BOOK REVIEW. Submitted 6-15-10

Too Big to Fail
By Andrew Ross Sorkin (Viking Press, 2009)

In March 2007 testimony before Congress’ Joint Economic Committee, Federal Reserve Chairman Ben Bernanke said, “The impact on the broader economy and the financial markets of the problems in the subprime markets seem likely to be contained.”
In early 2008 he also said, “We’ve learned so much from the Great Depression and Japan, that we won’t have…” another Great Depression or a lost decade like Japan’s.
At a September 2008 meeting of congressional leadership including Speaker of the House Pelosi, Treasury Secretary Paulson, and SEC Chairman Cox to explain Paulson’s TARP proposal, Bernanke then said, “I spent my career as an academic studying great depressions. I can tell you from history that if we don’t act in a big way, you can expect another great depression, and this time it is going to be far, far worse.”
Andrew Ross Sorkin’s book Too Big To Fail chronicles inconsistencies, contradictions, and machinations of Bernanke, Henry Paulson, Tim Geithner, and various CEOs and says they fed the market confusion of 2008. Sorkin also states that the financial cycle that our economy has experienced will only repeat itself when the next inevitable bubble bursts. Without “regulations…changed radically to include such measures as strict limits on leverage at large financial institutions, curbs on pay structures that encourage irresponsible risks, and a crackdown on rumormongerers and the manipulation of stock and derivative markets, there will continue to be firms that are too big to fail.”
Sorkins’s subtitle, “The inside story of how Wall Street and Washington fought to save the financial system—and themselves,” is a revealing tale of dealmaking among and between many operatives to save the financial system, their individual firms, and themselves. Bear Stearns, Lehman Bros., Fannie Mae and Freddie Mac, Washington Mutual bank, AIG, Wachovia bank, Morgan Stanley, Goldman Sachs, J. P. Morgan Chase, Citigroup, Bank of America, Wells Fargo, foreigners, the FDIC, the Treasury, the Federal Reserve, the SEC and other regulators are some of the protagonists in this sad story that led to the “…largest one time expenditure in the history of the federal government.” In fairness, Sorkin describes warnings, some as early as 1994, by Paulson, Geithner, and others, but that no one was listening. The financial reform proposal now before Congress includes a process for government to wind down a large financial institution; maybe that will address those “too big to fail.”
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