Lehman Brothers NY officeIn the two years since crisis gripped the financial world, surprisingly little has changed. In those perilous days in September, 2008, Lehman, Merrill Lynch and AIG fell like dominoes, and it seemed Goldman Sachs (GS) and JPMorgan Chase (JPM) might be next. Any American family with money in the bank or investments in a 401(k) had to wonder if their financial security was imperiled.

"It felt like the world was on fire," recalls financial writer Andrew Ross Sorkin, whose book Too Big To Fail covers the crisis at its peak. Yet, he agrees, the financial world as we know it, isn't really that different now.

It's a truism that surprised Sorkin, but it's actually fortuitous for him: The paperback edition is just out, and the events he describes remain the most dramatic and significant. In fact, for the new paperback edition, the book needed little updating, and the afterword is only 10 pages, he says.

Sorkin doesn't think the lack of change is good for the world's financial security. In a recent interview, he discussed the aftermath of the crisis, the quest for power on Wall Street and why more regulation is needed.

DailyFinance: In the introduction to Too Big To Fail, you refer to these events as a "giant puzzle -- a mystery, really -- that still needs to be solved." Are events around the financial crisis still a mystery to you, two years later?
Sorkin:
Two years later it's less of a mystery. At the time that I was reporting and writing the book, I think there was a lot we didn't know about what took place both prior to and following the infamous Sept. 14 weekend. Especially now, I'm not sure people appreciate how bad things really were. No one knew Goldman and other huge firms were near bankruptcy. This country still has problems, but when you go back to those harrowing days, on a relative basis, we actually are doing quite well.

In the book and your coverage in The New York Times since, it's clear you think Lehman should have been bailed out.
Yes, but it's unclear to me that it could have been saved -- that's one of the enduring mysteries of the book. Did regulators have legal authority at that point to bail out Lehman? Would it have required so much money that it was politically untenable? More information has come out lately that politics played a role in regulators' decision not to bail out Lehman.

Even if impossible, how would events have played out differently if Lehman hadn't gone bankrupt that weekend?
What that would have done is provided time. When you read the book, you see that one thing none of these people making decisions had enough of was time. Some would argue they had lots of time to realize the crisis was coming. But once they got to that moment, had they been able to squeeze out another week, they probably would have been able to find a way to merge Lehman with Barclays.

And then, what would have happened to everything else? AIG would probably still have been the next domino, and Merrill Lynch, Morgan Stanley (MS), Citigroup (C) would still have all faced huge problems. But we might have been able to avoid utter panic.

One thing I was surprised to see in your book is that there are no heroes or villains. But it seems the financial crisis was rife with villainous behavior.
One of my goals for the book was to bring a reader inside the room where the crisis was raging and decisions were being made. That way, they can see what the participants saw. Once people have the same field of vision as the regulators, bankers and lawyers in the room, nothing looks black and white, everything looks gray.

You realize that there really aren't heroes and villains -- just people struggling to make decisions in the midst of a fast-moving crisis. Some people made some good decisions, and some people made some bad ones. That's what life is really like.

Were you surprised how quickly banks recovered?
Shocked.

I thought Wall Street was going to be a very different place. I thought there would be a lot of new regulations, a whole different world. Of course, a year came, and went there wasn't that much new that happened.

One of the things you worry about when you write a book like this, very quickly, almost in real time, is whether there is another shoe to drop. But luckily, everything that has come out since only goes on to confirm or offer another illustration of the key issues and events I covered in the book.

There was no new epilogue to write. Even for the paperback edition, two years later, there weren't a lot of updates to make. There isn't a long afterword – it's only 10 pages. The world hasn't changed that much. I am surprised.

What are the updates you made for the paperback edition?
There is some new reporting in there. I added a couple of scenes around Repo 105, which was a Lehman accounting gimmick. There are a few updates, more for completeness or history's sake.

Two years later, it seems clear that TARP (Troubled Asset Relief Program) actually worked.
As unpopular as it was, it would be hard to argue that TARP didn't work. It helped restore confidence in the financial system. But it didn't work way it was sold or advertised. It was oversold as a way to get money back in the hands of consumers, businesses. We were told it would help grease the economy. It didn't result in more loans and mortgages.

Do you think a financial crisis like this could happen again? Are our financial institutions still too big to fail?
To the extent the phrase still applies, it's more for countries and states. We've seen crisis this year in Greece, Ireland. If there is a sequel to book, and I hope there isn't, I imagine it will be around the debt of countries.

It's the same problem -- entire states are overextended. That to me is the ultimate issue. Until we're really willing to regulate how people use debt and how much debt they can use, I'm not sure we're ever going to break the back of this crisis.

If you could see one piece of regulation passed, what would it be?
What worries me most is that capital requirements for banks won't be high enough. There is nothing in current legislation that addresses at all. It's being left to the Federal Reserve to negotiate as part of Basel III with all European and Asian banks. Our banks are decently capitalized, but most European banks not nearly as well capitalized. The tension you have is European finance officials can't reach the same numbers one would want our banks to have.

