGTARP Part I – Truth in Government

SIGTARP Part II – Biggest Banks Still Too Big To Fail

SIGTARP Part IV – Which Small Banks are Going Under Next?

and SIGTARP Part V – The AIG Bailout

[1] Assuming you like wonkish reviews of the government’s response to the 2008 Credit Crunch as much as I do.

[2] Special Inspector General for the Troubled Asset Relief Program, aka SIGTARP, aka Norse God of Financial Accountability.

[3] Both Treasury Secretary Hank Paulson and FDIC Chair Sheila Bair used this description in written and spoken statements.

[4]A banking institution had to be “healthy and viable” to be considered a “Qualifying Financial Institution,” as only “Qualifying Financial Institutions” could receive this capital infusion.

[5] As, in the end, it turned out. When the $300B guarantee program unwound in the Fall of 2009, only Citigroup had suffered losses. So we’ve got that going for us. Which is nice.

[6] In pointing this out we get to share SIGTARP’s undoubted chuckle about the ‘special sauce’ of proprietary information Citigroup keeps from its competitors, which contributed to one of the most catastrophic losses in human financial history. Seriously, guys? No one wants your special recipe of assets that contribute to financial Armageddon for your bank.

[7] Anti-market and anti-government cranks both see vast conspiracies and vindication of their own warped views in the events of 2008, but thankfully they mostly troll the Internet commentary pages and do not reflect, you know, reality.

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June 11, 2012December 4, 2014

Book Review: Too Big To Fail

You may, like me, be curious about what happened during the Great Credit Crunch. You may, like me, have the feeling we reached a financial precipice, peeking over the edge into the abyss. But before falling in we blacked out and woke up in the hospital, a thick IV needle in the arm, tired and confused but otherwise basically OK, thinking, “But, but, but, wha, what happened back there?”

Andrew Ross Sorkin wants to answer this question for us in Too Big to Fail, his bestselling account of the eight most dramatic months of the Great Credit Crunch. It begins in March 2008 with the demise of Bear Stearns, peaks the week of September 15 2008 (Lehman declared bankruptcy, Bank of America agreed to purchase Merrill Lynch, and AIG got its first $85 Billion bailout by the Federal Reserve) and ends in October 2008 with the mandatory TARP investments by the US Treasury in nine systemically important – aka Too Big To Fail – banks.

Sorkin covered the crisis for The New York times via his Dealbook column, and has a lot to offer us as that front-line journalist, under nearly war-time conditions of high stakes and daily – even hourly -changing conditions. For sheer personal access to the leading protagonists, as well as the rendering of real-time conversations, Too Big To Fail is a helpful first brush at history. No doubt the movie attracted even more attention than the book, because, well, most people would rather watch a movie than read.

For all the attention and acclaim he received for his A-list account of the Great Credit Crunch, however, Sorkin has two big problems. The first is a minor stylistic issue, the second a fundamental difficulty.

Look, Sorkin had a problem in writing this book; namely, how to make concrete action out of events that took place primarily on the financial ledgers of governments and banks. These ledgers do not exactly provide riveting visuals, and I definitely get the feeling Sorkin planned to sell the movie rights before he finished Chapter One. So visuals were key to his plan. As a way to create cinematic action Sorkin highlights every swift swipe of the Blackberry from Hank Paulson’s pocket, every frenzied snatch for the phone while riding in a Town Car zooming away from the Federal Reserve. There’s a lot of gasping and ‘Oh my God!’ horrified looks as bank executives read the latest risk report on their phones from their loyal lieutenants. Paulson’s phone in particular plays a fetishistic role in the book, constantly moving from his ear to his pocket and back. It’s just a quirk of style on the one hand (movie rights must be sold!) but it is nevertheless distracting and silly. Sorkin tries to show the high stakes danger facing Paulson and his deputy Neil Kashkari, but instead merely brings to the reader’s mind Crockett & Tubbs shouting into their oversized car phones, buzzing the Day-Glo storefronts of Miami in 1985.

The more fundamental problem with Too Big To Fail stems directly from Sorkin’s strength as a New York Times journalist – his access to financial executives and government officials. They needed him to tell their story, and he needs them to write his story, but their pact of mutual benefit results in a narrative with no bad guys. In Sorkin’s story, every Dick Fuld, every Tim Geithner, every Lloyd Blankfein and every Jamie Dimon is just a high powered guy with a Blackberry doing his darndest to survive this financial firestorm. They gave extraordinary access to Sorkin, they will give extraordinary access to Sorkin in the future, and there’s really no point in painting any of them in a negative light, now is there?

Hank Paulson made this book happen through repeated interviews with Sorkin, in his attempt to get his (Paulson’s) version of the crisis on the record first. As a result, the one exception to Sorkin’s rule of mutual benefit is Chris Flowers, who clearly got so under Hank Paulson’s skin (their historic antagonism goes back to the ‘90s when both were at Goldman) Sorkin shows him as the backstabbing, untrustworthy thief that he probably is. In this case, Sorkin risks an unflattering portrayal (and really, the shocking thing is that ONLY Flowers is shown in this light) because he needs to present Paulson’s version of the truth. Reading Too Big to Fail I kept thinking that the Wall Street I know has got a lot more unsavory characters than just Chris Flowers.

I do not mean to imply that I prefer a book bashing the heads of Wall Street firms. There are plenty of those, and frankly they’re even less helpful than Sorkin’s book. What we do need, however, is some analysis that might make Sorkin’s sources uncomfortable. We need a chronicler of the Great Credit Crunch to contextualize what happened, to explain the forces at work that put us in this situation in March 2008 in the first place. Less necessary is Sorkin’s entire book – which can be summed up as: ‘There were a bunch of aggressive but basically good guys working late nights and weekends to save their bacon and that of their firms, and it was really scary but kind of exciting to be there with them.’

If you read the news as obsessively as I did during that period, you know the basic facts, and Sorkin tells us a lot more basic facts of who said what to whom, and when, and what late model Blackberry they used. But now we’re lying groggy in the ICU with that thick IV muttering, “OK, I know WHAT happened, but WHY?”

Please also see related post, All Bankers-Anonymous Book Reviews in one place.