Sunday, January 9, 2011

Andrew Ross Sorkin: Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System... and Themselves

"Too big to fail" is a term of art in regulation and public policy that refers to businesses dealing with market complications related to moral hazard, economic specialization, and monetary theory. Entities are considered to be "too big to fail" by those who believe those entities are so central to a macro-economy that their failure will be disastrous to an economy, and as such believe they should become recipients of beneficial financial and economic policies from governments and/or central banks. Companies that fall into this category take positions that are high-risk, as they are able to leverage these risks based on the policy preference they receive. The term has emerged as prominent in public discourse since the 2007–2010 global financial crisis. Some critics see the policy as counterproductive, i.e. those large banks or other institutions should fail if their risk management is not effective. Moreover, some assert that the "too big to fail" policy has been explicitly refuted in the People's Republic of China, with the bankruptcy of Guangdong International Trust & Investment Corporation in 1998. Some economists, such as Nobel Laureate Paul Krugman don't see it as necessarily a bad thing, with economy of scale in banks, as in other businesses, as worth preserving, so long as they are well regulated, in proportion to their economic clout.
"You shouldn't assume it's correct just because Goldman said it. My brother works at Goldman, and he's an idiot!"

- Joseph Cassano, the head of AIG's financial products unit told the firm's board of directors after being confronted with conflicting valuations from Goldman Sachs

"There aren't enough lifeboats. Someone is going to die. So you might as well enjoy the champagne and caviar!"

- Jamie Dimon, CEO of JPMorganChase, to his staff the night before Lehman filed for bankruptcy

The "Repo Market" - A Repurchase agreement, also known as a Repo or Sale and Repurchase Agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price will be greater than the original sale price, the difference effectively representing interest, sometimes called the repo rate. The party who originally buys the securities effectively acts as a lender. The original seller is effectively acting as a borrower, using their security as collateral for a secured cash loan at a fixed rate of interest. A repo is equivalent to a cash transaction combined with a forward contract. The cash transaction results in transfer of money to the borrower in exchange for legal transfer of the security to the lender, while the forward contract ensures repayment of the loan to the lender and return of the collateral of the borrower. The difference between the forward price and the spot price is effectively the interest on the loan while the settlement date of the forward contract is the maturity date of the loan.

Stanley Druckenmiller, a George Soros acolyte who's worth more than $3.5 billion, approached Goldman Sachs co-president Gary Cohn about withdrawing millions invested with the bank. “Look, the one thing I’m doing is I’m learning who my friends are and who my enemies are, and I’m making lists.” Cohn said. Druckenmiller replied, “I don’t really give a shit—it’s my money! It’s my livelihood. I’ve got to protect myself, and I don’t really give a shit what you have to say.”
In November, 2009, at around the publishing of the Andrew Ross Sorkin book, Too Big to Fail, Gabriel Sherman wrote "The Information Broker" for New York magazine, about how Andrew Ross Sorkin, himself, is "too big to fail" in the eyes of the company that he works for: For journalists, bad news can be good news. And so, in the wake of the Lehman Brothers collapse last September, as the world’s economy teetered, an all-star roster of business journalists—Roger Lowenstein, Joe Nocera and Bethany McLean—raced to shop book proposals to chronicle the epochal events unfolding on Wall Street and in Washington, D.C. On the morning of September 23, 2008, Andrew Ross Sorkin, the New York Times’ then-31-year-old star financial reporter, made the rounds to publishers with his agent and his proposal, which he’d pulled together over a weekend. “It was like Paulson’s original tarp proposal,” Andrew Ross Sorkin tells me, referring to the former Treasury secretary. “His was three pages, mine was three pages.” We’re sitting at the Lyric Diner on Third Avenue on a Monday morning. Sorkin’s Tuesday Times column is due in a few hours, but, as usual, he’s way behind, and later I learn that he missed it entirely and his editors had to scramble. His excuse is that he’s got a book, Too Big to Fail, to promote. Too Big to Fail, for which Viking paid a reported $700,000 and which debuted at No. 4 on the Times’ best-seller list, is a nearly minute-by-minute account of the financial crisis as observed through the eyes of the clashing Wall Street CEOs who drove their investment banks into the abyss and the government regulators who watched powerless from the sidelines. The book has become a kind of media sensation. In a review for the Financial Times, John Gapper declared that Andrew Ross Sorkin had written this generation’s Barbarians at the Gate. Charlie Rose compared Sorkin to Bob Woodward. Vanity Fair published an excerpt and held a book party at Graydon Carter’s Monkey Bar (“Part of the package we put together for him,” Carter says). Three weeks ago, as the book landed in stores, Sorkin blanketed the airwaves, beginning with an October 19 appearance on the Today show, followed by multiple stops on CNBC and his second appearance in a month on Charlie Rose. “I’m very surprised by the reaction,” Sorkin explains, as we sit over bowls of oatmeal at a rear table. “But it’s good! I can’t complain.” Despite the highs of the past week, Andrew Ross Sorkin looks exhausted. He’s eschewed his usual Ted Baker suits—“You have to dress like them,” he says of his cast of sources—for jeans, a striped blue shirt, and a blazer. At a particularly loud moment in our interview, when he picks up my digital recorder and holds it to his mouth, he looks like a CEO dictating notes to himself.

