Too Big to Fail

Summary

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.

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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)

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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)

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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)

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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

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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.

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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.

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[End of Summary]

Transcript

[Tom Kirchmeier]

So welcome everybody. Can you hear me? So my name is Tom, Tom Kirchmeier. I'm from the Financial Markets Group here at LSE and also your chair for this evening. We have Andrew Ross Sorkin here talking about his new book, Too Big to Fail, where I had a pre copy. It's actually quite a good read, the way we do it. He talks for about half an hour now and then we do a Q and A for half an hour and, you know, let's see how it goes.

[Andrew Ross Sorkin]

Perfect. Thank you, Thank you, thank you. And thank you for having me. I should warn you in advance that actually this is a slight homecoming for me in that I. You probably wouldn't know this. I would not exist were it not for the lsc because my parents, who are both American, actually happened to meet here probably 50 years ago. And my mother was here as a junior and my father was here on a Fulbright scholarship, so. And then I was here for part of 1998. So this is actually pretty cool to be in this room given the people I know who gotten to speak here before. So anyway, that's out there, but I wanted to say it. I wanted to spend the next half hour talking a little bit about this book, Too Big to Fail, and maybe some of the lessons that have been learned as a result of it. And then I'm hoping we can try to open this up and really make it a conversation. It looks like we actually have a great crowd, so it should be quite good. And I am told, and I think some of you actually have either read parts of the book or some of you might even had seen some of the excerpts either in the Times of London or Vanity Fair or something like that. The book for me started, oddly enough, on September 15, 2008, at 2:30am in the morning. And it's a very relevant date because I had just finished writing the front page story for the New York Times that day. And Lehman Brothers had just filed for.

Bankruptcy at 1:45 in the morning.

And Merrill lynch had been sold to bank of America. And we had just learned that the next domino, if you will, was aig. They were sort of what seemed at the moment like the secret domino that nobody had realized was about to go off next. And I remember getting home at about 2:30 in the morning and frankly being kind of freaked out. I couldn't believe that this had happened. It almost seemed like the world was about to fall off of its axis all of a sudden. And I desperately wanted to talk to somebody about anybody. And of course, at 2:30.

It's sort of hard to find anybody.

So I woke up my wife, who wasn't particularly thrilled to be woken up, nor did she seem to think this was nearly as dramatic as I did. But of course, I recounted this entire story to her. And at the end, I said to her, it's like a movie. And she sort of looked at me and she's a literary agent. And before sort of rolling over, she looked at me and she said, no, it's like a book, Andrew. And so that's sort of how this whole project came to be. But the goal of the project, more than anything else was 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. And, you know, we had all read the headlines and I had had a hand in helping write some of these headlines and write some of these stories. But as I really dug into it, I knew and wanted to find out more about this great mystery. And that's what I really thought of this as a puzzle. Why did Lehman fail? And why did AIG not? What happened to Goldman Sachs? You know, was Hank Paulson part of a grand conspiracy? When did we know that these problems were really about to crest? And what had happened behind the scenes? And here in the uk, what was happening with the regulators? When you hear the story, you know, you'll all recall Hank Paulson blamed the British regulators for letting Lehman go. Alistair Darling said it was Paulson who did it. I wanted to find out the answer. And so I spent the past year doing interview after interview, asking what had to be probably the most tedious questions you could ever experience. Most people were probably not happy with me. When I was finished, I interviewed over 200 people, most if not all of the participants at the center of the crisis, whether they be the CEOs, managements.

Board members, government officials, both on this.

Side of the Atlantic and on my home ground, if you will, in Washington and elsewhere, and really would sit and go meeting by meeting. What did you say? What did you do? Let's look through your emails, let's look through the calendar. Let's really try to reconstruct the record. I had CEOs who would come to me and. And say, andrew, you're wrong. Let's go and get the phone records, people who showed up, shockingly, with notes. I had a CEO very early on in the process who actually came to me with his notes from that fateful weekend down at the Federal Reserve. And He I have to tell you, these notes are better than any reporter's notes I'd ever seen in my life. He had written Poland Paulson colon quote. I mean, it was really quite extraordinary. He'd even actually written on the sheet where everybody sat at the table. And I said to him, you know, at the end of this sort of meeting, I said, why are you giving me this stuff? And he said to me, because, you know, for the same reason I took it, because I knew this was history in the making. And so there was an extraordinary number of people who participated in this project because I think they did think there.

Was an element of history.

There were other people clearly, who participated to save, protect, or otherwise spin their legacy, as you can imagine. And I did my best to try to avoid letting that spin into the project. And then there were other people who participated because they had to. And one of the most interesting things that I had as a reporter, the experience was it becomes a tipping point where you get to a period where people who don't want to talk to you. And of course, you know, when you start a project like this, you go around and nobody wants to talk to you when you can say, listen, I know you don't want to talk to me.

But I also know that you were.

At John Mack's house, who runs Morgan.

Stanley, at 10:30am in the morning on Saturday, July 21.

