the greatest depression

The Financial-Crisis Lit Cheat Sheet

This week marks the official publication of the longest, most comprehensive, and highest-priced ($32.95!) work of Crisis Lit yet, New York Times reporter Andrew Ross Sorkin’s epic Too Big to Fail, which clocks in at a whopping 539 pages (minus the index). “Too Big to Read,” you say? Not for Moe Tkacik, one of 7.6 million Americans left unemployed by the current recession, who has compiled this cheat sheet to the crisis literature thus far, complete with some highly subjective Moody’s-style ratings.*

Too Big To Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System from Crisis — and Themselves, by Andrew Ross Sorkin

WHAT: A virtually minute-by-minute account of the scariest hours of the crisis, beginning in the aftermath of the seizures of Fannie Mae and Freddie Mac and concluding with TARP and the hastily assembled near-afterthought that was the $180 billion AIG bailout.

BEST BIT: On page 120 appears the first print mention of the rumored affair between Joe Gregory, the widely reviled chief operating officer of Lehman Brothers, and Erin Callan, the statuesque, blonde, wholly inexperienced tax attorney promoted to chief financial officer of the firm at the beginning of the year. According to the book, Callan separated from her husband “around the time” of the promotion, after which she and Gregory “became inseparable.”


A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers, by Lawrence McDonald with Patrick Robinson

WHAT: The story of the firm’s failure as told through the perspective of a group of in-house dissidents who saw disaster approaching back in 2005 and tried repeatedly (and vainly) to warn CEO Dick Fuld. One of the most compelling of the current crisis chronicles and possibly the most engagingly written.

BEST BIT: In a meeting of the bank’s executive committee in the fall of 2006, fixed-income chief Mike Gelband appealed to Fuld to go bearish on the market, and launched into a lengthy explanation of the dangers posed by the pending collapse of massively leveraged structured investment vehicles (or SIVs):

The chairman didn’t get it. But he realized he needed clarification. In front of Mike, he called Henry Paulson, the secretary of the United States Treasury and a former CEO of Goldman Sachs. Dick did not even try to get into the details of the problem, and quickly handed the phone to Mike, who pointed out with immense clarity the serious problems recently developing in the asset-backed commercial paper market and its deadly potential impact on the giant leveraged SIVs, to which Wall Street and the largest commercial banks were exposed. Mike thought this would lead to a serious credit freeze, one that he believed was shimmering on the horizon. To this day, Henry Paulson, with a supreme grasp of the subject, insists that the first person ever to warn him of the coming catastrophe was Mike Gelband.

About eighteen months and $200 billion in perversely ill-advised commercial real estate investments later, Paulson counsels Fuld at a private dinner to begin selling off assets with all deliberate speed — and Fuld tells him he’ll do so on his own watch, thank you very much.


House of Cards: A Tale of Hubris and Wretched Excess, by William Cohan

WHAT: A play-by-play account of the collapse of Bear Stearns, told largely in an “oral history” style that sacrifices mention of former CEO Jimmy Cayne’s famous reefer-smoking habit for Cayne’s completely insane uncensored opinion of Tim Geithner.

BEST BIT: It’s ancient history, but this bit on former Bear chairman Ace Greenberg should not be overlooked:

Greenberg’s most peculiar donation was his $1 million gift, in June 1998, to pay for Viagra prescriptions for men who could not otherwise afford them. Most people couldn’t resist thinking that Greenberg had donated a million dollars for homeless men to have sex. He defended the gift despite the criticism. “I own stock in Pfizer,” he told the New York Times, referring to the drug’s manufacturer. “So It’s not altruistic. You can quote me on that … If you ask me how long I’ve been interested in the subject, I guess you can say I’ve been interested in it since I was 13 or 14.”


The Sellout: How Three Decades of Wall Street Greed and Government Mismanagement Destroyed the Global Financial System, by Charles Gasparino

WHAT: How It All Happened, as told through the greedy, arrogant, overpaid, and power-addicted assholes who made fortunes setting the stage for a multi-trillion-dollar meltdown and 17 percent real unemployment rates! This is the most comprehensive portrait of the characters that hastened the crisis.

BEST BIT: In a book as redolent of juice as this, it’s almost a shame to boil it down to another anecdote about Jimmy Cayne. But we couldn’t pass up this anecdote from Cayne’s old buddy Phil “Filthy” Cohen, with whom Cayne has since had a falling-out:

Cohen recalls one such incident of Cayne’s free-living lifestyle: Cayne called him to his forty-eighth floor corner office with its great view of the East River in Lower Manhattan to discuss some firm business. After a couple minutes of small talk, Cohen says Cayne reached down into his desk and pulled out a blue Bromo Seltzer bottle. (Bromo Seltzer is a white powdery antacid.)
“What do you think’s in here?” Cayne said, according to Cohen’s recollection.
“Bromo Seltzer?” Cohen asked, slightly bewildered.
“No, it’s filled with cocaine,” Cayne said with a smile.
Cohen never checked to see if that was true, and Cayne in an interview says he has never done coke (he also called Cohen’s account “patent bullshit”).


And Then The Roof Caved In: How Wall Street’s Greed And Stupidity Brought Capitalism To Its Knees, by David Faber

WHAT: A slim yet substantial book based on Faber’s riveting (and horrifying) CNBC special “House of Cards” that takes readers from the mosquito-ridden swimming pools of option-ARM ghost towns to a Norwegian town bankrupted by ill-advised investments in “synthetic” bonds on the mortgages left behind.

