Too Big to Fail


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Hardcover
624 pages
ISBN 9780670021253 Published Oct. 2009
Viking Books
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Too Big to Fail
The Inside Story of How Wall Street and Washington Fought to Save the Financial System -- And Themselves
By Andrew Ross Sorkin 

Related Blog Posts
The Quants
Posted Feb. 25, 2010 2:12 p.m. by dylan
In - 800 CEO Read Blog

I've not yet finished reading Scott Patterson's The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It, but I'd like to go on record now in disagreement with The Economist's review of the book. I do agree that Patterson's prose can get a bit "purple" in places, but I think his focus on the quantitative models developed and used on Wall Street over the last three decades is an important one. And the way he explores the topic—through the stories of the individuals who created those models—keeps the reader engaged in a tale that might otherwise turn too academic for most.

Patterson also tells of individuals in the "quant" community who have warned against relying on the models they helped create, and he makes good use of their voices in supporting his conclusion that there is no absolute truth in those models—that there is not a science or equation with which to predict and play the market. Beyond referring to the more popular dissidents, such as Nassim Nicholas Taleb and Benoit Mandelbrot, he refers to two I have not come across, Paul Wilmott and Emanuel Derman, and their Financial Modelers' Manifesto:

It was a cross between a call to arms and a self-help guide, but it almost amounted to something of a confession: We have met the enemy, and he is us. Bad quants were the source of the meltdown.

"A spectre is haunting markets—the spectre of illiquidity, frozen credit, and the failure of financial models," they began, ironically echoing Marx and Engels ...

What followed was a flat denunciation of the idea that quant models can approximate the Truth:

Physics, because of its astonishing success at predicting the future behavior of material objects from their present state, has inspired most financial modeling. Physicists study the world by repeating the same experiments over and over again to discover forces and their almost magical mathematical laws. ... It's a different story with finance and economics, which are concerned with the mental world of monetary value. Financial theory has tried hard to emulate the style and elegance of physics in order to discover its own laws. ... The truth is that there are no fundamental laws in finance. And even if there were, there is no way to run repeatable experiments to verify them.

In other words, there is no single truth in the chaotic world of finance, where panics, manias, and chaotic crowd behavior can overwhelm all expectations of rationality. Models designed on the premise that the market is predictable and rational are doomed to fail. When hundreds of billions of highly leveraged dollars are riding on those models, catastrophe is looming.

That quote, I think, pretty much sums up the reason this book is important. We have all heard that the problems on Wall Street stemmed from firms over-leveraging their positions, but we don't often discuss the model they were leveraged on. The more books addressing the issue, the better—I would think. A great book on the subject that was vastly under-appreciated when it was published, and that I'm surprised hasn't come into the conversation since, is Richard Bookstaber's A Demon of Our Own Design, which we named the best Finance and Economics book of 2007 in our first annual 800-CEO-READ Business Books Awards. The book came out a year before Nassim Nicholas Taleb's more popular Black Swan, and I think it's just as important. (And both men were on Wall Street to witness the rise of "the quants" in the '80s. Both, in fact, were among their early numbers.)

A Demon of Our Own Design begins tantalizingly:

While it is not true that I caused the two greatest financial crises of the late twentieth century—the 1987 stock market crash and the Long-Term Capital Management (LTCM) hedge fund debacle 11 years later—let's just say I was in the vicinity. If Wall Street is the economy's powerhouse, I was definitely one of the guys fiddling with the controls. My actions seemed insignificant at the time, and certainly the consequences were unintended. You don't deliberately obliterate hundreds of billions of dollars in investor money. And that is at the heart of this book—it is going to happen again.

It happened again, alright, and Patterson's book does a good job of documenting it on the other side. Patterson doesn't have the narrative genius of a Micheal Lewis or Andrew Ross Sorkin, and The Quants is no Liar's Poker or Too Big To Fail, but Scott Patterson has turned in a valiant debut effort and The Quants is a very good book.



Jack Covert Selects - Freefall
Posted Jan. 15, 2010 6:26 a.m. by 800-ceo-read

Freefall: America, Free Markets, and the Sinking of the World Economy by Joseph E. Stiglitz, W.W. Norton & Company, 320 pages, $27.95, Hardcover, January 2010 , ISBN 9780393075960

We recently named Andrew Ross Sorkin’s Too Big Too Fail the best business book of 2009. It is an engrossing narrative account of the lead up to, and actors involved in, the creation and handling of the recent economic upheaval. It is a great work of journalistic reportage, and an important documentation of the events. Joseph E. Stiglitz has now weighed in on the crisis, which he and many others are calling the Great Recession, from another perspective—an economist’s—in his new book, Freefall.

