LSE Public Lecture Podcast: "Too Big to Fail" with Andrew Ross Sorkin

Date: November 5, 2009
Host: Tom Kirchmeier (LSE Financial Markets Group)
Speaker: Andrew Ross Sorkin (Author and NYT journalist)

Main Theme

Andrew Ross Sorkin presents insights from his book "Too Big to Fail," which gives a behind-the-scenes look at the 2008 financial crisis. He discusses the calamitous days surrounding the collapse of Lehman Brothers, the near meltdown of the global financial system, and the human dramas that played out among bankers and regulators. The talk features inside stories about decision-making, power struggles, and the lessons (and lack thereof) that emerged from the crisis.

Key Discussion Points & Insights

1. Personal and Book Genesis

• Sorkin opens with a personal connection to LSE and a story about the birth of the book—Lehman’s collapse at 2:30am and the urge to document what was happening behind closed doors.
• He describes the book’s purpose as “to reconstruct the record for the first time, so that all of you and the readers and the public could see what happened inside the room during this calamitous period.” (02:25)

2. Reporting Process and Approach

• Sorkin conducted over 200 interviews, often with all participants of crucial meetings, using detailed notes and even phone records to ensure accuracy.
• Many industry insiders contributed because they understood “this was history in the making,” others to spin or protect their legacy. (04:21–05:26)
• The book is described as “more human drama than I imagined…less about institutions that are too big to fail than it is about people who think that they’re too big to fail.” (07:40)

3. Power, Greed, and Hubris

• Sorkin challenges the public perception that money is the main motivator on Wall Street, arguing that, “The money, in the end, oddly, becomes just the scorecard for the power that I think a lot of these people craved.” (07:45)

4. Narrative Structure and Main Protagonists

• The book follows multiple storylines—mainly Hank Paulson (Treasury Secretary) and Dick Fuld (Lehman CEO)—in a style reminiscent of the movie “Crash.”
• It details the shift in government approach after Bear Stearns and the critical importance of market confidence and expectations. (08:37–09:11)

5. What We Didn’t See in Headlines

• Sorkin’s research reveals how attempts to save Lehman started months before the September crash, with secret approaches to potential buyers and investors, including Barclays, Bank of America, and Warren Buffett, dating back as early as March–April 2008. (10:30–11:27)

6. The Moscow Meeting: Truth Behind the Conspiracies

• Sorkin uncovers a secret Moscow meeting between Hank Paulson and the Goldman Sachs board, described as “a meeting that does not look good by any means.”
• However, after thorough investigation, he finds no real conspiracy, just “old friends…literally sat around on the bed talking about different stories.” (13:18–15:00)
  • Memorable Moment: Even Paulson was worried about the room being bugged.

7. Dick Fuld: Tragic or Villain?

• Fuld, often painted as a villain, is shown as both harshly criticized and strangely sympathetic—a “tragic figure.” Sorkin notes, “you actually get to see these people as people…certain aspects of them become more sympathetic.” (17:21)

8. How Close We Came to Collapse

• Internal accounts depict Morgan Stanley, Goldman Sachs, and even General Electric as mere days or hours from bankruptcy, with potentially catastrophic implications for payrolls and economic stability.
  • “There was a view that literally big and small companies were not going to be able to make payroll the next week.” (19:17–20:26)
  • Notable Quote: “This is our economic 9/11.” — Hank Paulson in a staff meeting at Treasury (18:57)

9. The Fateful Barclays-Lehman Deal and US/UK Regulator Tensions

• Sorkin recounts the failed Lehman rescue, tracing miscommunications and rivalry between US and UK regulators (notably Tim Geithner, Hank Paulson, Alistair Darling, and Callum McCarthy), and tensions between Barclays’ Bob Diamond and John Varley.
  • “You have to tell us one way or the other, because we need to know whether we can do it…Let’s just cut our losses.” (23:41)
• He debunks the famous “we don’t want to import their cancer” line, highlighting the ‘game of telephone’ effect in crisis rooms.
• Contemporaneous Email: Bob Diamond to Bob Steele: “Very frustrating. Couldn’t have gone more poorly. Little England.” (32:13)

Audience Q&A Highlights

1. Liquidity vs. Solvency Recognition

• Q: When did the authorities realize the crisis was about solvency, not just liquidity?
• A: As early as March 27, 2008, at a Treasury meeting Hank Paulson said he believed Lehman was insolvent: “It’s extraordinary to me that if that was really the view...this train, which obviously was barreling down the track, was not seen earlier.” (34:06–34:10)
• Sorkin reveals a memo for TARP was drafted in April 2008, months before its public emergence. (34:54–35:44)

2. Main Lesson Learned?

• A: The root of crises is leverage/debt: “That is the only way to rewrite…the underpinnings of Wall Street…banks just need to have a certain amount of money, actually a lot more money sitting in the bank at any given time.” (36:27–38:17)
• He recommends higher capital requirements as a key reform.

