When Greed goes Bad

Written by Leslie Cameron  •  Features  •  June 2011 PDF Print E-mail

Many of us were thirsty for blood in the Fall of 2008. There was talk of hanging a few Wall Street Bankers, along with a couple Washington responsibles. With New York Times financial journalist, Andrew Ross Sorkin's Too Big To Fail  becoming an instant bestseller, and its HBO adaptation which premiered last week, we now have a fantastically rare glimpse of the behind-the-scenes wheeling and dealings on Wall Street.

Sorkin's book is being lauded as the definitive writing on the events of September to October 2008 that transpired between Wall Street and Washington. While there is no doubt respect is due for his 500 hours of interviews, the jury is still out on whether his interpretation of the events is accurate, and if he even has an interpretation of the events.  His tale may be seen as chiefly a reporting of what the people involved say occurred.  Certainly they all did a lot of finger pointing, while Sorkin takes at once the side of those involved and at other times the side of public hatred of these mongers.

Keeping in mind that this is the stuff of opinion and perspective, rather than that of settled truth, one can grip the pages as they are whisked off on an hour-by-hour blow behind the scenes of one of the scariest times in recent US history. The events unfold so frantically you will feel nothing but sympathy for those you might want to blame for the crisis, especially Henry Paulson, Treasury Secretary and former Chairman and CEO of Goldman Sachs.

We are still not out of the woods though, so the fog still conceals much of what led up to the crisis. This is what makes Sorkin's story even more palatable at a time like this. The luster of his tale is in how personal he gets with the biggest names in finance. They become real people who make real big mistakes, but you just cannot help feeling for them, even if you were raised to hate the rich and the powerful.

The HBO movie, based on Sorkin's book, starts with the fall of Bear Stearns and Lehman Brothers and ends with the TARP that was forced on the banks as an encouraging stop gap to keep credit available and avoid a larger disaster. What falls between is a fast paced chasing of characters under a falling sky. Even the most experienced financial experts, like Ben Bernanke, Federal Reserve Chairman, were underestimating the size of the onslaught.

Although the only authentic good guy in the movie was Warren Buffet, played by Ed Asner, there were times you hoped Paulson would come out on top. We all know how it goes before the movie begins. Regardless, you are in for a ride that leaves you feeling dirty from the greedy underbelly of American corporate finance and politics. Paulson goes hither and thither begging for solutions from anyone and everyone, only to end up begging Congress for a $700 billion check with no strings attached.

There is a scene where Timothy Geithner, President of the Federal Reserve Bank of New York, is on the streets in jogging clothes. He says to Paulson on the phone that people are going about their business as usual, unaware that it may all come falling down around them tomorrow.

The movie opens with an emergency Richard Fuld, CEO and Chairman of Lehman Brothers is announcing over the cell to Joe Gregory, President and COO of Lehman. The emergency is the company's pending collapse. Although the movie is called Too Big to Fail and Lehman's is allowed to fail by Paulson's refusal to offer bailout money, after bailing out Goldman Sachs, it was not because Lehman's was considered not big enough. Rather, the movie makes it clear that Paulson was avoiding the beggar's scenario, where the public would believe he was handing out money to any company who asked and pretended to be in trouble. Paulson knew he had to be tough to restore confidence to the market.

There were innuendo's as well that he allowed Lehman's to collapse because it had been his competitor when he was CEO of Goldman Sachs. Lehman's is passed over in order to help AIG, which is an insurance company that impacts banks all over the world. The threat of AIG's collapse was the gigantic scare that lit a fire under Paulson's seat. However, it was also the excuse he was looking for to pass on Lehman's.

What is completely ignored in the movie is the effect nationalization of Fannie Mae and Freddie Mac had on exacerbating the situation. That is where we remember the story is not a treatise. It is a tale of what people felt and did, right and wrong.

The feeling you are left with at the end of the movie is that the real issue that created the financial crisis was moral hazard. It ends with a question about the $700 billion of TARP money forced onto the top 9 financial institutions, intended for them to loan out. Bernanke confesses, “I hope they use the money the way we're asking them to. They will... lend it out, won't they?” Paulson, returning a clearly fake smile of confidence, half wince, says “Of course they will. (pause) Of course they will.” He turns to look out the window in order to hide his fearful glance that he just made another big mistake. Just prior to rolling the credits the line is thrown up at the end, “Following the passage of TARP, banks made fewer loans and markets continued to tumble.”

In fact, the banks were being rewarded for their failure. The risk was minimized, which in financial decision making is the go ahead to continue on the course you have been on. Risk and failure are the only factors that detour greed, and that may in fact be the message of the movie.  

Photo Credit: Macall B. Polay/HBO

Leslie Cameron is a geo-political analyst for a securities firm based in Copenhagen.  She holds a Masters in Economics from London School of Economics, and has previously worked for a number of years on Wall Street for a major investment bank. She is also working on a forthcoming book on the recent financial crisis and its impact on the international political economy.

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