“Hold on, hold on,” [Ruth] Porat said in disbelief. “You’re calling me on a Sunday night saying that we just spent the entire weekend on Lehman and now we have this [AIG]? How the [foul language] did we spend the past forty-eight hours on the wrong thing?”
That is from Andrew Ross Sorkin’s Too Big to Fail. Reading the book leads me to ponder the differences between Chauffered America–Hollywood, investment bankers, and high government officials–and Strip Mall America–people who launch businesses like restaurants, hair salons, and other small enterprises.In spite of Sorkin’s low level of economic literacy (at one point, he gives Alan Greenspan’s claim to fame as his expertise in fiscal policy), his book is worth reading. He is an outstanding storyteller–I could not put it down until I finished. Moreover, the lack of economic insight is more than made up for by the sociological insight that one obtains from Sorkin’s details. He never misses a chance to describe what the financial titans were eating, how their offices were decorated, which brand of car they rode in, how they obtained last-minute air transportation, or the foul language they were using.
The book’s crescendo is the weekend of September 14-15, 2008, when Lehman goes bankrupt. Late on Saturday, while Lehman’s fate is still uncertain, several CEO’s and other executives are ensconced at the New York Fed. Sorkin writes,
In one corner, a number of exeuctives, trying to pass the time, were doing vicious imitations of Paulson, Geithner, and Cox. “Ahhhh, ummm, ahhh, ummm,” one banker muttered, adopting Paulson’s stammer. “Work harder, get smarter!” another shouted, mocking Geithner’s Boy Scoutish exhortations. A third did his best impression of Christopher Cox…”Two plus two? Um–could I have a calculator?” In another corner, Colm Kelleher, Morgan’s CFO, had begun playing BrickBreaker on his BlackBerry, and soon an unofficial tournament was under way, with everyone competitively comparing scores.
The obvious sociological point is that the top finance people live in a bubble, with secret entrances, isolated offices, chauffered automobiles, and private jets. Even the top government officials inhabit this world. Sorkin describes Geithner arriving at the airport in DC and losing it over not being met by a driver. Forced to take a taxi, Geithner turns to his colleague and says that he has no cash. Perhaps this would have been a moment to teach the head of the New York Fed how to use an ATM.
Sorkin managed to make me feel some sympathy for Henry Paulson, the earthy control freak. Annoyed that SEC Chairman Cox had not undertaken a task that Paulson had wanted, we hear:
“I don’t want to be left here holding Herman,” the Treasury secretary said, glancing at his zipper in case the joke wasn’t clear.
Ultimately, the hard-charging Gulliver was tied down by the Lilliputians of the British banking regulators, who made it impossible for Barclay’s to bid on Lehman prior to its bankruptcy. In that respect, Paulson was actually left holding Herman, as it were.
In Sorkin’s telling, Geithner and Paulson are the deal-making heavies. Bernanke makes cameo appearances to utter professorial remarks, but otherwise seems like a non-player.
I do not see how reading this book can help but reinforce a Simon Johnson/James Kwak view of Washington captured by Wall Street. Paulson seems to have no use for anyone who is not a Goldman Sachs alumnus. Geithner seems to have no use for anyone who is not a CEO of a large financial institution. Both of them view the collapse of major Wall Street firms as Armageddon.
The “regulatory overhaul” promised by the Obama Administration is still the same-old, same-old. Chauffered America will be restored to its exalted status, with a few new rules and regulations thrown in.
Instead, somebody should be asking the deeper question about Chauffered America. If Chauffered America were to disappear, would the rest of us miss it? Or could Strip Mall America get along just fine without the big-time bankers and their friends in government?
READER COMMENTS
James Oaksun
Oct 25 2009 at 9:54am
What, no more Z tranches and CDOs?
Yes I think the world could survive. But the deleveraging that would have to occur would be painful in a transitional phase.