There are a lot of strong opinions in Freefall, and though you may not agree with all of them, Stiglitz’s sober and concise evaluation of the forces that brought upon the Great Recession and the current situation is hard to argue with. It is also hard to stomach at times, as you come to realize how unnecessary the crisis was. Not only was it a decidedly man-made disaster, many educated and experienced persons—including the author—foresaw and warned against its likelihood for years before it hit. It was not something that “just happened.”

There are bad outcomes that are the fault of no single individual. But this crisis was the result of actions, decisions, and argument by those in the financial sector. The system that failed us so miserably didn’t just happen. It was created. Indeed, many worked hard—and spent good money—to ensure it took the shape that it did.

Working in government and as the chief economist at the World Bank, Stiglitz saw that system take shape and uses much of the book to explain how it came to be, how it fell and the response to its failure in great detail. It is not only about addressing the past and what went wrong, though; it is about finding a way forward. As Stiglitz writes:

It is said that a near-death experience forces one to reevaluate priorities and values. The global economy has just had a near-death experience.

He later sums up:

We have seen the danger. The question is … Will we seize the opportunity to create a new financial system that will create meaningful jobs, decent work for all those that want it … in which each individual is able to fulfill his aspirations and live up to his potential? … These are the opportunities. The real danger now is that we will not seize them.

Freefall is a great addition to a building canon of work on the Great Recession that will surely be studied by economists and historians for a long time to come. We can only hope that the contemporary leadership on Wall Street and Capitol Hill takes notice of these great books as well.



The 800-CEO-READ Business Book Awards of 2009
Posted Dec. 15, 2009 3:00 a.m. by dylan
In - 800 CEO Read Blog

The 800-CEO-READ Business Book of the Year

Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—And Themselves by Andrew Ross Sorkin, Viking Books, 624 pages, $32.95

Even though Too Big to Fail was written during the same year the financial collapse occurred, Andrew Ross Sorkin has written what we predict will be the definitive book on the subject. Sorkin not only tells a gripping “perfect storm” story—reporting the gory details as our 401k’s disappeared and our financial system became nationalized—but he humanizes the players as well, resulting in an imminently readable, albeit lengthy, book.

It’s a sobering reflection and a critical reminder of what transpired in recent financial history. But it is the great stories and detailed, insider information—the sense one gets of being in the room while history is being made—that will place this book among the greats.

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Leadership

best in category ➻ Maestro: A Surprising Story About Leading By Listening by Roger Nierenberg, Portfolio, 128 pages, $19.95 | Leadership is something that can be learned. However, the most respected leaders are not textbook cases, but those who wield the necessary traits and knowledge with a very personal sense of purpose. A parable, which Maestro is, is an ideal way to create a scenario for that sense of purpose to develop, as ideas are presented in ways that are interpreted personally by those who read them, rather than listed as bullet points or chapter summaries. By using the metaphor of a conductor and his orchestra, important details are revealed, from interpersonal communication skills, individual effort to benefit the group, group dynamic to celebrate the individual, and the role that listening (both physically and intuitively throughout all experience) plays in creating the most successful results.

best of the rest:

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Management

best in category ➻ The Four Conversations: Daily Communication That Gets Results by Jeffery Ford & Laurie Ford, Berrett-Koehler, 238 pages, $19.95 | At the core of management is the practiced skill of communication. The Fords present four kinds of the conversations and the best situations to use each of them. More performance conversations (asking for promises) and less understanding conversations (are you OK with all of this?) are needed, they say.

best of the rest:

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Marketing & Advertising

best in category ➻ Trust Agents: Using the Web to Build Influence, Improve Reputation, and Earn Trust by Chris Brogan & Julien Smith, John Wiley & Sons, 271 pages, $24.95 | Social Media took off in big ways this year, and while technology has become an important tool for communication, marketing, and advertising, Trust Agents reels the tech-excitement back in by advocating a not-so-new element that is essential: trust. If the people who put out the messages aren’t people we’d like to work with and buy from, their messages, no matter how easy to broadcast, won’t hold their weight. It’s not about how to master technology, but about being the kind of person, the kind of company, that people like to do business with. This book is filled with prime examples, great stories, and hard facts that convince us not to be blinded by innovation as we communicate with our audiences.