"So I'm the schmuck?" said Richard Fuld, CEO of Lehman Brothers, after he realized Bank of America would likely drop its bid to buy the firm.

"I'm certain you'll spark a fuckin' panic..." Timothy F. Geithner, then the president of the New York Federal Reserve, to Henry M. Paulson, on disclosing his $700 billion bailout plan without first preparing Congressional leaders.

In May 2010, James Pressley wrote “Sorkin’s ‘Too Big to Fail’ Is Finalist in Samuel Johnson Prize” for Bloomberg, in which he reported: The new Andrew Ross Sorkin book, “Too Big to Fail” made the final round in the BBC Samuel Johnson Prize, an annual U.K. nonfiction award worth 20,000 pounds ($28,650) to the winner. Sorkin’s cinematic reconstruction of how Wall Street and Washington struggled to save the financial system will compete against an eclectic mix of titles on topics ranging from mathematics and fishing to King Charles II of England and the brutalized lives of North Koreans, the organizers said in an e- mailed statement. Billed as the U.K.’s richest award for the genre, the Samuel Johnson Prize is sponsored by the British Broadcasting Corp. This year’s selection of finalists defies categorization, said the chairman of the judging panel, economist and Radio 4 presenter Evan Davis. “Perhaps the only common feature of these books is the passion and sheer enthusiasm of the authors for their subjects,” Davis said in the release.

"When I picked up my newspaper yesterday, I thought I woke up in France."

- Senator Jim Bunning to Henry M. Paulson after the Treasury sought authority to invest in Fannie Mae and Freddie Mac

"The money’s walking out the door."

- Morgan Stanley President Walid Chammah, the day investors withdrew $20 billion from the bank

"What the fuck was that all about? Was he offering to merge with us?" Morgan Stanley CEO John Mack after a meeting with Lehman executives at his house.

In March 2010, Mike Fleming reported “HBO To Make Financial Collapse Drama From NY Timesman's 'Too Big to Fail” for An HBO movie about the 2008 financial meltdown is finally moving. HBO has acquired rights to Too Big to Fail, the bestselling book by New York Times reporter Andrew Sorkin. Peter Gould has been hired to write the drama, and Spring Creek’s Paula Weinstein and Jeffrey Levine are executive producers. The project has been slow going because it was first set up with a book co-written by Andrew Sorkin's Times colleague Joe Nocera and Vanity Fair writer Bethany McLean, and they haven't turned in their manuscript. HBO execs say they will marry the source materials to chronicle the financial crisis the same way that Recount dissected the disputed Florida results in the 2000 presidential election. For his part, Andrew Sorkin says his book lends itself well to that task. He focused specifically on players like Treasury Secretary Hank Paulson and his successor Timothy Geitner, Lehman Bros CEO Richard Fuld, and Federal Reserve chairman Ben Bernanke, in boardrooms, private planes and bedrooms as the financial system teetered on the brink of collapse. “You see their human sides, the hubris, the ego,” Andrew Ross Sorkin said. “You see Hank Paulsen literally vomiting and Dick Fuld crying with his wife as their world fell apart."

