Fear And Loathing In Manhattan

In the Washington Post Book World today, I review Andrew Ross Sorkin’s Too Big To Fail and two related books: Duff McDonald’s biography of Jamie Dimon (Last Man Standing), and Peter Goodman’s broader retrospective on the political origins and social impact of the crisis (Past Due).

If you think the crisis of 2008-09 was an aberration, or top Wall Street executives have learned their lessons, or our financial system is no longer dangerous, take a look at these books.  Each of them separately explains part of how the people running our biggest banks have done so well; taken together, these books describe a pattern of corporate and government behavior which - in the aftermath of the Great Bailout of 2009 – points to serious trouble ahead.

By Simon Johnson

34 responses to “Fear And Loathing In Manhattan

  1. I’ve been trying to be more controlled in my comments lately, but I’m sorry I can’t stop myself. I think Andrew Ross Sorkin is too cozy with big bankers, and I think Andrew Ross Sorkin is part of the problem, and not part of the solution. That’s one man’s opinion, but I think it’s justified and I have my right to it.

    And although I think Simon Johnson is an excellent economist who has been one of the heroes in this most recent economic crisis (which hit markets in ’08), I think Johnson makes a HORRIBLE mistake here associating a great journalist, Hunter Thompson, with the likes of a man I do not consider to be a journalist, Andrew Ross Sorkin. If Hunter Thompson knew you had made this mistake, I believe (although it’s only my opinion) that the Mr. Thompson would roll over and puke in his grave.

  2. D. Christopher Leonard

    It once was the case that states destroyed bankers – one thinks of the demise of the Fuggers, the Medici, the various Genoese banking houses (the late G. Arrighi discussed them in detail)bankrupted by impecunious monarchs who welched on their loans. Now bankers and their banks ‘take down’ states as the largest U.S. banks have demonstrated. Yet no one talks about this assault on sovereignty. It shows how powerful the theology of ‘markets’ and ‘private sector’ is. It is extraordinarily potent in the U.S. because we have had 5 decades of anti-state rhetoric while large banks and corporations inhabit the interstices of public power.

  3. Lavrenti Beria

    “I think Andrew Ross Sorkin is too cozy with big bankers, and I think Andrew Ross Sorkin is part of the problem, and not part of the solution.”

    You sure have that right. Ask this loathesome little snake to make a moral judgement of the persons involved in the horror they’ve brought upon us and he’ll weasel this way and that, never allowing himself to be pinned down for a minute. But what to expect, he has his employers at the NYT to face, these vermin the very essence of the putrescent system he purposes to analyse. People like Sorkin deserve long sentences in labor colonies in my view. That way perhaps the people can derive some benefit from their having drawn breathe.

  4. Looking forward to reading William D Cohan’s book “House of Cards, A Tale of Hubris and Wretched Excess on Wall Street” — take it from someone who actually had an inside perspective: http://tinyurl.com/y9d6mpu

    Best Baseline Scenario for 2009:

    http://economix.blogs.nytimes.com/2009/06/04/obamas-gorbachev-moment/

    The most important is the need to end dangerous rent-seeking — pursuing explicit and implicit government subsidies — in the financial system. This distorts incentives, leads to crazy risk-taking episodes and ties up resources in unproductive uses. America needs to refocus on sectors that can generate real value — think nonfinancial technological innovation, which is our traditional strength.

    Investopedia explains Rent-Seeking: An example of rent-seeking is when a company lobbies the government for loan subsidies, grants or tariff protection. These activities don’t create any benefit for society, they just redistribute resources from the taxpayers to the special-interest group.

    May be the above means that a semi-free market exchange of real and tangible products and services are the more sensible and enduring ways to operate, going forward. That initially, President Obama did express a kind of American glasnost in his inaugural day speech (but has since, hmmmm, fallen short…). And having about 1/3 of the national debt held by China isn’t a good thing, on several levels (geo-political, militarily, environmental).

    Best under-told story for 2009:

    http://thecaucus.blogs.nytimes.com/2009/12/23/an-odd-couple-take-aim-at-rahm-emanuel/

    (for those who can’t remember last year), PUMA is ‘Party Unity My Ass’.

