Tuesday, June 14, 2011

Let's Review: Too Big To Fail

Let’s Review
by Alexandra Lebenthal

I’ll be the first one to admit, I counted down the days to the premiere of HBO’s of Too Big to Fail, a compelling story of the financial crisis written by New York Times reporter Andrew Ross Sorkin. The book thoroughly covers, with incredible detail, the events that forced Lehman Brothers to file for bankruptcy, followed within hours by a bailout of insurance giant AIG, orchestrated by the United States Treasury.

For those on Wall Street, the main characters in the financial world are our movie stars. There are the heroes in white hats and equally black garbed villains. Most are known only by first or last names: “Mack,” “Thain,” “Stan,” “Sand,” or ”Jamie.” The events of the financial crisis and their roles have been retold so many times; it’s as if we all were there at the Federal Reserve that weekend in September 2008.

It was inevitable that this book would become a film, and for many on Wall Street which actors would play which parts was reported on numerous websites and blogs.

The movie opened with a fairly good set up of the cause of the financial crisis. You know the story by now; Easy credit, efforts by Clinton and Bush to encourage home ownership to everyone, limited regulation going as far back as Ronald Reagan, and above all, the banking industry and their brethren on Wall Street always looking to make another buck.

As more and more mortgages were handed out, bankers got creative turning them into complex instruments that would end up turning on their very creators. When the music finally stopped and housing prices ceased going up as they had done year after year, everyone was left holding the bag. Banks, investment firms, the people who couldn’t pay their mortgages, and oh yeah, everyone else.

After the opening montage, the movie rushed through the Bear Stearns crisis, but this wasn’t the Bear Stearns book. Bear, by comparison was a relatively neat story. The viewer does get a sense, however, that from the moment Bear was sold to JP Morgan for $2, I mean $10 a share; Treasury Secretary Hank Paulson was focused on getting Dick Fuld, the CEO of Lehman Brothers to raise capital. Paulson recognized that the weakest of the herd is the most vulnerable. Perhaps it was easier for someone at a high enough perch to see, than the animal that is lagging behind. As someone who has read most of the books on the crisis, Paulson’s frustration with Fuld was evident more in his own book, On the Brink, than in Too Big to Fail.

James Woods was excellent as Dick Fuld. The desperation to save his company conflicted with his inability to get out of his own way was well portrayed. I wanted to scream when Chief Financial Officer Erin Callen, one of very few women in the book (and in reality,) was oddly directed to fasten Fuld’s cufflinks in his office, while discussing a significant effort to raise capital, as he was leaving for a black tie event.

No woman in a senior position at a Wall Street firm would ever; I repeat ever, do that. She would be reduced instantaneously to the level of administrative assistant. We don’t work as hard as we do to gain entrance in the boys club, only to go right back down with one gesture. Additionally, note to fashionistas watching the film, Erin Callen was well known for her wardrobe, and sadly the costume designer missed that part of the memo by putting her in two versions of the same, unfashionable dress in the two scenes she was in.

As the Lehman crisis unfolds in the final, the other players on Wall Street emerge. No one was dreadful, but frankly I think the real men themselves would have done just as good a job. Casting, for the most part, was good, although I can imagine the real, charming gentleman that is John Mack, CEO of Morgan Stanley, might take exception to Tony Shaloub of Wings, Monk, and Men in Black fame playing him, though he did a fine job nonetheless.

Evan Handler best known from Sex and the City, looked as close to Lloyd Blankfein as one could get, and seemed to capture his personality, though I hardly believe he would have walked the trading floor with an earpiece, shouting loudly for all to hear about Goldman Sachs strategy during the crisis.

Matthew Modine played a bland John Thain.

Bill Pullman was fine as Jamie Dimon but he didn’t seem to have the spark that the real Jamie has or the bravado that caused someone to be quoted in the real book about how great he looked in a black polo shirt at the Fed that weekend. Men do notice!

The one actor I really had a hard time with, and through no fault of his own, was that Citibank CEO Vikram Pandit was played by Ajay Mehta, the pitchman for the Fiber One commercials. It was hard to get that image out of my mind!

