Such, Such Were the Joys

On September 15, 2008, the morning banking giant Lehman Brothers filed the largest bankruptcy case in U.S. history, business reporters, historians, ex-finance mavens, and business-savvy novelists across New York City awoke to find themselves in a high-stakes race to be the first out with a book on the Panic of 2008. Anyone who has spent time in the business section of Barnes & Noble lately knows who won this race: Too Big to Fail, New York Times reporter Andrew Ross Sorkin’s account of the frenzied weeks leading up to the Lehman bankruptcy, published in October 2009. The HBO miniseries of Sorkin’s book, starring William Hurt, Ed Asner, Paul Giamatti, and, apparently, half the white male population of Hollywood, also looks to win the race for first film out of the gate when it premieres tonight, May 23. But if Sorkin’s lightning-quick fingers, and his formidable resources as chief of the Times’ DealBook blog, put him first across the finish line, that doesn’t mean he has written the best book on the crisis. As a New Yorker with an interest in board room intrigue and a taste for schadenfreude, I’ve done my best to read every book on the banking crisis that has come out since the Lehman filing. What follows is my handicapping of the race for the best book on the subject:

Win:
Michael Lewis’ The Big Short: No one else even comes close. Anyone who has followed Lewis’ career, starting with Liar’s Poker, his account of his adventures selling bonds at Salomon Brothers in the go-go 1980s, knows that his books hew to a timeworn formula: he follows a quirky, sometimes half-mad contrarian, using his hero’s off-center view on his subject to show how a complex, often abstruse market functions. In The Big Short, he focuses on a crew of oddball hedge fund managers who “short” – that is, bet against – the exploding market for subprime mortgages in the years before the crash. Lewis is a world-class storyteller and he can be very, very funny, but what sets his books apart is that he combines these skills with a genuine understanding of the brain-melting complexity of the economic systems he is describing. In his hands, all those abstract terms you’ve been puzzling over on the news – credit default swaps, collateralized debt obligations, mortgage-backed securities, and so on – become real as you watch his plucky band of misfits slowly figure out that the emperor has no clothes. When the money starts rolling in, you cheer, not just because the little guys are winning, but because their triumph is a victory for common sense over gold-plated, government-backed flim flam. 

Place:
Sorkin’s Too Big to Fail: In the news room, the front-page article that gives reader a breathless, blow-by-blow account of a newsworthy event is called a “ticktock,” and Too Big to Fail is essentially a 539-page ticktock. Plainly modeled on Bob Woodward’s thrillerish accounts of bureaucratic infighting in the nation’s capital, Too Big to Fail tells the story of the 2008 financial crash through the eyes of the banking CEOs and federal regulators who brought the world’s largest economy to the brink and wrenched it back just before it careened off the cliff. Sorkin takes readers inside the chandeliered conference rooms at the New York Federal Reserve building in September 2008 as the CEOs of America’s largest banks roll up the sleeves of their Charles Tyrwitt shirts and pull all-nighters like a bunch of panicked college kids during finals week. But as with Woodward’s tomes, the virtues of Too Big to Fail are also its failings. Sorkin, arguably the best business-beat reporter in American daily journalism, has fantastic sources and he offers a crystal clear picture of what happened, but very little sense of why. Unlike Lewis, who sides with the outsiders, Sorkin’s sources are, for the most part, the same bespoke-suited bejillionaires who blew up the economy in the first place. Sorkin makes an effort to offer a broader perspective, but ultimately he is a prisoner of his sources, to whom the financial crisis of 2008 was a natural disaster, an act of God over which they had little control.

Show:
Roger Lowenstein’s The End of Wall Street: The third-place finish is unfair because Lowenstein’s main stumbling block is that he wasn’t first. Lowenstein’s book, published in 2010, is 250 pages shorter than Too Big to Fail and yet it offers more insight into the causes of the collapse than Sorkin’s does. A former Wall Street Journal reporter who has made a career of writing books on financial crises starting with the 1998 collapse of the Long-Term Capital Management hedge fund, Lowenstein is able to draw on reporting going back to the 1970s and ’80s to titrate the toxic brew of federal banking deregulation and financial innovation that created the boom in subprime mortgages. But ultimately the drama of the book falls on the same frantic calls between CEOs trying to save their tottering banks and coffee-fueled all-nighters at the Fed building that drive Too Big to Fail. Because Lowenstein wasn’t as quick out of the gate and doesn’t have Sorkin’s magic Rolodex, his book suffers by comparison.

