On the Brink, In Fed We Trust, Too Big to Fail, and How Markets Fail
Four books offer insight into the 2008 financial crisis that shook the US economy.
The Lehman Brothers conference call for investors on the morning of Sept. 10, 2008, wasn’t an ordinary unveiling of quarterly earnings. It was a bid for survival, and both Lehman’s top executives and those dialing in knew it.Skip to next paragraph
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Beneath a veneer of calm, chief executive Richard Fuld was fighting to persuade clients and investors that his firm was still solvent.
“What last statement can you say,” one stock analyst pleaded near the end of the call, “to give comfort that there aren’t major additional [problems] in the commercial real estate [portfolio]?”
Fuld tried to provide an encouraging response, but the reservoir of trust on which Lehman’s borrowing and business ties depended was evaporating. In five days this icon of Wall Street would be forced to file for bankruptcy. More important, the US economy would be disrupted in ways that are still being felt today.
As a news reporter, I was listening in on the call and wondering the same things as the investors: Is this firm going to make it? What’s that real estate really worth?
Lehman’s collapse became a pivot point in the financial crisis, the moment when the economy tanked and federal rescue efforts ramped up to historic proportions.
Now, several books are offering useful in-depth accounts of how this crisis sneaked up on America and what was done to contain it. No single book can tell the whole story. But the four discussed here each offer valuable insights. Any one is worth a read individually, and as a group they form a fairly comprehensive picture.
The most recent is Henry M. Paulson’s On the Brink. It’s the first account written by one of the principal officials for the US government during the storm of 2008.
The title, of course, refers to the fact that Paulson was Treasury secretary as the nation went to the very brink of economic catastrophe.
Paulson delivers a narrative that’s never dull or overtechnical. It’s his own story, so you’ll learn about his rural Midwestern childhood and his religious faith.
(Disclosure: Paulson is aligned with the Christian Science Church, whose publishing arm produces this weekly. And his daughter is a colleague of mine on the Monitor’s staff.) Long before his rise to the top of investment firm Goldman Sachs, Paulson says he learned to run toward problems when he saw them.
His Treasury job gave him more opportunity to do that kind of running than he could have imagined. The book reproduces a log of his schedule on one frantic day, during which he was making or receiving a phone call practically every five or 10 minutes from sunup to bedtime.
The efforts by Paulson and other officials to save Lehman feature prominently. The failure of those efforts sets the stage for the book’s finale – the rush to set up a wider safety net for virtually the whole financial industry. The $700 billion Troubled Asset Relief Program (TARP) proved deeply unpopular with the public, but provided a crucial backstop that averted a deeper economic meltdown.