For the most part, I thought the actors playing the government officials were good, particularly Paul Giamatti as Federal Reserve Chairman, Ben Bernanke, and William Hurt as Treasury Secretary and former Goldman Sachs CEO Henry “Hank” Paulson.

One could sense any number of emotions that were evident in Too Big To Fail, as well as Paulson’s own book, On the Brink, fear, frustration, and anger, to name a few. Above all, however, it was clear that Paulson had a deep conflict given the clear need for government intervention and his belief in free markets.

While much criticism has been thrown his way including the conspiracy theorists who believe that he purposely let Lehman fail, I believe that Paulson did the best he could given the historic crisis and the sheer speed with which things happened that required instantaneous decisions.

Hurt’s portrayal seemed to accurately pick up on all of these issues. I was disappointed though that it took 90 minutes to portray Paulson’s now famous “dry heaves,” which were well documented in many books as well as a Vanity Fair article about the crisis.

They also used a scene from Paulson’s book when, in the height of the crisis, one of his colleagues gives him a sleeping pill, telling him this is the time to get some rest. Paulson, a well known Christian Scientist, comes close to taking the pills, before flushing them down the toilet.

Billy Crudup played an adequate NY Fed President, now Treasury Secretary, Tim Geithner.

The one character I really didn’t get was Cynthia Nixon’s portrayal as one of Paulson’s staff. She clearly seemed to be positioned as someone who was there to explain in plain English what really happened, for example, insisting that “Bailouts” be called “Very large Purchase Assistance Packages."

The real truth was she reminded me a little too much of Miranda in the early years of Sex and the City, so it was hard to get that image out of my mind, as well as expecting Samantha, Charlotte and Carrie to waltz in at any moment.

The Washington part of the story, overall though was handled quite well. The film captured the terrible drama of markets melting down while Washington failed to pass TARP the first time. It also portrayed well the sheer silliness of John McCain “suspending his campaign” to help solve the crisis. Thank God for moments of humor.

The end of the film closed with the prerequisite sentences on a black screen of what transpired after TARP. This was where I had some major issues. The last line, “Today 10 banks are still considered too big to fail,” generalizes in a way that is unfair. Dodd-Frank, the legislation that was created to prevent another financial crisis dictates that “Systematically Important Financial Institutions” (Sifis) have much more significant and stringent rules and regulations than other financial institutions. The idea being that never again will an institution be allowed to jeopardize the entire financial system.

Other global legislation “Basel 3," also has very significant rules that govern the capital and regulations of banks. Will this ultimately stop greed? Well that’s a question we all know the answer to, but I do believe that the financial system will be changed forever from the crisis and some of the rules that are still in the process of being crafted. To suggest otherwise was a mischaracterization.

All in all, I’d recommend Too Big To Fail as a good dramatization of the financial crisis. It’s certainly a lot better than Wall Street 2, which attempted to blend fact with fiction, along with excess male testosterone into the story. God knows, there’s already enough of that on Wall Street without the fiction.

There are other books that are excellent portrayals of what transpired during the crisis that are recommended reading. They discuss not only the events, but the internal politics that often were the key reason that firms ended up in the shape they did.

The Big Short, Michael Lewis – All you can eat about the complex mortgage securities that led to the crisis and the few people who saw it coming and profited from it. Fair warning, even I found it hard at times to pay attention to all the details but was glad I forced myself too.

House of Cards, William Cohan – Bear Stearns from beginning to end. A poignant tale that opens with the last days of Bear Stearns and then goes back in time to delve into the personalities that made this firm a scrappy success until 2008.

The Devil’s Casino,
Vicky Ward – Another story of the venerable reduced to the junk heap. This book deftly tells the tale of the internal politics that led to the sad, and unnecessary death of a 156-year-old firm.
Crash of the Titans: Greed, Hubris and the Fall of Merrill Lynch, Greg Farrell – The story of Merrill Lynch and Bank of America. It clearly drives home several lessons; decisive leadership, clash of cultures, the curse that befalls CEOs who surround themselves only with yes men, and oh so many more. The author was the reporter at the Financial Times who broke the story of the supposedly unauthorized bonuses. His depth of knowledge and inside contacts makes for a really fascinating read.