best of the rest

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Sales

best in category ➻ A Seat at the Table: How Top Salespeople Connect and Drive Decisions at the Executive Level by Marc Miller, Greenleaf Publishing Group, 174 pages, $19.95 | In A Seat at the Table, Marc Miller shows that selling is based on the simple concept that the only thing a customer desires is value. The value this book will have for salespeople is that in the discussions of the customers need for value, Miller guides the reader step by step how to provide strategic help for their customers and deliver new and different forms of value.

best of the rest

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Finance & Economics

best in category ➻ False Economy: A Surprising Economic History of the World by Alan Beattie, Riverhead Books, 321 pages, $26.95 | Alan Beattie not only provides engrossing snapshots of mankind’s economic history; he demonstrates how naturally fragile economies are—and continue to be—and how they are guided by the choices we make, not by some invisible hand. It’s a great lesson in these uncertain times that we are—or at least can be—in control of our own economic future.

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Entrepreneurship & Small Business





best in category ➻ Escape from Cubicle Nation: From Corporate Prisoner to Thriving Entrepreneur by Pamela Slim, Portfolio, 340 pages, $25.95 | “Should I go solo?” The collapse of companies and careers over the last year has many asking themselves exactly that question. It’s the avalanche of concerns that follow like “What would I do?” to “Do I have enough money?” that stop most. The power of Escape from Cubicle Nation is that it removes all the roadblocks to saying “Yes.”

best of the rest

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Biographies & Narratives

best in category ➻ The Match King: Ivar Kreuger, the Financial Genius Behind a Century of Wall Street Scandals by Frank Partnoy, PublicAffairs, 272 pages, $26.95 | In The Match King, Frank Partnoy brings Ivar Krueger, the match king, and exciting (though terrifying) time to life. We learn how he cornered the market on matches in his native Sweden and using “creative” accounting was able to ride that success to riches beyond belief until the market collapsed and so did his house of cards. So brilliant is Partnoy’s portrayal that I wanted to keep reading the book even as I walked to my car from the office at night. A great story, told well—there is nothing better.

best of the rest

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Current Interest

best in category ➻ Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—And Themselves by Andrew Ross Sorkin, Viking Books, 624 pages, $32.95 | How could we not pick a book on the financial crisis to lead the Current Interest category this year? And if we are going to pick a book on it, how could it not be this one? Too Big To Fail is the definitive book on the events leading up to, as well as on the characters involved in, the financial meltdown. In his reporting, Andrew Ross Sorkin has managed to weave together an entertaining narrative and recreate a nearly unbelievable sequence of events on Wall Street and in Washington—one that will likely be referenced as long as the topic is studied.

best of the rest

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Personal Development

best in category ➻ Power of 2: How to Make the Most of Your Partnerships at Work and in Life by Rodd Wagner & Gale Muller, Ph.D., Gallup Press, 243 pages, $24.95 | Wagner and Muller contend that it is a myth, or a rarity at least, that the best work happens when one heroic person who is somehow more superiorly gifted than average wrestles an insurmountable task and wins. Instead, Power of 2 proposes that a great partnership can more reliably produce transcendent work by capitalizing on the strengths of both persons engaged in the venture. It’s not a surprise then that Power of 2 was published by Gallup Press, the experts on strengths theory, and it is a pleasure to read a book that encourages collaboration based on strong research and communicated through enjoyable stories, particularly at time when many people are more often encouraged to “look out for #1.”

best of the rest

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Innovation & Creativity

best in category ➻ The Design of Business: Why Design Thinking Is the Next Competitive Advantage by Roger L. Martin, Harvard Business Press, 191 pages, $26.95 | Design thinking is a popular trend in innovation thought this year and a number of good books submitted to this category offer various and useful treatments. The Design of Business by Roger Martin lays out the most applicable system to integrating design thinking into an organization or applying it to a singular problem. Martin also shows just how design thinking can reside harmoniously with more analytical or quantitative approach to strategy. Using memorable metaphors, Martin brings his professorial experience to the topic teaching the uninitiated and the theorist alike this new way of problem solving.

best of the rest

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Big Ideas

best in category ➻ What Would Google Do? by Jeff Jarvis, HarperBusiness, 257 pages, $26.99 | Don’t be confused. This book is not about Google. Jarvis is delivering the virtues of clickable, linkable, searchable, and transparent using the Internet powerhouse as the metaphor. The thought experiments in the final third of the book (Google Cola, Google Capital, and The United States of Google to name a few) make concrete the ways in which the web is quickly changing what we expect from those who serve us.

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