What about compensation reform? Do you think the incentive pay structures of the CEOs and bankers needs to be restricted in any way?
Compensation is something I think about all the time, particularly in context of Dick Fuld, Lehman's CEO. He is someone who had over $1 billion of stock in Lehman. He had more skin in the game than just about anyone else. Arguably, he was incentivized to always do the right thing for Lehman. Yet not only did company collapse, he rode his stock all the way to $56,000.

What does that say about incentives?
I'm less convinced that Wall Street is about greed. It's not about greed at all anymore. It's about power. The dollars, the money, is a scorecard for the power. One of the things I tried to get across in the book is that it wasn't just the institutions that were "too big to fail," it was also the individuals who saw themselves as too big to fail. In the end for Dick Fuld, this was about pride, not about money. I don't know how you regulate pride.


For people at these senior levels, stock options are just the cherry on top in their life. By the time they've reached CEO suite, they've made tens if not hundreds of millions in cash that they've already been able to take home. They have a remarkable cushion. Clawbacks might be the answer -- where they really have something riding on their company's results. Or Wall Street could go back to the partnership model. Then, if the partnership failed, partners lost all their money, too.

In the afterword of your book, you talk about whether banks can regain America's trust. It doesn't seem like they've made much progress.
Banks need to return to doing what they are supposed to be doing -- making loans, financing businesses, being the backroom engine of economy. They got very far afield of that in the years leading up to the crisis. Until they get back to that role, they will have a real trust problem.

But memories are short. After the savings and loan crisis of the 1980s, people thought banks and bankers were horrible. Then they became superheroes again. How long are our memories going to last this time?

Increase your money and finance knowledge from home

Bonds for Beginners

Learn about fixed income investments.

View Course »

Introduction to Value Investing

Are you the next Warren Buffett?

View Course »

Add a Comment

*0 / 3000 Character Maximum

122 Comments

Filter by:
flyingace

Looks like even financial authors and AOL reporters haven't learned much from the financial mess created by government intervention. "In the two years since the crisis gripped the financial world, surprisingly little has changed." Are you kidding me or are you both just shilling for the Obama socialist agenda? What about the biggest deficit spending in history during a recession, just to benefit political support groups? How about the demonizing of wealth creation by presdent Obama and his followers? Did you know that those who create wealth are the same people who create jobs by hiring others? In the Obama world wealth creators are evil because they do not "share" and "spread their wealth around" with those who do not create wealth or jobs. But Obama has the solution. The government now has their incompetant inefficient giant open hands in control of more of the economy than it has at any time in American history. This is why the ecnomy is taking so long to recover, period. Anything the government touches turns to bureaucratic inefficient dust, paid for by you and I. Is this what you want? We are now working more days of the year than ever before just to pay for the inefficiences of bloated government, which has no salient plan to fix the economy, just theories - just give them more of your money so they can have more control and create more programs for their political followers. What happened to free markets correcting themselves without government intervention? To big to fail? NONSENSE. What happened to believing in capitalism? Has history taught us anything? What we've been witnessing the past 2 years is a huge political experiment led by an incompetant ego-driven socialist. Socialist economic theories have failed historically evey time they were tried. Even Europe is finally wising up to that folly. Personally I prefer not gambling my money on failed experiments led by college professors with no real-world experience. History will show the same results as the New Deal: short term benfits and long term deficits, caused by government run programs that are so bloated and inefficient that they hinder the economy and our personal wealth for years to come. Time to clean House and Senate in November.

September 17 2010 at 10:02 PM Report abuse +4 rate up rate down Reply
1 reply to flyingace's comment
whatsgoodforyou

You're analysis is 100% accurate! We now have a governmment that is "too big to fail." A man has become President through half-lies, deception, miscommunication, and blatant lies! It is now up to the American people to decide if we will just submissively go along with this Pretender-in-chief or take our country back to its' Constitutional roots as our Founding Fathers intended! This administration has clearly shown itself for what it really is... a self-serving, power hungry, corrupt regime that is running a dictatorship instead of a democracy. November will tell the future of this country. Vote for the salvation of this great nation or let it perish from the face of the earth forever. It's up to ALL of us!

September 17 2010 at 11:33 PM Report abuse +2 rate up rate down Reply
legalcld

Looks like obama has brought back 0 down on home purchases! You don't have to put any money down on a home purchase, which that's kinda what got us into the mess we're in today! People do 100% financing of a house and since they don't have any money of their own on the line, they walk away when the house goes underwater!! But I guess one has to have a job before they can purchase a house!