  5. In Simon’s article he places far too much significance on the fact that Congress hasn’t passed a financial-reg-reform bill yet. This says little about Congress’s or the Administration’s will to pass reform. It says much more about the impact of Republican obstructionism more generally on the Senate calendar this year. Simon has testified plenty before Congress and so undoubtedly understands this — and I don’t blame him for keeping the pressure on by making these types of remarks, assuming that’s what’s really behind them.

  6. I’m afraid, Simon, that books are unnecessary to convince me of the reality that confronts us. Our present system is not only malfunctional, but, worse, dysfunctional at the core. These books only may accurately describe what has happened already, but the real story is being played out between the various lobbies and a Congress that has been paid to listen. After checking contributions and votes, there is almost no one on Capital Hill who has not been seriously compromised. They all find ways to spin their votes and positions to appear to be aligned with truth and beauty, but, the deals have been made, and souls have been sold. Yes, this has gone on for 233 years, but seems to have really mushroomed out of control lately, and it appears that most of the top corporate exectutives in all areas (but especially health care and finance) are feathering their nests as long as they can before it all heads seriously south for good. They are presently checking on the cost of a nice sized island to live on onece things do, and they will.

  7. Simon Johnson does sound like a broken record in his review of these books.
    Obviously a good part of the current system is broken.
    Contrary to what Mr. Johnson states in his article that propelled him to fame in the blogosphere, the situation is definetely not comparable to that of Russia in the 90´s or any of the tiger economies in that decade.
    The key difference is, that the financial elite in the US has (not only) been profiting at the expense of the domestic population, but rather that a large part of american consumption and investment(first and foremost in real estate) has been at least half financed by the rest of the world. Whilst this may seem unfair from a moral perspective, it hasn´t necessarily been net negative for the US.
    Whilst a lot of Mr. Johnsons proposals are probably accurate and definetely correct from a moralistic point of view, they are not necessarily in the best interest of the United States.
    It´s allways easy to judge in hindsight and I would very much doubt that anyone who is in charge of US economic policy currently would, if given the chance to go back 20-30 years, run it in the same way again. What Mr. Johnson fails to recognize, is that this is not the current question.
    The situation being what it is, the policy that Obama is currently pursuing actually does make sense. With consuption(to a good extent of imports, FIRE(Financial Sector, Insurance, Real Estate) constituting a large part(and up to ´07 most dynamic) of the US economy, it actually does make sense, not to bring in the wrecking ball, with regards to this sector.
    The current strategy of shoring up what constitutes the strenghts of the US economy(in which the rest of the world is heavily invested), whilst at the same time attempting to build up new productive sectors(i.e. renewables) as well as shoring up social safety nets(i.e. health care), over 8 years(i.e. 2 terms) actually makes a whole lot of sense.
    As a European I obviously hope that Mr. Johnsons proposals win the day. I have little sympathy for anyone living beyond their means, but I fail to understand why so many American commentators are so keen on such a development.

  8. Are you a journalist? Have you ever been a journalist? Andrew Ross Sorkin can’t say anything too terrible about bankers if he hopes to remain privy to the inside conversations that take place. That’s what journalists do, they’re not supposed to judge the people involved – otherwise they are editorialists or sensationalists. If you want to blame Andrew Ross Sorkin for being part of the problem, then you should have the same disdain for Michael Lewis for writing books which encouraged legions of college grads, MBAs, and PhDs to join the ranks of the financial industry since the early ’90s. While you are at it, perhaps you should also throw Oliver Stone into that cateogory too, afterall it was his movie “Wall Street” that glorified “Greed is Good”.

    Let’s try to keep the comment board on Simon’s site to intelligent and well thought out conversation. I don’t think berating capitalism and media at large is the way to get your point across or affect the kind of change that you may wish to see in society.

  9. Because a great deal of the supposed value in the US economy does not involve the creation of anything that anyone truly values.

    Because a great many very talented people spend a great deal of time trying to outwit each other for distributional gains, rather than employ their talents in productive enterprise. And, indeed, they continue to be paid far more than those who do invest their lives in productive enterprise.

    Because the expanding-dollar party only goes until the dollar stops expanding (which it already has), and then we’re left with a house that looks like any other post-kegger domicile.