Robert
Oct 25 2009 at 11:58am
I don’t see why you mention Hollywood. It is probably the most globally admired American industry. I wouldn’t miss Tom Cruise or Paris Hilton, but I would miss the industry and the movies they make.
Hollywood has not captured the government nor does it coercively or surreptitiously acquire other people’s money.
Hearst
Oct 25 2009 at 4:12pm
Not surprised at all that the executives are like overgrown idiotic frat boys. The structure selects for things like social dominance, so naturally those types of guys are at the top. The more cerebral types are either slaving away under these guys, or are off at smaller places like hedge funds that are less hierarchical so that dominating others and navigating the hierarchy is less important and that brains and individual performance is relatively more important.
“Boy Scoutish” is probably one of the best ways to describe Geithner. He is so lacking in gravitas, I have an extremely hard time believing that the Chinese or anyone else that he meets on these non-stop tours abroad take him seriously. Contrast him with a former official like Volcker and it looks almost comical the difference in gravitas, image, seriousness, etc.
George
Oct 25 2009 at 7:24pm
Robert wrote:
Hollywood has not captured the government nor does it coercively or surreptitiously acquire other people’s money.
Go Google “RIAA”, “MPAA”, and “DMCA”.
And if all that money Hollywood types have given to politicians hasn’t captured them, why do they keep giving?
fundamentalist
Oct 25 2009 at 7:26pm
Hearst, you’re right on! They are the result of the Greek system in colleges.
This reminds me of the quickly buried report from the Minneapolis Fed that asked “Where is the crisis?” The economists at that Fed branch could find no crisis in the data. They wrote that a few big investment banks were in trouble, but there was not systemic crisis. Paulson and Bernanke clearly wanted to sell out America to rescue their frat bros.
dkite
Oct 25 2009 at 7:50pm
Financial centers don’t collapse and die in a day.
A simple question. Who in their right mind would trust Wall Street with their money?
There are exchanges all over the world in cities that at one time meant something, now are dens of insiders trading and trying to screw each other. And the odd sucker who wanders in unawares.
Derek
Robert
Oct 25 2009 at 7:54pm
George, I think without some sort of copyright law a lot of expensive, great movies wouldn’t be made. Like Dark Knight 2 for example.
And Hollywood clearly hasn’t captured government — otherwise the music industry wouldn’t be slowly dying as it is right now. If they had real power, they would have gotten congress to pass laws making it illegal to have mp3s without proof of ownership, or something of that nature.
Graeme
Oct 26 2009 at 1:36am
Robert, firstly there is no proof that the benefits of copyright law outweigh their costs.
Secondly, we certainly do not need long copyright terms (as long as life +70 years). We do not need things written in the nineteenth century to be in copyright in the twenty-first century. Do a DCF: at the time someone decides to create a work, almost all the value lies in the first twenty years or so of the income it generates.
We do not need laws that criminalise shifting content from one device to another for private use. We do not need laws that effectively keep material from ever entering the public domain (when the copyright of a film released on DVD runs out, it will still be a criminal offense to decrypt it and copy it under the DMCA).
We do not need software to be covered by copyright, patents and remain a trade secret at the same time.
it might be beneficial to have some sort of copyright laws, but the laws that we have are only beneficial to the media industry. There is clear regulatory capture.
They may not get every law they want, but neither does Wall Street.
dullgeek
Oct 27 2009 at 2:56pm
Having previously worked for a financial services firm that, at one point, poached several Goldman employees, I suspect that the hubris of Goldman was a cultural norm w/in the firm. Not a one of the people I worked with from Goldman had any respect for anything not done at Goldman or thought of first by Goldman. It was as if Goldman was the stick by which any intelligence at all was measured. And consequentially, anything that didn’t originate at Goldman had no possibility of success.
Those of us not from Goldman, gave our Goldman colleagues a nickname: “Golden Sacks” for their Midas like beliefs in their capabilities and for their constant showing off of the size of their “Herman”.
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