Posts Tagged ‘Andrew Ross Sorkin’

Playing BrickBreaker While the Financial System Burned

Wednesday, November 25th, 2009

The weekend of September 12 through September 14 – before the collapse of Lehman Brothers on Monday, September 15, 2009 and the near collapse of the world financial system that followed – was a frenzied one in the financial world. By this point, everyone knew huge events would occur: perhaps massive government bailouts, or perhaps multiple mergers of titans of finance, or if all else failed, a cascading series of major business failures. Treasury Secretary Hank Paulson, New York Federal Reserve Chairman Tim Geithner, and Securities and Exchange Commissioner Chris Cox thus convened a meeting of the “heads of the families” – the CEOs and top management of the big Wall Street firms – at the Federal Reserve Bank of New York on Liberty Street in downtown Manhattan to try to, through collective action, stave off disaster.

Paulson and Geithner seemed to be trying to recreate the “Drama at the Library” that averted the Panic of 1907, in which J. P. Morgan almost single-handedly averted a financial catastrophe by himself, as he used his own fortune and cajoled other major bankers to inject liquidity into the stock markets and bond markets to keep them active. The high point occurred when Morgan locked the bankers and the trust company officials in his library to force them to reach a consensus on how to save the insolvent trust companies. A few years later, the Federal Reserve was created in a large part to mimic what J. P. Morgan had done in managing that financial crisis.

As options for Lehman began to dwindle on this September weekend, and its moment of insolvency came closer, Paulson and Geithner summoned the heads of the current elite of Wall Street to a room and told them to come up with a plan – if necessary using their own money to aid another company in the purchase of Lehman. These were the men (and some women) who were paid the big bucks to make the big decisions – all put in the same room with the goal to avert the disaster that they could all see would rock their industry. Yet despite all the power and the extraordinary circumstances, these top bankers were reluctant to help a competitor unless they could see their own upside, and were convinced that Washington would step in. As Andrew Ross Sorkin, reporter for the New York Times and author of Too Big to Fail, reported, conversations took place in which these top bankers made it clear that even as they felt a responsibility to the world at large, their first responsibility was to their shareholders. Systematic risk was the responsibility of the federal government, they felt.

Even with all these decision-makers gathered in a room, Sorkin explained that the “CEOs and their underlings” felt that “Despite the grave assignment they’d been given, there was little they could actually accomplish on the spot.” The top executives knew that the people with “real expertise” to figure out what could be done were doing their work elsewhere – the numbers people working for them who could understand high finance and Lehman Brothers’ balance sheet – and would let their bosses know their conclusions.

So, the executives, twiddling their thumbs, did what they could to pass the time. They did “vicious imitations of Paulson, Geithner, and Cox:

“Ahhhh, ummmm, ahhhh, ummmm,” one banker muttered, adopting Paulson’s stammer. “Work harder, get smarter!” another shouted, mocking Geither’s Boy Scoutish exhortations. A third did his best Christopher Cox, whom they all were convinced had little understanding of high finance: “Two plus two? Um – could I have a calculator?”

And of course:

Colm Kelleher, Morgan’s CFO, had begun playing BrickBreaker on his BlackBerry, and soon an unofficial tournament was under way, with everyone competitively comparing scores.

No word yet on what top score won the tournament.

As well all know, several days after the BrickBreaker tournament, Paulson, Bernanke, Geithner, and the Congress gave in and bailed out the executives in the room as they realized though these executives controlled vast amounts of capital, they were not willing or able to save their competitors and preserve the financial system in order to save themselves.

Most of the information from page 326 of Andrew Ross Sorkin’s Too Big to Fail. Quite an interesting book – well worth a read.

[Image by Cyndie@smilebig! licensed under Creative Commons.]

Chinese Racism, Andrew Ross Sorkin’s Power, Andrew Sullivan’s Catholicism, America’s Decline (?), and Megan Fox’s Savvy Self-Creation

Friday, November 13th, 2009

Chinese Racism. Reiham Salam posits that China’s ethnocentrism will retard it’s development into a superpower – especially given the demographic obstacles it is facing thanks to it’s One Child Policy.

Andrew Ross Sorkin’s Power. Gabriel Sherman describes the world of Andrew Ross Sorkin, star financial reporter for the New York Times, in New York magazine. He describes the unique amount of power Sorkin has accumulated in financial circles, all from the paper that was traditionally lagging behind the others in financial journalism. Attending a book party, Sherman observes the way Sorkin is treated by the many powerful titans of Wall Street:

“What you noticed when you went was how many powerful Wall Street people were there to kiss his ring,” adds The New Yorker‘s Ken Auletta, a party guest. “He’s a 32-yeard old guy, and there were all these titans of Wall Street crowding around to say hello and make nice to Andrew.”

That type of praise only makes your job harder of course.

Andrew Sullivan’s Catholicism. Andrew periodically writes these moving pieces about his Catholicism, and why he is still a Catholic. Yesterday, in an emotional response to a number of recent events, he writes:

Maybe I am too weak to leave and be done with it. But in my prayer life, I detect no vocation to do so. In fact, in so far as I can glean a vocation, it is to stay and bear witness, to be a thorn in the side, even if the thorn turns inward so often, and hurts and wounds me too.

I stay because I believe. And I stay because I hope. What I find hard is the third essential part: to love. So I stay away when the anger eclipses that. But the love for this church remains through the anger and despair: the goodness of so many in it, the truth of its sacraments, the knowledge that nothing is perfect and nothing is improved if you are not there to help it.