You sat on the couch on the right. You had a chicken wrap sandwich that his wife Christy had brought you, and that your son called because he was late for the game. When you get to that point, and there was a great moment where I was able to get to that point, if you will, everybody else sort of fell in line. And so that was sort of an extraordinary period. And then I would literally sit for. For months, if not longer, with the transcripts of these various interviews with the notes, with the emails, and try to match all of the quotes. And almost it became a sort of journalistic shuttle diplomacy where you literally go back and forth, back and forth. Did you really say it that way? You said that you used that you cursed like that, really? And then they would say, no, I didn't. And then you go back to the other guy. Yes, he did. That's exactly what he said. And the most extraordinary part was actually I did this on what people in the United States would call a Woodward background. Bob Woodward, who's a very famous political journalist, sort of gives everybody carte blanche to say whatever they want on the condition that they don't, that he doesn't identify who the sources are. Not that he doesn't identify who said what to whom, but he doesn't say who said what he said. And so everybody or most everybody participated under that working assumption. So that's the backstory towards sort of how this book came to be. And really, I tell people, in the end, it actually turned into more of a human drama than I imagined. You know, the book's called Too Big to Fail. 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.

And it is about the greed and the hubris and the power more than anything else.

I was actually sort of remarking the.

Other day that I think a lot of the popular press and a lot of the sort of public outrage that we have now about bonuses and the like, there's a sense that people on Wall street do what they do because they actually want the money. And I think there's probably an element of that, too. But in the end, I think what you see, and even the petty jealousies and the conversations and backstories between people, it's really about the power. The money, in the end, oddly, becomes just the scorecard for the power that I think a lot of these people craved. And some of that, that craving helped or helped contribute to this problem in that people missed the larger picture. But this book really is about, in many ways, two protagonists. And the two protagonists in this book in particular are Hank Paulson and Dick Fuld. Dick Fuld is the CEO of Lehman Brothers, as many of you know, And Hank Paulson is the or was the.

Treasury Secretary in the United States.

And for those of you who've seen the movie Crash, and I don't know if you have.

The book is actually modeled.

It's not that literary in that it's like the movie Crash in that I wanted you to follow four or five different storylines that seem to be happening.

Somewhat independently of each other. But, of course, as the story progresses.

They all cataclysmically come together. And so you're following Lehman Brothers and Dick as one. And the book starts actually at Dick's.

House at 5am in the morning on March 17, the day after Bear Stearns.

Is sold to JP Morgan. I use that as an inflection point, really, on both the policy shift in Washington and the United States about the idea that the government all of a sudden became in the business of or became willing to save companies and banks on Wall street and the shift in Wall street and the marketplace about what that expectation meant. Because part of it, this whole process, was about confidence in the system and what the expectations were and when expectations were not met, what that did to undermine the confidence ultimately. And so. Well, actually, let me back up one other step. When I started the book, and this was actually sort of the revelation for me, and I hope is, in a way, the revelation for you. I actually thought I was going to write about six or seven days in September, right? That's what many of us focused on, that fateful week in Lehman weekend and aig. And it seemed like you saw what happened here, and it was a very difficult and tumultuous time. And I started thinking I would do moment by moment, just for a week. And then as I started doing the reporting, you started realizing, for example, that when you heard about bank of America.

Or Barclays showing up on the scene.

To buy Lehman Brothers, I thought originally that they had shown up on the scene in September, the week before Lehman Brothers went down. That's what all the newspapers said, including the ones that I had written. But as you go back and you start doing the reporting, you find out, or I found out, that in fact, the U.S. treasury, the government, the U.S. government had actually stepped in, not in September, but in April of 2008, and actually made a phone call behind the back of Dick Folt. In fact, Lehman Brothers didn't even know this was happening to orchestrate a deal with Bob diamond, who was the CEO of Barclays Capital, to buy Lehman Brothers. That bank of America, which again, was another company I thought, that showed up in September, had been pressured by Hank.

Paulson and Tim Geithner and Ben Bernanke.

To try to buy Lehman Brothers in July. In fact, there's a secret meeting that.

Happens on July 21st at the Federal.

Reserve building in New York. And then I find out that, in fact, Warren Buffett had been approached and actually Hank Paulson had gotten on the phone with him not in September, but in March of 2008, and had tried to get him to invest in Lehman Brothers. And so you sort of see this progression, and it really actually changed the skew and narrative, if you will, of the whole story. In fact, one of the other sequences that to me is.

And shocked me in my own way.

I think, was I was trying to get at Goldman and the whole sort of conspiratorial view of whether Hank Paulson was doing things that were either untoward.

Or otherwise to help Goldman at the expense of others.

And somebody says to me, do you know about the Board meeting in Russia.

I said, no, what board meeting are you talking about?

And they said, well, if you can figure out the board meeting in Russia, you got a book. And that's all they left me with. You know, that's how this works, right? You get a little piece and a little piece. And what I ended up discovering was that actually In June of 2008, Goldman Sachs does a board meeting once a year, annually outside of the United States.

Last year they had done it, I.

Think in the Middle east.

And this year they decided they were.

Going to Moscow, in fact, St. Petersburg first, and then they were going to go to Moscow. And so I looked on the calendar to see when this was. And then it just so happened that I had two researchers working with me. So I won't take full credit for this because one of the researchers sent me a note and said, did you know that Hank Paulson was in Moscow at the same time?

And I said, no, okay, we got.

To figure this out. And then things started to click. And as I really got inside both the US Government and Goldman Sachs, what you will find without spoiling the complete surprise, is that there is a meeting.