All the Devils Are Here: The Hidden History of the Financial Crisis, Bethany McLean and Joe Nocera – These authors are two of the best financial writers out there, having broken and covered some of the top stories for years at publications like The New York Times, Fortune and Vanity Fair. I’m embarrassed to say I haven’t read this one yet, but it’s next on my list and definitely worth being included on this one.

On The Brink: Inside the Race to Stop The Collapse of the Global Banking System,
Henry “Hank” Paulson – Written by former Goldman Sachs Chairman and U.S. Treasury Secretary, I read this last because I wanted to get a sense of what Paulson’s perspective was while all the firms were dealing with and reeling from their ill-fated decisions and political maneuverings. The book was fairly dry until after the Lehman and AIG weekend. Paulson’s description of dealing with Congress, while understanding that the fate of the world was in his, and Federal Reserve Chairman, Ben Bernanke’s hands was chilling. For those continuing Lehman conspiracy theorists, I'd venture anyone who gets as excited as Paulson does seeing a Red Headed Warbler while bird watching, doesn’t have that evil a mind.
Prior Books that are good background reading on Wall Street, Corporate America and the political games played:

Liar’s Poker,
Michael Lewis – The granddaddy of them all that helped to define the Wall Street of the '80s, which in turn was the Wall Street of the decades that followed. Lewis, a bond salesman, at once venerable Salomon Brothers, went on to become a successful writer of financial and non-financial books alike.

The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron,
Bethany Mclean – The story of Enron, or how not to run a company, screw your shareholders, enrich yourselves and leave your employees’ job prospects and 401ks with a big fat zero.

Barbarians at the Gate, Bryan Burrough and John Helyar – Go back to where it all started in the Go-Go '80s and learn about the most famous leveraged buyout of all times, RJR Nabisco. A colorful cast of characters first written about by the authors in The Wall Street Journal and then in this book, (and subsequently in a poorly done film).
Blue Blood and Mutiny: The Fight For the Soul of Morgan Stanley, Patricia Beard – The Story off Morgan Stanley and the battle waged by eight former senior directors to oust CEO Phil Purcell and ultimately return the rightful, exiled ruler, John Mack, to the throne. One of the best lesson of the book comes from the description of pre- public Morgan Stanley, which mirrored many other firms.

Once these companies ceased being partnerships where the partner's money was on the line, and became public companies, worried about quarterly numbers with other people’s money, firms began taking more and more risk. One could argue that this was also a factor in the crisis decades later.

When Genius Failed: The Rise and Fall of Long Term Capital,
Roger Lowenstein – The story of Long Term Capital and its blow up in 1998 which led most of the major firms, with the exception of Bear Stearns (ah!), to bail it out, and in so doing, ensure that the banking system would remain solvent. Long Term Capital was the precedent that is mentioned countless times in the 2008 crisis and was attempted to be replicated the Lehman Weekend at the New York Fed.

Of course what kind of shameless, self-promoting, author would I be if I didn’t mention The Recessionistas: A Novel of the Once Rich and Famous? It’s more peripheral than the other books but emanates from my experience working on Wall Street, knowing many of the players, and of my observation of the events and their effect of the financial crisis on the social world.
I didn’t write, however, about what it was like to be rebuilding a family firm with a strong legacy and how that both hung over my head but drove me to succeed, even as titans were falling around me.

I didn’t write of the day my father came into my office and commented that this was going to be like his childhood in the '30s when men in suits and fedoras sold apples on the street corner.

I didn’t write of how every evening for nearly two years, my husband and I were thankful that we’d each made it through another day, before and after that March night in 2008 when he ran to the phone telling me to look at the double screens in our computer room, which showed the Bear sale price at $2 on one side, and the announcement of the Fed window opening to other financial institutions on the other. I wasn’t quite sure which was more shocking, and of course, assumed the $2 price was a typo.

I didn’t write about what it was like to make a commitment to myself that no matter what, all of our employees would have a job.

I didn’t write of what it was like to look at the stock ticker on CNBC, and see multi hundred point drops and really not know what to say that wasn’t complete conjecture.

I didn’t write of the day a former client called me to ask if he should take his money out of Morgan Stanley because he was afraid it was going to go out of business.

Perhaps I should have. It seemed easier to write fiction, because the truth was too hard to tell.
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