  10. I guess Woodward and Bernstein missed the boat when they followed the paper and money trail. They should have just bought Nixon an expensive Christmas scarf and smiled broadly on TV recounting the vulgar quotes from the Nixon tapes.

  11. Lavrenti Beria

    Oh, cow flop! I will evaluate a reporter just as I experience one, chief, and if they sound like a weasel, and smell like a weasel I’ll call them a weasel. I really don’t give a good damn about their excuses for themselves or about yours for them, frankly. In the TV interview I watched in which this little worm appeared he was asked whether he felt the bankers that were the object of his reporting ought to be held to account for the excesses that have brought such misery to so many and he simply lacked the guts clearly to state the conclusions to which his writing would have led anyone, in effect to “own” what he’d reported. That’s a moral coward, sir, an unmitigated moral coward, whether you can manage to grasp that simple fact or not. And as a final thought, allow me to make a poignant suggestion to you about where you can place your supercilious opinion about the intelligence involved in my earlier comment. I need you for something?

  12. markets.aurelius

    fin de siècle

  13. I think Sorkin’s book is more a history of who did what as the economy was tanking. It doesn’t really go into detail on the causes of the problems facing the bankers and the government. If you’d rather read about the causes, then Bailout Nation is a better book. If you’d like some attitude then It Takes A Pillage is a good choice.
    House Of Cards and A Colossal Failure give more detail about individual firms.

  14. This is my clarion call to Mr. Johnson, Mr. Kwok et al.
    It is time to step up!
    Time to stop taking seriously these ridiculous arguments like how to regulate for “too big-to-fail”.
    Time to loudly, publicly, and consistently advocate for the return of Glass-Steagal.
    Time to act more like Robert Skidelsky and less like Paul Krugman.
    Time to bury the Anglo-American model of capitalism once and for all.
    You know what to do!

    Carthago delenda est!

  15. Really? It says a lot about Congress, and particularly the Administration in that they have not made it a priority. In fact, every sycophant is up there saying we can’t throw “innovation” out with the banking-corruption cesspool. Republicans are wholly corrupt(ed), no doubt, but it’s unbelievable the lengths people will go to defend President Obama.(He is what he is, and it’s basically status-quo-don’t-bite-the-ass-that-youknowwhat on us. Oh, and make sure I get re-elected…)

  16. I agree wholeheartedly.

  17. Wow, these comments sure don’t always appear where you send them. I tried to agree with Ted, not Lavrenti, honest, you guys at the FBI!.

  18. Jim, you really see no difference between Sorkin and Michael Lewis? It’s like taking dictation as opposed to writing.

  19. markets.aurelius

    Au contraire, mes amis. As a European you likely do not appreciate the Anglo-American insistence on fair play and equal treatment. Or how large a roll it plays in our very existence.

    This Anglo-American model has been extraordinarily successful in history. Its genesis in English law is manifest: It evolved from the same historical forces that gave us the Great Charter of Freedoms in the 13th century (a/k/a Magna Carta), and, prior to that, the Constitutions of Clarendon. These contracts reached their apotheosis in the United States’ Declaration of Independence and the four-page Constitution of the United States. (As a European, you’d probably want the déclaration des droits de l’Homme et du citoyen included in this catalogue, but, given it proclaimed a failed revolution and The Terror, followed by the reign of one of Europe’s greatest dictators, M. Napoleon, we can safely leave it to the euro-centric inteligentsia to continue to proclaim its priority to Jefferson’s Declaration and Madison’s contract.)

    In America and in the U.K. we insist on fair play and equality before the law because, as an organizing social framework, it works. This is not moralistic pining. Europe’s history has repeatedly demonstrated great wealth and power amassed by tightly knit cadres able to seize and control law-making and –enforcement during a real or contrived crisis is, always and everywhere, destructive. These cadres become more reckless and brazen, and war, revolt or collapse always and everywhere ensues.