Also rans:
House of Cards by William D. Cohan: House of Cards too often reads like the author was running late for a train. Focusing on the March 2008 collapse of Bear Stearns, the first of the big banking dominoes to fall, House of Cards has no shortage of colorful characters or outlandishly stupid financial stratagems. But built as it is around the epic battle for control of the firm between old-school banker Ace Greenberg and the bridge-obsessed stockbroker Jimmy Cayne, the book suffers from some rather long-winded rehashing of old news. It doesn’t help that Bear Stearns, though worth billions, was a relatively small player among the New York banking behemoths, and when it had to be sold for pennies on the dollar to JP Morgan Chase, its demise only foreshadowed the far greater mayhem to come when Lehman fell in September.

The Buyout of America by Josh Kosman: The Buyout of America, about the secretive private-equity business, has all the ingredients of a Zeitgeist-puncturing work of muckraking journalism in the mold of Eric Schlosser’s Fast Food Nation or Nick Reding’s Methland. Private equity firms collect vast pots of money from wealthy financiers and institutional investors like universities and pension plans, and use the money – along with even bigger pots of borrowed cash – to buy underperforming companies. (If you remember the Richard Gere character in Pretty Woman, you have the basic idea.) In a best-case scenario, private equity firms perform a valuable and necessary service by taking risks on companies no one else wants, but in practice, Kosman says, these firms take fewer risks than they claim and can cause grievous harm to the companies they buy, cutting costs and firing valuable employees to get their target companies out from under mountains of debt. This was especially true in the first years of the new century because borrowing costs were so low and the buyout market was so overheated. Kosman predicts the excesses of the private equity boom will begin to sour over the next eighteen months, leading to “the likely collapse of half of the 3,188 American companies PE firms bought from 2000 to 2008.”

Sounds like great stuff, which is why I plunked down my $26.95 to buy The Buyout of America in hardback days after it came out in 2009. But Kosman, a senior reporter for the trade publication Buyouts Newsletter, just doesn’t deliver the goods. For one thing, with a few notorious exceptions, the outlook for buyouts looks to be improving in 2011, not cratering as Kosman predicted. To make matters worse, Kosman never quite pierces the cone of silence that surrounds the private equity world and much of the book ends up rehashing old cases of private equity perfidy you can read about elsewhere.

Horses of a Different Color:
Jonathan Dee’s The Privileges & Adam Haslett’s Union Atlantic: Neither Dee nor Haslett is writing directly about the 2008 crash – indeed, Haslett’s book is set largely in Boston – but both nevertheless offer excellent windows onto the perverse workings of the Wall Street mind. Dee’s novel, The Privileges, centers on the family of Adam Morey, a private equity guru who engineers an illegal insider trading network, earning millions of dollars that he socks away at an offshore bank. The book gradually reveals itself to be a satire of über-rich New Yorkers, but you could easily miss the darts Dee is aiming at his characters because he so rarely steps outside the cosseted, self-justifying world the Moreys have built around themselves. Even more daringly, Dee doesn’t punish Morey for his sins. By flouting conventional dramatic rules, Dee robs his story of a morally satisfying ending, but his bold move frees him to create a devastatingly honest portrait of the rot at the center of the American culture of success. 

Union Atlantic is more conventional in its plotting, pitting a nearly sociopathically ambitious young banker against a dotty old high school history teacher named Charlotte Graves, who represents dying Old Yankee values. In lesser hands, this would end up the potted morality tale it is designed to be (her name is Graves – get it?), but Haslett, author of the luminous book of stories, You Are Not a Stranger Here, has a gift for language and for conveying people’s inner lives. Haslett has a journeyman’s understanding of finance, and some of the minor characters read as though they stumbled in from a Tom Wolfe pastiche, but the central figures are richly imagined and the climax, when it comes, is deeply satisfying.

Liaquat Ahamed’s Lords of Finance: Finally, if you want to take the long view on financial crises, you can do no better than Lords of Finance, which traces the causes of the global economic depression following 1929 stock market crash. In this remarkable book, Ahamed retells the story of how the fallout from World War I led inexorably to Hitler’s Germany, not through the conventional lens of the era’s politicians and generals, but through the eyes of the central bankers of America, Britain, France and Germany, the four main powers at Versailles in 1919. What comes through is how the decisions of a few powerful men can affect the lives of millions, and just how catastrophic the effects can be when those in power act foolishly.