That is set up at 9:30pm at the Marriott Marquis in Hank Paulson's own.

Suite that is left off the calendar with the board of Goldman Sachs and Hank Paulson together. It's a meeting that does not look good by any means. I think we can all agree on that. In fact, his chief of staff ended up calling, and I have this in the book, his chief of staff, Paulson's chief of staff ends up calling the general counsel of the Treasury Department to ask if this is acceptable, like whether they can have this meeting. And the general counsel's response is the optics don't look good at all. But if it's really just a social event, then it's okay. And in fact, legally that is sort of at least the story that people stick to. In fairness, though, I tell that story because it is one of those sort of more astonishing moments in the reporting process. In fairness to the conspiratorial view, I must say that it was very unsatisfying as a reporter to actually report out what happened during this 35 or 45 minute meeting, which was that there was no real plot to take over the world, which is what I was hoping for, but in fact that they literally were obviously old friends because many of them knew each other and they literally sat around on the bed talking about different stories. And Paulson was giving a speech the next day and. And Oddly enough, gives it sort of almost like a practicing, if you will, his speech for the next day. And he's going to have a meeting with Putin, so he's carrying on about that. And the funny part is that the Goldman board and I think Paulson are all convinced that the hotel room is bugged, and so nothing ends up happening. In fact, probably the funniest moment is that Hank Paulson tells the entire board, they ask him what he thinks of the economy, and he suggests to them that. That the economy will actually get better by the end of the year. To which, the next morning, over breakfast, one of the directors points this out, and Lloyd says, Lloyd Blankfein, the CEO of Goldman Sachs, says, I can't understand why Hank would say that. So, you know, when you actually get behind the curtain a little bit, the nuance actually becomes a little bit more real. And I think throughout, by the way, all that Goldman issue, and I imagine maybe when we get to the Q and A, we can talk about some of these things. The Goldman piece is, in fact, unsatisfying in that throughout the book, I think you'll see actors kind of constantly on the stage worried, in this sort of grand state of paranoia, constantly, that somehow Goldman is about to do something horrific and the US government is about to help them. But of course, in truth, I think when you actually do get there, it doesn't happen that way. Which I have to say, as a reporter, you almost wanted it to, but it didn't. It didn't work out. One of the most interesting parts of this, and I hope for you, to the extent that you have the opportunity to read the book, is Dick Fold as a character. He has obviously been quite villainized in the press. Admittedly, I have written stories that have been quite critical, if not villainous, of Dick Fuld over time. But one of the things that I found about him was that in the end, he almost becomes a tragic figure. I've had readers, by the way, respond in very different ways. I had someone come up to me a couple weeks ago and say, I can't believe you really railroaded this guy. He really sounds like a criminal. And then a woman who came up to me literally a couple days ago and.

And said, you know, there's this moment.

After Lehman Brothers files for bankruptcy, and you will see Dick go home, and.

He'S with his wife and he's crying, and she said, you know, I cried with him.

And as a writer, oddly enough, that is actually like the best of both worlds, because you actually, you know, what you want more than anything. It's like, I wouldn't compare myself to him, but Quentin Tarantino always likes to say that at the end of a movie, the end of a film.

[Audience Member]

He.

[Andrew Ross Sorkin]

Wants the audience to leave the theater thinking that every one of them had seen their own picture. And to the extent that everyone has the opportunity to read this and really actually make their own decision, I tried really not to pass judgment on any of these people throughout. And I've been, in fact, here in London, the question that I've gotten people said, well, you seem like you have sympathized with some of these people. And the response that I keep saying to people is that when you. The interesting part, even for me, is when you get in the room. And I think when the reader gets in the room and you actually get to see these people as people by default, when you end up humanizing them in some ways, I imagine they become certain aspects of them become more sympathetic. The other surprise I wanted to talk about a little bit was really how far gone we were. I'm not sure we all talk about, you know, how bad was it after Lehman Brothers fell and AIG was taken over? There's a scene in the book at the U.S. treasury in Hank Paulson's office.

And his staff is all arrayed around.

Him, and it's that Wednesday morning. And he says to everybody, this is.

Our economic 9 11. And I hope that resonates with people here in New York. Obviously it does.

But there was a view at that point, and you get to actually see it from inside the boardrooms and the.

Corner offices as well, that literally, Morgan.

Stanley, obviously a quite venerable firm, was.

Days away from filing bankruptcy, that they had run out of money.

And this was something that, again, was something I had not seen in the headlines either, and that the view was.

That if Morgan Stanley went, Goldman Sachs was going to go. And in fact, there's a rather almost.

Comical phone call that you'll see in.

The book when Lloyd Blankfein calls John.

Mack and at the end of the call says, you better hang on because.

I'm 30 seconds behind you.

But the more interesting domino, if you think about how the dominoes were to fall, was this sense that it was actually going to cascade beyond Wall street, and was this sense that it was going to cascade to the next domino, being General Electric. And in the United States and globally, obviously General Electric is a massive conglomerate, but really, in many ways, is a bank. The GE Capital portion of General Electric is what has powered that firm for many years and also had put them in this state of peril. And there was a view that literally big and small companies were not going to be able to make payroll the next week. And Jeffrey Immelt, who is the CEO of that company, and you'll see this.