September 17 2010 at 4:31 PM Report abuse +2 rate up rate down Reply
rspetrarca

Two years after the financial crisis and a lot HAS changed that apparently escaped the attention of your clueless financial reporter. Budget-and-deficit busting overspending that has sapped the private sector of growth potential, jobs creation only in the government sector, while everyone else pays more for less; skyrocketing state and local taxes piled on top of the looming expiration of the Bush tax cuts, which will impose the largest tax increase in history at the worst possible moment; a hugely unpopular, eggregiously ineffective and unaffordable health care bill that will further cripple the US economy (its ultimate intent?) and permanently reduce the quality and innovation of US healthcare; command-and-control apparachiks in the Obama cabinet that use totalitarian, Soviet-style THREATS and intimidation to impose its will against any and all who would criticize it; and a stupid financial "overhaul" bill that will make oversight easy because there will be nothing to oversee. Oh, and after all the banker-bashing that this business-hating, recovery-crushing administration incited, go check out how YOUR local bank is doing, starting with its stock price. The price we will all pay for surrenduring our country to these morons: Unestimable.

September 17 2010 at 1:14 PM Report abuse +3 rate up rate down Reply
bonaventture

THE EXACT SAME THING can be said of borat obama: his PRIDE will be the last thing to go before his FREEFALL in two years...here endeth the lesson.

September 17 2010 at 10:17 AM Report abuse +6 rate up rate down Reply
Steve

If you want a simple explanation of where much of the bailout money has really been going, check out this short video. Very good explanation! http://www.youtube.com/user/fiercefreeleancer

September 17 2010 at 9:05 AM Report abuse rate up rate down Reply
jtendler2001

What about Washington Mutual and the Money that the shareholders lost. Washington Mutual Banks given to JP Morgan Chase for nothing thats right ZERO The take for JP Morgan Hundreds of Billions of Dollars in Assets cash real estate mortgages and stock in other companies and so on....all for free...It helps to be well connected on wall street. As of now JP Morgan refuses to make things right...in fact they are fighting tooth and nail to keep their Pirate Booty. Screw the WAMU shareholders is their Motto!!

September 14 2010 at 9:03 PM Report abuse +1 rate up rate down Reply
brocknv

Greed by everyone

September 14 2010 at 8:13 PM Report abuse rate up rate down Reply
brocknv

Greed that is what we saw in August of 05 we quit buying anymore equipment or most anything and what tipped us off was people lining up to buy houses trying to make appriciation while it was being built. Houses they were not planning on living in, just to flip, as they went up so much during the construction. Home owners buy double the house they could afford because 15% of 400 is double of the 200 they could afford. Investors trying to make a quick turn. We did not evan know about the subprime stuff at that time. To bad they just didn't let it fall and rebuild at least we would learn from it.

September 14 2010 at 8:05 PM Report abuse +3 rate up rate down Reply
Miss Peggy

There are two main reasons why "Business Goes On As Usual" #1 - Unfortunately the Big Banks hold all the cards in this game. The government can make all kinds of claims about passing legislation, but unless the game is played the way the banks want they will take their money and go home. Reason #2 is that the Big Banks seem to employ people who understand the "Loop Holes" in the laws and government economic advisers can't keep ahead of them.

September 14 2010 at 7:04 PM Report abuse +3 rate up rate down Reply
sallyjay2000

You're barking up the wrong tree. The economic collapse came from various places. Companies like AIG and others paid out huge salaries and perks. They all wanted to live the good life. Some of their top people were making $1 million or more a year. There is no one at that company that is worth that amount. They can't even tell me why I'm paying now over $700 a year for a 20 year old policy that will decrease from $50,000 to $5,000 in 4.5 short years. I originally paid $105 a year. My policy is worthless. The seond reason is that California didn't put a stop to their high inflated housing. What California does, the other states follow. In 4 short years the house and commercial pricing jumped to double. I remember during the 1982 recession, the areas and states around Chicago instituted a housing freeze whereby no home or property could increase more than XXXX per year. Once the housing collapsed because profits were not envisioned, the mrket collapsed. Business that did business here in CA that could no longer make a worthwhile profit, went home, leaving their real estate behind and employees lost their jobs. A lot of the businesses here do not follow employment law either. Coupled with too many illegal immigrants crushing the welfare and other programs caused the collapse. The bank industry did not fail because of personal home loans without credit or downpayment, it failed because of unscrupulous business dealings. Also credit card companies failed because of unscrupulous dealings against their customers. There is no check and balance anymore.

September 14 2010 at 5:19 PM Report abuse +4 rate up rate down Reply
1 reply to sallyjay2000's comment
Miss Peggy

And there is a great lack of Business Morality. Everyone deserves a right to make a profit in business, but not immoral profits. That's why Ponzi Schemes and Pyramid Schemes are illegal. Well, a lot of the Banking Practices seem to fall into these categories. There is nothing to back up all this inflated money. Loaning out Billions of Dollars without any collateral. The Big Boys don't care because they take their huge bonuses and leave the Banks and their shareholders holding the bag. The banks fail and the Government bails them out, leaving the Management in place to do it again and take more Bonuses. DUH!

September 14 2010 at 7:26 PM Report abuse +3 rate up rate down Reply