    The very best of successive generations in the U.K. and the U.S. have been willing to die for the principals upon which their societies are founded and endure, as Lloyd’s unwitting reference to D-Day and the liberation of Europe reminds us. Here in America, we fought a Revolution and Civil War to assert our belief in the unalienable right to life, liberty and the pursuit of happiness, and equality under the law. We have, in repeated global conflicts, sent forth the very best we have to defeat the enemies of these enduring principals. People do not willingly march forth into death for moralistic shibboleths. As Colin Powell and, most recently, President Obama, have noted, the only thing we asked for in taking on these fights is a place to bury our honored dead. We as a people have not lost this capacity: In this present age, we have sent forth our greatest generation to battle the latest incarnation of terror.

    We in America are enraged because we see our economy and society brought to the brink of destruction by reckless self-enrichment. We then to watch a slow-motion take-over of our government – its laws, law-making and regulation – by the very actors who destroyed domestic and global economies and markets.

    It is these very actors who claimed they must be rescued and held harmless for civilization to endure. As if their survival is the end to which our societies devotes themselves. A contractual right is claimed to redirect all of the loan subsidies and guarantees, all of the credit support, all of the massive intervention to preserve their franchises to their own enrichment in the greatest spectacle of self-aggrandizement in the history of the world. $140 billion will be distributed to a handful of people employed by the “banks” that visited this mayhem upon the world.

    For some perspective, President Obama and Speaker Pelosi now talk about another truly massive stimulus program – approximately $130 billion – to revive the entire domestic economy! We wonder how is it possible that an even greater sum can be tunneled to the “banking sector” – beginning with Hank’s, Tim’s and Stephen’s machinations in 2008 to now – to be allocated in this way?

    The U.K. already has begun addressing this with the clear thinking and straightforward actions of lawmakers and regulators. The leadership in the U.S., sadly, does nothing but allow this takeover to congeal and become a fait accompli.

  20. Armin,

    FIRE may be dynamic, but I can’t agree that adding several trillion of worthless drek to the Fed balance sheet and doubling the National Debt is precisely the way to go. Moreover, I doubt we can do it again next year or the year after, so maybe we ought to reconsider the FIRE strategy a wee bit.

  21. I’ve revised one of my Baseline Fables, exercising a touch of artistic licence in James Kwak and Felix Salmon’s conversation on bloggingheads.tv

    http://tippygolden.wordpress.com/freddy-mercury/

  22. Oh Bayard, I was starting to feel quite positive this morning and look what you have done! ;-)

  23. Thanks for the reviews.

    Am reading John Perkins , Hoodwinked.
    “An economic hitman reveals why the world financial markets imploded – and what we need to do to remake them”

    (http://www.randomhouse.com/catalog/display.pperl?isbn=9780307589927)

    Have you heard of if? If so what do you think?

  24. The economic problem in the US is but a symptom of a political disease. (It’s more likely a political form of malaria or other parasitic infestation, but i’ll keep the disease analog for demonstration purposes.)

    Treating the symptoms may cause relief for a while, but the disease remains to cause future problems.

    The current response, IMO, has been to administer powerful painkillers to make the patient (Main Street) feel less uncomfortable. These do not solve the problems of the disease nor the symptoms. I really am afraid of what may happen when the opiates wear off – the sheeple may be collectively willing to trade security for freedom – again.

  25. @Jim Jones

    A reference to Kool-Aid in the Punch Bowl perhaps?

  26. Jake Chase write: “I tried to agree with Ted, not Lavrenti, honest, you guys at the FBI!.”

    lol

  27. Discussion on the financial system (and the corporate world) often reminds me of the political scientist John Mearsheimer and his book The Tragedy of Great Power Politics.

    Mearsheimer is a theortician in international relations. IIUC, the Tragedy referred to in the book title is that nations are “hardwired” for war. The tragedy is nations have no other option but to grow bigger and more powerful in order to survive. This leading to continental and global wars between two powerful militarized-entities. Offensive realism can also be applied to a study of corporations and the financial system.

    Mearsheimer’s vision is very dark. My observation is that his vision is informed by historical and institutional constructions that are essentially created by men. (Ie, mainly men of White European Christian providence prior to and through the Industrial Revolution.) Academe itself has witnessed critical theory, decolonization theory and feminism. Hopefully, Meirsheimer’s vision is not as dark as portrayed.

  28. Try my book “Yhe Murder of Lehman, An Insider’s Look at the Global Meltdown.” I was a snior ivestment banker, there for about 20 years. It’s an honest account. I’m cozy with no one, but the “villains” are not cartoons. They are people. Mine is a human tale as wellas an explanation of what set the stage for a Lehman failure both inside and ver man years outside Lehman’s walls.