In the book as well, is literally.

On the phone pleading with Hank Balson throughout that week because there's this real sense that things were quite perilous. So I bring that. I give that to you sort of.

As an overview only, because, you know.

I think there's a large question as to how far and how close we.

Came to the edge.

And I actually think we actually were staring over it and probably even closer.

Than some of us imagined.

Finally, I thought I'd just wrap up and then we'll hopefully have some questions to talk a little bit, since we are in the uk, about that fateful Sunday. And some of what I think are.

The most interesting and pivotal discussions and sequences between the US and the UK.

Regulators, which ended up, in fact, determining.

The fate of Lehman Brothers. And therefore, to the extent you believe that the failure of Lehman Brothers helped.

Exacerbate this cataclysmic dilemma, who is to blame? And this is, you know, a question that I've been getting a lot. And when you get to that fateful.

Sunday, as many of you know, Barclays was the last bidder for Lehman Brothers.

And Barclays was very near a deal.

They had set the price and everything looked okay. In fact, it's almost a funny, again, another comical moment where one of the folks from treasury comes in the room.

And actually says, I think we have a deal. It's about 9:45, looks good, everybody's positive. One of the bankers actually taps out.

On his BlackBerry a note to his.

Colleagues back at the Lehman Brothers building. You know, things are, well, people are smiling, there's high fives, it's all looking quite good. And then you flash and you'll see this as well to Hector Sands.

Hector Santz was the deputy at the.

FSA at the time.

He now runs the FSA and he's.

Driving up the A30 back from Cornwall for the weekend and he's on the phone with Callum McCarthy, who at the time was running the FSA. And a backstory on Callum is that Callum was a former banker at Barclays.

Who I would also suggest to you.

Was not particularly fond of Bob Diamond. But that becomes another piece of the puzzle. And they're on the phone with each other saying, furious, really, more than anything else, that Tim Geithner has not called them back. They've been calling all weekend. They're trying to find out what's happening. They're a little anxious, actually, that I think Bob diamond, who was in New York at the time negotiating the deal, hasn't necessarily communicated to the US government exactly what the requirements would be. And there was a sense that sort of Bob might be a little bit of a cowboy and would be trying in his own way to sort of get the deal as close to the edge, so that by the end, everyone would sort of have to capitulate and.

Do whatever was necessary to make the deal happen.

And so Hector and Callum are talking and they script out what they're going to say. And by the way, the other thing, and I didn't know about this either, the London. This is bizarre. One of the impetuses for making this, what becomes a fateful phone call, is that the London Clearinghouse, which clears all the trades, was actually upgrading their software that weekend. Right.

I mean, this has nothing.

You'd think this has nothing to do with anything except for the fact that. That they had told the London Clearinghouse, this is the FSA told the London Clearinghouse, listen, hold off on the upgrade, because if there's a real problem here, we don't want you upgrading and the whole system could fall apart. And so the London Clearinghouse has all these techies, technicians and tech guys waiting around to find out whether they can do this or not. And they're getting a little frustrated themselves. And so the London Clearhouse is constantly calling Hector and calling Colin. You have to tell us one way or the other, because we need to know whether we can do it. And it was almost that pressure. This is why it's so stupid that they say, listen when they're talking to each other. They're saying, listen, we have to either just figure it out or not. Let's just cut our losses and let's figure it out so we can tell these people an answer. Well, Callum finally calls Tim Geithner actually gets Tim on the line and of course, starts the conversation. And it's not the most pleasant conversation because it begins with, why haven't you called me back?

Effectively, I don't have the book in.

Front of me, but that was the. The sense of where it was going, and says, we have a number of concerns about this deal and we don't know where you really are in all of this. I would also, by the way, take it one step back, which is there's an interesting dynamic between.

Bob diamond and.

John Varley, who was the CEO of Barclays and John was the one who was communicating the most with Hector and with Callum, and. And that's important because while it's easy to suggest that Bob diamond desperately wanted.

To do this deal, this would have been a real sort of career enhancer. It would have put him really back on Wall street where he wanted to be. I would suggest to you that John Varley was not as keen on this.

That's not to say he wouldn't do it, but I think from the body language that he's communicating, it's slightly different than, we have to do this. The world will implode if we don't. Whereas Bob desperately wants to do it anyway. I say that by background because there's a sense that Callum doesn't really care whether they get this deal done or not. And frankly, I'm not sure that Callum particularly wanted to help Bob diamond, but that's something else for the conspiracy theorists to consider. But what really happens then is they make their concerns known as to Tim, who gets off the phone in a state of panic, an absolute state of panic, and he goes rushes into the other room where Hank Paulson is sitting along with Christopher Cox and a whole team of the US government folks and says, you're not going to believe this. The UK government says, we can't do this. We have to waive the shareholder vote. We would have to guarantee these trades. It was a very complicated situation and everybody sort of freaks out and doesn't know what to do. Hank says, well, maybe Christopher Cox, who is technically the counterpart of Callum, should make another call to really check on what they're really saying, if you will. So Christopher Cox calls, and you should know that, by the way, Tim and Hank have very little respect for Christopher Cox, so why they're sending him on this call is beyond me. But he makes the call nonetheless, and I'm not sure Callum had particular respect for him either, because he says, I don't know why you're doing this. I think, actually Chris says something to the effect of, why are you being so negative? And Callum says, well, I'm just being realistic because, you know, you're calling us so late in the day. I don't, you know, how are we supposed to get this done if you don't tell us what's going on? To which Cox gets off the phone and comes back and says, this is very bad.