Legendary Blackstone co-founder Peter G. Peterson was stunned by Timothy Geithner's youthful appearance when he first met him, later telling Larry Summers: "He's twelve years old!"
In December 2009, Stephen Foley wrote a review for The Independent: Too Big to Fail rips along at such a pace that even the reader is hard-pressed to stop and ask the what ifs. While no one can be happy that the tale ends with taxpayers paying hundreds of billions of dollars to prop up failed banks and fallible bankers, there are few signposts to better outcomes. That the US Treasury secretary came from Goldman, and didn't have to learn the intricacies of derivatives trading on the job, seems a blessing, rather than the curse many now suggest. It was bad enough that the head of the Securities and Exchange Commission, a former Congressman called Christopher Cox, appears "cryogenically frozen" in fear; how much worse if all the president's men had been the same? Journalists are normally content to write the first draft of history, but Ross Sorkin, mergers and acquisitions reporter for the New York Times, is performing well above his pay grade. He has augmented 500 hours of interviews with 200 participants with access to their email and phone records, private notes and even expenses forms. Too Big to Fail stakes a good claim to being the definitive story of our once-in-a-lifetime crisis.

Andrew Ross Sorkin (born February 19, 1977) is a Gerald Loeb Award-winning American journalist and author. He is a financial columnist for The New York Times and is the newspaper's chief mergers and acquisitions reporter. He is also the founder and editor of DealBook, a financial news service, published by The New York Times. Andrew Sorkin graduated from Scarsdale High School in 1995 and earned a a Bachelor of Science degree from Cornell University in 1999. Sorkin first joined The Times during his senior year in high school, as a student intern. He also worked for the paper while he was in college, publishing 71 articles before he graduated. He began by writing media and technology articles while assisting Stuart Elliott, The Times' advertising columnist. Andrew Sorkin spent the summer of 1996 working for Business Week, before returning to The Times. He moved to London for part of 1998. While there, he wrote about European business and technology for The Times, and then returned to Cornell to complete his studies. Sorkin joined The Times full time in 1999 as the newspaper's European mergers and acquisitions reporter, based in London, and the following year became The Times' chief mergers and acquisitions reporter, based in New York, a position he still holds. In addition, Andrew Sorkin started his financial-news website and email newsletter, DealBook, which he continues to edit. He writes a column by the same name (since April 2004) in the Tuesday editions (initially in Sunday editions). Andrew Sorkin also holds the title of assistant editor of business and finance news.

The Andrew Sorkin book on the Wall Street banking crisis, Too Big to Fail, was published by Viking October 20, 2009. The book won the 2010 Gerald Loeb Award for best business book of the year, was on the shortlist for the 2010 Samuel Johnson Prize, shortlisted for the 2010 Financial Times and Goldman Sachs Business Book of the Year Award, and was on The New York Times Best Seller list (business) for 6 months. Filming began on the HBO production on October 22, 2010 with director Curtis Hanson at the helm. The A-List cast includes Paul Giamatti as Ben Bernanke, William Hurt as Hank Paulson, Billy Crudup as Timothy Geithner, Dan Hedaya as Barney Frank, as well as Topher Grace as Jim Wilkinson (former U.S. government employee). The expected release date is unknown at this time, but expectations are no later than early 2012. Andrew Sorkin also won a Society of American Business Editors and Writers Award for breaking news in 2005 and again in 2006. In 2007, the World Economic Forum named him a Young Global Leader. Also in 2007, named Sorkin one of New York's "most influential scribes." In 2008, Vanity Fair magazine named Sorkin as one of 40 new members of the "Next Establishment." Andrew Sorkin is also recognized as one of Scarsdale High School's Distinguished Alumni.

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