BEST BIT: Chapter five consists mostly of a heated face-off between Alan Greenspan and FDIC chairman Sheila Bair over whether the government could have prevented the mortgage meltdown. A sample from Bair:

I mean, we’re not talking about rocket science here. We’re talking about underwriting at the fully indexed rate. Meaning when you make a loan, make sure they can take it when it resets, not at the initial [teaser] rate. We’re talking about verifying income … Seventy five percent of subprime loans end up being for refinancings … These were not new homeowners, but people who had been in their homes for many years and might have had some equity before they got [confusing adjustable rate mortgages]. It’s a very sad chapter for the history of mortgage finance in this country …

And the old Maestro:

But remember, the ultimate regulation is essentially a planned economy in which everything is constrained. You can’t do anything without getting permission, and these systems collapse.

Ah, yes … well, at least we can trust the unregulated free market to avoid systemic collapse!


Fool’s Gold: How The Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted By Wall Street Greed And Unleashed A Catastrophe, by Gillian Tett

WHAT: The (chock full of hubris!) story of the folks who brought you the credit default swap and the synthetic collateralized debt obligation, by a Financial Times columnist. Ironically, they invented these things at JPMorgan — the only bank that didn’t almost explode as a result!

BEST BIT: On page 56, a former “journalist from Dow Jones” who “had extensive contact” with the derivatives team is quoted:

When you heard these guys speak, you realized that they really believed this stuff. They thought they were the smartest guys on the planet. They had found this brilliant way to get around the [Basel] rules, to play around with all this risk. And they were just so proud of what they’d done.

The journalist is former “Page Six” editor Paula Froelich.


Last Man Standing: The Ascent Of Jamie Dimon And JPMorgan Chase, by Duff McDonald

WHAT: A comprehensive biography of JPMorgan Chase CEO Jamie Dimon, whose cash-hoarding ways and disdain for derivatives helped make him the undisputed victor — the press release goes so far as to dub him a “hero” — of the financial crisis.

BEST BIT: Dimon is relentlessly winsome for a banker, from the weird outfits that won him the distinction “absolute worst dresser” at Harvard Business School to his love of Shakespeare and Sinatra, but this bit of brown-nosing last October was our favorite detail:

Ever a student of history, Dimon sent Paulson a note including a citation from a speech Theodore Roosevelt made in Paris in 1910: “It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.

(Which we would not have found as entertaining had we not read the following book … )


In Fed We Trust: Ben Bernanke’s War On The Great Panic, by David Wessel

WHAT: A well-reported but restrained chronicle of the crisis as seen from the perspective of the Federal Reserve and its endearing chairman Ben Bernanke, by The Wall Street Journal’s economics correspondent.

BEST BIT: Wessel’s biggest service is his abridged history of the Federal Reserve, which was created largely in response to the Panic of 1907, in which James Pierpont Morgan personally bailed out “the Bear Stearns of his day,” Knickerbocker Trust, to avert systemic disaster.

One constant through both panics, though, was a largely absent commander in chief. As Morgan wheeled and dealed, Teddy Roosevelt was hunting bear in the canebrakes of northern Louisiana. When he finally surfaced a few days later, the New York Times reported archly that “he had added several deeper shades of tan to the bronze acquired during the summer months.”


A Failure of Capitalism: The Crisis of ‘08 And The Descent Into Depression, by Richard Posner

WHAT: A painfully dry explanation of the crisis by federal judge, legal scholar, prolific author, and Atlantic blogger Posner.

BEST BIT: Those who keep secret rosters of public intellectual fantasy teams will enjoy Posner’s defense of the “rational” role of emotion and greed on Wall Street decision-making on page 82:

Emotion does play a role in the behavior of businessmen and consumers, as of all human beings, but it is not necessarily or even typically irrational. It is a form of telescoped thinking, like intuition, and often it is superior to conscious analytic procedures.

Wait, wasn’t that the point of the Malcolm Gladwell book that Posner mercilessly skewered a few years ago in The New Republic?


Bailout Nation: How Greed And Easy Money Corrupted Wall Street and Shook The Economy, by Barry Ritholtz

WHAT: A comprehensive crisis scrapbook compiled by the money manager behind the popular financial blog the Big Picture in a quippy, no-nonsense voice that sometimes successfully channels Barney Frank.

BEST BIT: “The Naughty Child Index” (page 206), in which the most notorious bank failures are explained in terms of the types of wayward children who were apparently running them.

Lehman Brothers is like the little kid pulling the tail of a dog. You know the kid is going to get hurt eventually, so no one is surprised when the dog turns around and bites him. But the kid hurts only himself and no one else. No one really cares that much.
Bear Stearns is the little pyromaniac — the kid who is always playing with matches. He could not only harm himself, but burn the house down and indeed burn down the entire neighborhood. The Fed steps in to protect not him, but the rest of the block. AIG is the kid who accidentally stumbles into a biotech warfare lab and finds all these unlabeled vials. He heads out to the playground with a handful of them jammed into his pockets.


Busted: Life Inside The Mortgage Meltdown, by Edmund Andrews

WHAT: The New York Times economics reporter’s sometimes-excruciating personal tale of taking on a series of ever-scarier subprime mortgages in an attempt to foster domestic bliss with a second wife while chronicling the effects of credit addiction writ large for the newspaper.

BEST BIT: If you felt bad for Andrews when libertarian blogger Megan McArdle eviscerated him for failing to disclose his wife, Sandy Patty’s, two (pre-marriage) personal bankruptcies in the book, you’ll feel really bad for Patty, who moves across the country to marry her childhood sweetheart only to struggle to find work and submit herself to years of panicked 3 a.m. lectures from Andrews about how she doesn’t understand his financial woes or she wouldn’t be frittering away his paychecks on “extravagances” like … fresh orange juice for the kids.


*Moody’s bond credit ratings start at Aaa (Prime) and then descend through Aa1, Aa2, Aa3, A1, A2, A3, and then Baa1, Baa2, and so on.

The Financial-Crisis Lit Cheat Sheet