This is a disaster.

And of course, everyone now says, nobody knew this. Why didn't they know this? And it goes back to sort of the miscommunication and Sort of the preparations and we'll get into that maybe in the Q and A. Anyway, I'll finish the story by saying that Hank then turns around and says, okay, I'm going to call Alistair Alton, this is Alistair Darling. Alistair happens to be in Edinburgh.

He has a home there.

That's where he flies in to London every Sunday night. He's on his way to the airport. Before he leaves, his cell phone goes off and Hank calls and says, I haven't ever heard about this problem with the waiver before. What's going on? Blah, blah, blah, blah, blah. And Alistair says, you know, I'm not.

And it was very interesting.

He said, I'm not saying to you that the opinion that I'm against this, I'm not saying no, I'm just saying we have these issues. So there's sort of a reasonable deniability about who was going to take credit for this. Now, interestingly enough, of course, Paulson gets off the phone very frustrated because now his view is that the British don't want to do this at all. And he turns around and you've probably seen this in the papers. There's this sort of famous quote where it's been attributed to Darling and it's.

Actually incorrect, which is the quote that.

Says, we don't want to import their cancer. And it's actually interesting because Alastair himself never used that phrase. But you get to see in the book the Game of Telephone, which is Hank has this phone call and then turns around and goes into the other room and says to everybody, well, Alistair says he doesn't want to import our cancer. And so you get to actually see how this manifests itself. And they go back and forth and back and forth, and there's a conversation about actually whether to call President Bush and maybe whether they should call Gordon Brown. And then Hank Paulson believes that it must have come from Brown anyway, from Downing street, that there's no way this didn't happen any other way. It's not even useful to try this. And there's a sense, by the way, among some of these folks, check the box sense, meaning once they sort of got in their heads that this couldn't happen or wouldn't happen or wouldn't happen in the time frame that they wanted it to happen. And by the way, they're all running against this mental clock in their head.

Of 7pm in New York, which is.

When the Asian markets open, that somehow they want resolution. In fact, resolution didn't mean saving Lehman, it just meant resolution closure. We needed to know whether they're going bankrupt or not or what. And so at that point, they turn around and say, screw it, effectively, we're going to, you know, if the Brits aren't going to do this and we're not going to do this. And at that point, interestingly, they sort of lost the opportunity to do anything, because Paulson is accurate when he says he didn't have the authority once he lost Barclays as the vessel, as the conduit to which the government might have been able to make a loan, they couldn't have made a direct loan. That is actually a true statement. There's sort of a nuance to all of that, of course. And so of course they go downstairs and tell everybody that the deal is off. In fact, the way they say the deal is off is they actually tell all the other bankers who are a consortium considering becoming a consortium to support this deal. They say, you're off the hook. Which I thought was sort of an interesting way to think about it. And one of the most remarkable calls then right after that is the Barclays and Lehman are told the deal is off. And a lawyer for Lehman Brothers named Rojan Cohen, who runs a firm called Sullivan and Cromwell, calls up Callum, who he knows, by the way, because, by the way, this is the most incestuous situation. They all have worked for each other in 20 ways and backwards, and calls up, Callum's an old friend, and says, callum, you know. And of course, Paulson had now used this infected cancer line a million times by this point in the afternoon. And he says, you know, I know you don't want to be infected by.

This.

But by not doing the deal, you will be infected by this. And I actually thought that was actually.

One of the more extraordinary sort of insightful moments and thoughts at that very moment.

Finally, I will leave you with an email that I, you know, you look for the written record, and much of the book is built around the written record of people's notes and things, but you're always looking for the contemporaneous email. And there's an email that's sent at 12:23 that afternoon by Bob diamond, who runs Barclays, to Bob Steele, who Bob.

Steele just everyone knows was the CEO of Wachovia, but was actually had been.

The fellow at treasury back in April.

That tried to originally orchestrate the Barclays deal.

So now we're coming full circle and he's closing the loop. And he writes one sentence, actually three sentences, but one line, and he says, very frustrating. Couldn't have gone more Poorly Little England.

And I always thought that that was.

Actually an interesting email in that when you think about the blame game and you're really looking for that contemporaneous record, I don't know who we're going to blame in the end, but it's interesting to me, given the view that Barclays had espoused at that time, that Paulson.

Was at fault and was the one who.

Who didn't do the deal, that if he really was so furious with Paulson at that very moment, he wouldn't have.

Been talking about his old friend, who.

Maybe or maybe liked or didn't like him, which was Calum McCarthy. So I leave you with that. I hope we can actually now turn this into a conversation we didn't even.

Get into lessons learned, and there really are so many that have not been learned. But there are lessons we've learned but that are not being enacted.

But we can talk about that, too.

[Tom Kirchmeier]

Do you want to just.

[Andrew Ross Sorkin]

We can go over there. Absolutely.

[Tom Kirchmeier]

So I think we have about 15 minutes for a couple of questions.

[Andrew Ross Sorkin]

I apologize. I apologize for going long. I'm sorry.