3. Could an Early Failure Have Helped?

• On whether letting LTCM or Bear Stearns fail earlier would have changed things: “There’s an argument to be made that had Bear been let go then that Lehman wouldn’t have failed in September, it would have failed in March.” (38:32–39:49)
• Points out interconnectedness may have amplified later risks.

4. Accuracy of the Book and Spin

• Sorkin aimed for 99%+ accuracy with corroboration; petty office politics often helped expose the truth: “It’s remarkable what people will tell you about each other.” (40:55–41:29)
• Stresses reliance on written records (emails, notes) and direct cross-checking.

5. Lessons Learned and Political Realities

• Wall Street “survivors” see themselves as having triumphed, not been saved; little substantive reform has occurred, with public and political obstacles: “Many of the people who are still in power think of themselves as survivors…not as being rescued.” (44:48)

6. Could Regulators Have Saved Lehman?

• The Fed could have invoked special powers or made Lehman a bank holding company (as with Goldman and Morgan Stanley later), but “I clearly think they underestimated the contagion effect.” (47:41)
• Dick Fuld and AIG’s CEO sought rescue options earlier, but regulators worried this would worsen confidence. (47:45–49:30)

7. The Fannie Mae Bailout and the Domino Effect

• On the contrarian claim Fannie Mae’s bailout triggered the collapse, not Lehman: Sorkin disagrees. He points instead to the UK bankruptcy code and resulting cash lock-up as a pivotal moment cascading into global panic. (50:28–51:54)

Notable Quotes & Memorable Moments

• “It’s really less, in an odd way, about institutions that are too big to fail than it is about people who think that they’re too big to fail.” — Andrew Ross Sorkin (07:40)
• “This is our economic 9/11.” — Hank Paulson to his staff (18:57)
• “The money, in the end, oddly, becomes just the scorecard for the power that I think a lot of these people craved.” — Andrew Ross Sorkin (07:45)
• “Very frustrating. Couldn’t have gone more poorly. Little England.” — Bob Diamond, in email (32:13)
• Sorkin’s anecdote on authenticity: “He used this phrase and he said, they grin fucked us. Which is actually a very interesting visual if you think about what that really means.” (41:54)
• “You better hang on because I’m 30 seconds behind you.” — Lloyd Blankfein to John Mack as both firms teetered on the brink (19:40)

Timeline of Key Segments

• 00:28: Sorkin’s personal connection to LSE; how the book began
• 01:53: Lehman bankruptcy, reporting the front page story for NYT
• 04:21: Describing the research and oral history process
• 07:40: The book’s focus on human drama, power, and hubris
• 10:28: Revealing unknown timelines: earlier attempts to rescue Lehman
• 13:18–15:00: The Moscow/Goldman Sachs-Paulson “conspiracy” debunked
• 17:21: Dick Fuld as a complex, even tragic, character
• 18:57: Quoting Hank Paulson: “Our economic 9/11”
• 20:59–32:56: The UK-US regulatory standoff over the Barclays-Lehman deal, and the miscommunication that led to collapse
• 33:32–51:54: Audience questions and Sorkin’s candid responses

Tone and Style

Sorkin's delivery is conversational, anecdotal, and often wry—openly sharing journalistic frustrations, humorous moments (“they literally sat around on the bed talking…”), and the drama of discovery. He is careful not to pass judgement on his subjects, striving instead for a nuanced portrayal that lets readers make up their own minds.

For Listeners: Key Takeaways

• “Too Big to Fail” reveals the dramatic, often little-known details and personal struggles behind the 2008 financial crisis.
• Major events were often set in motion months before the public saw headlines.
• Human psychology—ego, hubris, fear—played a decisive role in how the financial crisis unfolded.
• The system came even closer to collapse than many realize, with global recession and payroll crises narrowly averted.
• Many of the supposed lessons have not, in Sorkin’s view, been fully learned or enacted.
• Politics, public relations, and the enduring culture of “survivors” in finance remain obstacles to reform.

[End of Summary]