  29. Far-fetched–Second Wave Crisis Not In The Cards… Or Maybe Not???

    A classic report out of the The Associated Press published: December 22, 2009 at 7:15 p.m. ET had Treasury Secretary Timothy Geithner giving the final sealed gift for the holidays. Call it a gift that would sink the Titanic with all but a few of the passenger (Taxpayers) surviving. It’s like China or the other Emerging GDPs being given a “Negotiations that they can’t refuse”…

    I for one will still remain suspect until real meaningful reforms are passed.

    Keep up the articles and the comments As they are Spot on Mr. Simon…

    James Gornick Far-fetched Theme of Comments and Thoughts…

    “The God-Father” Scenes..

    In Geithner gift statement over the National Public Radio we heard, “Obama administration is confident it will prevent a repeat of last year’s FINANCIAL CRISIS, the worst to hit the country in seven decades” (Associated Press, Marcy Gordon).

    Follows right with the “Best Sellers” of Sorkin, and of the other few published writers that have uncovered the nasty secrets of corruption, greed, and politics. Sounds like a great Mafia Movie of old…

    The Question of “THE SECRET”. Follows a Mafia sub-running theme as Far-fetched as this may come across.

    Discover why the secret brings congress and the senate away from passing the true needed death blow of sweeping reforms to divide the banks from the financial investment firms.

    A call again made more than by Paul Volker. These serious reforms are still only the final solution that holds are collective safety against these newest of barbarians and thugs that dress the part with the three piece suit and put the spin for all to be pointed in the wrong direction.

    The words spoken by Sorkin, and any other pundit do not bring comfort to this writer. Especially; the recent statements by our Treasury Secretary Geithner.

    Call it “The delivery of the “The Horse Head”–Speech to the Emerging Growth and G-20 partners hidden message that we again think of ourselves to be this arrogant as Geithner in his announcement to the world and the U.S. Taxpayer.

    In the Mafia, most people would call it the kiss of death or in this case, The kiss of failure lurking on the very near horizons of this most robust recovery in the eyes of this current administration and Federal Reserve.

    The Secret is clearly signaled the highest warning siren by Paul Volker; that it is “Business as usual”, with no sunny clouds ahead but only significant bad weather ahead.

    The Secret is being revealed. The secret plainly exposes Geithner greatest arrogance to think for one second, The United States has taken true control over these who really influence our current economic tides of recovery. A recovery built upon the Asian Rim, Africa, Latin America including the non-defaults from other Countries making up this very delicate Global Recovery…

    The problem with Timothy Geithner as he appears in text with Andrew Sorkin and others has placed him well near where the fire can be the hottest. You can consider it hot enough where one gets severally burned. Let’s not get burned a second time…

    James Gornick

    http://www.google.com/search?q=Banks+Far-fetched&rls=com.microsoft:en-us&ie=UTF-8&oe=UTF-8&startIndex=&startPage=1

  30. A new strategy for the Fed? Don’t take away the punchbowl, just pizen it? ;)

  31. Hope your editor is a good spell checker. If you personally wrote memos to employees I think I finally figured out how this crisis started. “No! No! No! I said get a fair cut Cindy!! Not haircut!!!”

  32. Want to know the real reason things won’t be any different and why we’ll have another one of these wonderful meltdowns real soon?

    Read Hyman Minsky’s books, “John Maynard Keynes” and “Stabilizing an Unstable Economy.”

    And there’s always that classic, The Eighteenth Brumaire of Louis Bonaparte by Karl Marx.

    The more things change, the more they stay the same.

  33. yeah, i am about 140 pages into “too big to fail” and i think it sucks. it is very superficial. it never questions the actions or motives of the men. It so far has focused heavily on lehman bros. it reads like a harry potter book; not a lot of big words, which is good for the average joe, but it also is just that, a 3rd person narrative.
    It also has quite a few misspellings/typo errors. once i finish i will comment some more. I just wanted to get this first part off my chest to see if someone could re-affirm me that the writing improves in the book.

  34. My thoughts exactly! LOL