[Tom Kirchmeier]

But we have two up there. If we can get a mic here to the left, and do we have somebody at the lower end? Maybe just speak out and I might repeat the question.

[Andrew Ross Sorkin]

Give it a shot.

[Audience Member]

I wonder if during all these conversations you.

[Tom Kirchmeier]

So the mic is coming.

[Audience Member]

Hi. That's very interesting. I wonder if during all your conversations you got an impression about when exactly the authorities, and it may not have been the same time in the different. Either side of the Atlantic, but at what time the authorities realized this was not a liquidity crisis and appreciated it was a solvency crisis for the banking system.

[Andrew Ross Sorkin]

Well, I'm going to say something very sad then.

So on March, it's in the book.

I want to say it's going to be March 27th.

There's a meeting at the Treasury, March 27th, 2008. So that's what you would have thought. I would have gone to September. But March 27, 2008, there is a meeting at 8:30 in the morning at the staff meeting at treasury where Hank Paulson literally stands at his desk and says that he believes, and in fact, I think he uses the phrase Lehman Brothers is insolvent. And I only raise that because it's extraordinary to me that if that was really the view that this train, which obviously was barreling down the track, was not seen earlier, one of the other things, by the way, just in relation to sort of seeing things ahead of time and maybe not Doing enough.

[Audience Member]

We.

[Andrew Ross Sorkin]

All know by TARP in the United States, the program which originally was set up to buy toxic assets $700 billion. There's a three page memo that we all thought was written in September, if you recall, that was then passed on its second try. Congress didn't take it the first time. That plan actually was written on April 15, 2008. The plan was presented at the Federal Reserve to Ben Bernanke at that time. It's actually an 11 page memo. And if you can stay tuned until next Monday, we're actually going to be releasing many of the documents behind the book on toobigtofail.com so I can plug it. But you actually, it's actually pretty cool to read. I mean, it's eerie. I don't want to say cool, it's eerie to read that memo, but it really does demonstrate, you know, part of me thinks, oh, you should maybe, maybe.

You give them credit for seeing the.

Train coming down the track. But then you have to turn around and say, well, what did they do about it? So I think this issue of liquidity versus insolvency was actually identified early, but there was a view that it could either be contained or otherwise. So that's an unsatisfying answer.

I know.

[Tom Kirchmeier]

Maybe just on the other side.

[Andrew Ross Sorkin]

Yeah, you've covered a lot of points, but if there is one lesson for everybody in this room, what would it be? And just as a footnote, is your book going to be made into a movie? Stay tuned for the movie. I actually think we might have some.

Good news coming on that front.

In terms of the lesson learned. I think this all goes back to.

The same issue that by the way is bubbled up on every different bubble that's gone, that's burst, which is debt and the levels of debt and the risk of debt and how much capital banks have on the other side.

And when you look at what has.

Happened over the past 20 or 30 years at virtually every bubble, with maybe the exception of the dot com bubble, which I don't think was fueled by debt so much, all of them relate to overextensions of leverage. And that I think remains, I don't know if it remains a problem today, but in terms of when you think about sort of the regulatory reforms that have to come, that to me is the, that is the only way to rewrite, to rewrite the rules, the undergirding, the underpinnings of Wall Street. I think you have to address that issue. One way to address that issue is capital requirements, which is Something I've been advocating for a while now, because I truly believe that if you can get.

To that, I mean, we can talk.

About whether you want a Glass Steagall and whether you want the casino attached to the bank and all of those other issues, but to the extent that the banks just need to have a certain amount of money, actually a lot more money sitting in the bank at any given time for every dollar or pound here that they would lend out, that seems to me to be the most reasonable course. And also, by the way, to the extent there's a public outrage now over bonuses, it would solve that problem, at least in the immediate term, which is to the extent that people are giving out huge bonuses based on these profits, you would force all of that money to go back into the bank, which would make the institutions safer and less risky to the rest of the system. Of course, that cuts, I'm sorry to do this. It cuts both ways, though, because what the banks would tell you today is if you don't think we're lending today, we really won't be lending tomorrow if you require us to keep more money in the bank. So when you.

It's a complicated problem.

[Tom Kirchmeier]

Anyway, we have a question down here. I think the mic is coming.

[Audience Member]

Can I take you back a little on that point? Yeah. Someone once said to me that if they let LTCM just go, but the cascade would never have happened in the first place.

[Andrew Ross Sorkin]

Well, so I think about that a lot and.

I've thought about that question.

I've also thought about maybe if you just let Bear go or Bear Stearns go, and what that would have meant in both cases, by the way, the next domino, funnily enough, was Lehman brothers, even in 1998 at that time. And so, you know, you think about, and I'll do it in the context of Bayer just for now, but if you think about it in the context of letting Bayer go, it might have sent the right message, message to the street. But on that Monday, after Bayer was ostensibly saved, Lehman Brothers stock fell 40%. And when you, when the book opens, you actually see Lehman in free fall. You see a mini bank run going on, even though the company was the first domino was saved. And so I think there actually, and it's counterfactual, but 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. And now what that would have meant to the rest of the dominoes, I don't know. But I actually think a Very similar problem would have emerged perhaps in 98, on the LTCM front, given the rumors, and not just the rumors, but literally the almost mini bank run that was running on Lehman then.