America’s Decline (?). John Plender writing in the Financial Times pokes several more holes in the growing consensus that China’s power will soon eclipse America’s. Rather, he sees China as returning to it’s historic position of economic power – increasing relative to America, but not eclipsing it given the various problems they are facing.


Megan Fox’s Savvy Self-Creation. When I saw the New York Times Magazine was writing a major article about Megan Fox I was intrigued. What about her might be interesting enough to hold up a feature? It turns out that there was quite enough. Lynn Hirschberg writes about a starlet whose main focus is her own image, the character she plays in the media. Fox deliberately holds herself apart from this character:

I’ve learned that being a celebrity is like being a sacrificial lamb. At some point, no matter how high the pedestal that they put you on, they’re going to tear you down. And I created a character as an offering for the sacrifice. I’m not willing to give my true self up. It’s a testament to my real personality that I would go so far as to make up another personality to give to the world. The reality is, I’m hidden amongst all the insanity. Nobody can find me.

As she studies Marilyn Monroe, Ava Gardner, Elizabeth Taylor, and other Hollywood icons, almost all of whom were overwhelmed by their characters, Fox seems to be searching for lessons she can take herself:

Monroe was her own brand before branding existed. “She lived her whole life as a character playing other characters,” Fox said. “And that was her defense mechanism. But Marilyn stumbled and lost her way. She became overwhelmed by the character she created. Hollywood is filled with women who have tried to cope. I like to study them. I like to see how they’ve succeeded. And how they’ve failed.”

Hirschberg didn’t seem to know whether Fox’s obsession with Monroe and other starlets would foreshadow Fox’s own decline, or whether it could be managed. The last lines Hirschberg leaves her readers with are plaintive:

In a few short weeks, she had gone from happily outrageous to virginal and controlled. It was, perhaps, a healthier attitude, but pale by comparison. “I have to pull back a little bit now,” Fox said. “I do live in a glass box. And I am on display for men to pay to look at me. And that bothers me. I don’t want to live that character.”

AIG Explains Why It Is Too Big To Fail

Wednesday, March 11th, 2009

The short answer: Yes.

The longer answer: This “Strictly Confidential” document that appeared on Scribd appears to be the same one that Andrew Ross Sorkin described last week in the New York Times as “getting a lot of attention” “inside the corridors of power in Washington.” The presentation is not addressed to anyone explicitly, but it appears to be meant as a kind of briefing on the importance of bailing out AIG for Congressmen and other second-level decision-makers unfamiliar with finance. As is my occasional practice, I’m excerpting some of the more important/interesting points raised in the document for convenient citation later.

This first point is obvious, but still bracing to hear from the source:

Without additional federal tools being deployed in the AIG situation, AIG will not be able to repay its obligations. Despite adequate current security against the U.S. government’s investment, that investment may not be recovered. 

Although some critics of the current approach have begun to question whether the collapse of Lehman led to the fallout that immediately began, it seems pretty clear to me as well as to most who were in the loop at the time that the fallout was the result of Lehman’s collapse. AIG wants to point out that the government did not adequately understand what would happen with the fall of Lehman Brothers – and that AIG is far bigger, more complex and interconnected than Lehman ever was:

Just as the government was unable to predict that the failure of Lehman would lead to the collapse of the Reserve Fund, followed by much of the money market industry, the government would be even less capable of predicting the fallout from the collapse of a much larger, more global and more consumer-oriented institution such as AIG.

Then of course, AIG begins to explain how it’s subsidiaries are essential to the running of the government in general:
AIU insures the U.S. military, the U.N., U.S. and foreign embassies, and important commercial and other organizations worldwide, including the Panama Canal, oil rigs, trucking, marine cargo and Doctors without Borders.
 
AIU’s Defense Base Act program provides coverage to contractors in support of the rebuilding of the infrastructure in Iraq and Afghanistan.
Also, another subsidiary could take down many cities as:
AIGCI is the second largest U.S. investor in municipal bonds.
The report comes to the following conclusions:
  • Insurance is the oxygen of the free enterprise system. Without the promise of protection against life’s adversities, the fundamentals of capitalism are undermined.
  • The failure of the world’s largest insurer at a time of major global financial and economic instability will exacerbate the challenge of reigniting consumer confidence. 
  • Since life insurance has changed greatly in character over the last two decades – from just a basic provision of death and disability benefits to a vehicle for retirement savings and wealth accumulation – the effects of disrupting the industry are wideranging and significant. 
  •  There is a legitimate public policy rationale for regulatory reform of the industry, and the federal government continuing role in AIG’s destiny would be consistent with such a policy direction.

In other words, AIG is too big and too important to fail. It’s probably true – but it’s a big galling to hear a company asking to be bailed out – again and again and again and again – making it. Especially after that company just announced the largest ever quarterly loss in the history of capitalism.

Signs of the Coming Upheaval

Tuesday, March 3rd, 2009

Andrew Ross Sorkin and Mary Williams Walsh in the New York Times:

The loss that A.I.G. is preparing to report on Monday would be the largest ever by any company in a single quarter.

Tom Friedman quoting Ian Bremmer:

“As we look at 2009, on every issue, with the single exception of Iraq, everything is worse…Pakistan is worse. Afghanistan is worse. Russia is worse. Emerging markets are worse. Everything big out there is worse, and some will be made even worse by the economic crisis.”

There is a geopolitical storm coming, concluded Bremmer, “and it is not priced into the market yet.”

Tim Bowler of the BBC reports:

The biggest challenge facing China is not slowing growth but unemployment, which could trigger social unrest, a Chinese government minister has said.