[Audience Member]

Lehman weren't this highly connected in 98. That came in 2004.

[Andrew Ross Sorkin]

The question was that Lehman wasn't as interconnected, and the interconnected issue is obviously a major one, that they weren't as connected in 98 as they were now. I think that's probably true, but I think that if you were to speak to some of the senior people at Lehman at that moment, they were living in fear that they were going out of business within days of ltcm. So it could cut both ways.

[Audience Member]

Yeah. I just wanted to say.

I wanted.

To get your book and read it, but what I want to know is, out of that you're talking about, these people are all interconnected, all know each other and they're at the top and they'll probably stay there.

[Andrew Ross Sorkin]

Yes.

[Audience Member]

So how accurate do you think the information you got is for your book? Roughly your estimate and sort of in terms of. Do you think anything will change in terms of the structure, how things work and their influence?

[Andrew Ross Sorkin]

Right.

So I was gunning for 100%.

Right. I hope I got there. Maybe I'm at 99, 98. I really do think, you know, there.

Were clearly people who did try to spin me.

I don't want to suggest to you that there weren't, but we. What I would literally do is if there were 10 people in a meeting, I would literally try to talk to all 10. And usually by the end, if I hadn't talked to all 10, I'd got to eight. And invariably, as you'll see, even in the book, the petty jealousies and just sort of the relationships between everyone, even though they sometimes work, even at the same company, they were not all in.

Love with each other.

And it's remarkable what people will tell you about each other. I had two people who are best friends who to this day tell each other that they did not participate in.

The book at all.

But I'm sure they both are convinced that they did, and of course they did. So.

I think I got a pretty accurate picture. And one of the things you think.

About, the dialogue, how do you capture that dialogue?

Invariably, two things happen.

One is that people say these very memorable things. Sometimes you talk to someone and they'll say, listen, I don't remember anything, you know, what we said to each other. But I do remember that when, you know, when Paulson put down the phone from Darling, he Came into the room and I will always remember for the rest of my life. 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. I had never heard that phrase either, but that's actually why people remember it. There was another phrase where Paulson said in one of the meetings, he said, I don't want to be here. I don't want to be left here holding Herman. Now he looked at his zipper. For those who didn't get the joke, it'll come to everybody in a moment.

But there are things that are memorable for certain people. And the other thing I found was actually that a senior person talking to.

Another senior person might not remember everything verbatim or sort of might have a.

Sense of what was said, but invariably a younger person. So if you were a staffer and.

You had a meeting with Bernanke, that was probably the most important meeting of your life.

You'll remember everything from that.

Bernanke probably won't remember any of it, but. So you sort of start thinking sort of sequentially. The other thing that was remarkable is.

Actually the number of emails that were.

Sent before and after many of these meetings. So, you know, I would interview people. People would transpose the meetings. They didn't really remember certain pieces. But invariably there was always an email prior to the meeting that said, we're going to have a phone call at 2 about XYZ.

And after the call, at 2:30 we just finished up. At 2:30 we just finished up and talked about XYZ.

And now we need to do, you know, 1, 2 and 3. And so I would try to use that record to actually then go back to the sources, especially when they listen. A lot of these people weren't sleeping, obviously, so.

And I will tell you, the farther I. The harder the reporting got, harder and.

Harder, the farther I got from the events. So the people I interviewed in the. In the months literally that followed actually had a much better recall than the people I ended up having to talk to later on in the process. But that didn't answer. And you just said lessons learned. And the sad part is, I'm afraid to say I'm not sure the lessons have been learned. But we can get into that in a sec.

[Tom Kirchmeier]

One question up there.

[Audience Member]

I wondered, the lessons learned seem to be a term that everybody wants to use these days. I've heard it a couple of times around here now. I read an article a few weeks. Does it work? I read an article a few weeks ago in a German magazine stating that there's a lot of lobbyism already going on against all these bills and suggestions from the government that Obama has put in place. Now to what degree are we starting to see a political move from, for example, the Republicans to trying to demoralize the current government, or to what degree is it actually the banking and finance industry trying to get back on track?

[Andrew Ross Sorkin]

Mr. Well, I think it's a confluence of both of those things. I think there's a political element to this in the United States. Clearly, we have elections as we always do, and to the extent that the economy stays in poor shape, oddly enough, since people do really vote with their wallet, it only bodes well for the Republicans. And at the same time, and this is the sad part, I think the lessons learned on Wall street are few. Many of the people who are still in power think of themselves as survivors. That's the way they talk about themselves, like cancer survivors, not as being rescued. And it really does. And some of them don't want to acknowledge today that they were saved. I mean, that's part of the ethos. It's part of the whole confidence discussion we were having before. Part of the sort of rah, rah, part of it is just projecting confidence. So I'm not sure enough has been learned.

That's not to say that everybody has a total tenure to this. I spent some time with a board.

The other day on a comp committee, and I have to say they were.

Remarkably actually self aware about the problems.

That they were confronting. But they thought about, I mean, the way a comp committee today thinks about it is quite interesting. There's a fellow this is and I'm going to be writing about this, probably this comp committee was thinking about a fellow who was making or wanted or.

They thought that they should be paid.

The management was proposing they pay him $35 million. The guy and so part of him is part of them were talking about this idea that, well, if we were to do this, it would create even more public outrage.

And even if we were to do most of it in stock, it would.

Still create the outrage and it would be a public relations debacle. Yet at the same time, they're still saying to themselves, well, I have to answer to the shareholder, this guy made us several hundred million dollars in revenue this year. Whether that revenue is real or not, I don't know. But let's just suggest it's real.

For now. We think that he will walk across.

The street and go elsewhere if we don't pay him this money, which probably also is real and true. And so it goes back to this.

Sort of larger question in an odd.

Way about capitalism, which is, who is your responsibility to, whether it be the shareholder versus the community and the taxpayers in the system or what have you, and how can they coexist? But listen, this is a conversation I imagine we're going to be having for many, many years.

[Tom Kirchmeier]

So two more questions. One here and then over here.

[Audience Member]

The Fed could have invoked the extraordinary powers.

[Andrew Ross Sorkin]

Oh, sorry, hi.

[Audience Member]

The Fed could have invoked the powers under Section 33 of the. Or they could have transformed Lehman into a bank holding company. And actually they did similar things to Bong Stanley and to Goldman, and the treasury did things like that to AIG later on. Do you think that the actors did not do this because they underestimated the contagion defects of Lehman?

[Andrew Ross Sorkin]

I clearly think they underestimated the contagion effect. They, in an odd way, were emboldened by some of the bankers. You talk about the groupthink and the incestuousness issue that weekend at the Fed, remember, all of the CEOs come to come together. Many of them were telling Paulson and Geithner and Bernanke. Bernanke wasn't there, he was in Washington. But they were telling them that we're fine.

We saw, We've seen this train coming six months and we're out, we're out, we're not going to have a problem. And so I don't think they realized.

The problem nearly as much and became emboldened.

I mean, the politicians became emboldened to.

Think, well, if the CEOs are saying this, maybe it's okay. Well, one other point to make, which actually, again, is sort of one of.

Those sad moments where you see the.

Train coming on July 12, 2:30 in the afternoon, Dick Folt in his office with actually Rog Cohen, the same guy, lawyer, called Tim Geithner and asked to turn Lehman Brothers into a Bank Holding Company. July 12th. It's a Saturday afternoon.

And at the.

Time, Tim said to them, are you sure you want to do that? Because if you would, he was worried that it would actually send the wrong signal to the markets, that in and of itself it would undermine confidence. So I just suggest that to you, I'll make it also sadder for you. Once again, I think it's August 2nd, but the book is not in front of me. I believe August 2nd, Bob Willemstad, who was the CEO of AIG, went to see Tim at his office on 33 Liberty street and had the Exact same conversation and said, maybe we should become either a bank holding company or a primary dealer or something of that sort. And Tim Geithner's view at that time was that it would only undermine confidence in the system. So, for what it's worth.

[Tom Kirchmeier]

So one last short question.

[Andrew Ross Sorkin]

I apologize. I'll go very short. We'll let everyone go. Yes, sir.

[Tom Kirchmeier]

There's a mic coming. So while the mic is making its way, maybe I should say Andrew will be outside for another half an hour signing his book.

[Andrew Ross Sorkin]

I didn't know, but I'm happy to.

Well, I was told, oh, okay. I'm happy to sign books.

[Tom Kirchmeier]

And obviously also selling his book.

[Andrew Ross Sorkin]

That's true, too.

[Tom Kirchmeier]

So anyway, and here. That's the last question.

[Audience Member]

There's a contrarian view, which I've seen in the Wall Street Journal, that the trigger for the meltdown in September, September, it was not actually Lehman, but the Fannie Mae kind of bailout which wiped out the shareholders. And the argument given is that spreads on credit default swaps were surprisingly stable after Lehman, but then widened enormously, supposedly indicating sort of massive loss of confidence after the Fannie Mae bailout. So do you think there's any.

[Andrew Ross Sorkin]

That doesn't seem right to me. Only in that Fannie, if you remember, was saved or put into conservatorship the week prior to Lehman Brothers. But I could be. I mean, in terms of the sequence, Fannie came before Lehman Brothers. I see the problem with Lehman Brothers. I'll go very, very quickly on this issue. The real cataclysm in an odd way was, if you recall, all this money, you remember, like $10 billion got locked up in the London based arm of Lehman Brothers. I actually think that represented one of the biggest problems because the bankruptcy code in the UK required them to go bankrupt. That meant that they could not continue trading. And it locked up all this money, not just in the uk, but this was money of hedge funds and investors in the US and in Asia and everywhere else. And it created this sort of vicious circle because without access to that cash or that capital, many of these firms started selling everything they had as quickly as they could in this sort of fire sale that became this vicious circle and almost became this torrent now at that time that then contributed to the run on the money market problem in the US which then really, I think, helped undermine the sort of structural confidence in the system. But some people have said to me that the real problem, at least in the US was actually when TARP wasn't passed the first time, if you remember the markets cratered because the rest of the world said these guys don't know what they're doing.

[Tom Kirchmeier]

So.

[Andrew Ross Sorkin]

So, you know, there's the political element and then there's the actual undergirding of the economics. So thank you for the question, though.

[Tom Kirchmeier]

So, anyway, thank you very much for coming.

[Andrew Ross Sorkin]

Thank you for having me.