Notes on I.O.U. and Too Big to Fail

I.O.U.: Why Everyone Owes Everyone and No One Can Pay was suggested to me by Nick when I asked if he'd read any good books on the financial crisis. So when I spotted it at the library I grabbed it and read it in about ten days, which was extremely fast for me. It's fair to say that it was very satisfying, because when I was done I felt I had a much better grasp of what happened. The trick, of course, is in the remembering.

Lanchester has a way with words, and the way he explains things makes complicated financial products described in acronyms like CDO and CDS and SPV something navegable. His analysis is spot-on, but American-centric readers (like myself) will probably find issue with his Britain-centrism. No matter--he does a splendid job of explaining the compounding of errors, mistakes, oversights and climates that contributed to the crisis, and at slightly over 200 pages this makes an excellent primer for anyone.

A popular saying goes, never underestimate the power of denial. A corollary could be added: Denial is safety, and with acceptance comes risk. For risk is not merely the ancilla of denial; it is its raison d'être.

To properly understand the reasons the financial crisis occurred, it helps, as in Economics, to comprehend both the micro and macro views. Lanchester provides, as do many other authors, a very good, concise, and well-written macro perspective. But you would be hard-pressed to find in the rest of today's popular literature a better micro analysis than that in Andrew Ross Sorkin's magnificent Too Big to Fail.

Sorkin spins an excellent yarn, and the result is astounding. By reconstructing, bit by bit, the many characters and conversations before, during and after the financial crisis, Sorkin gives a vivid voice to the people involved in rescuing the financial system, from government figures to industry magnates and the many people who were sacrificed on the altar of stability and investor confidence. The level of detail the author delves into is quite mind-boggling and the fact that this book came out mere months after the financial crisis was "over" doubles the impressive. Sorkin's finely honed narrative style commands great attention; my sclerotic reading habits nonwithstanding, I felt comfortable picking up right where I left off every time.

The story is fascinating, and the actual persons involved in the deals are stunning. These people were, after all, rewriting history. Sorkin picks up in the debris of Bear Stearns, guides us through the months leading up to Lehman's collapse, and finally shares the radical rethinking that led to TARP, the bailout of AIG, the psychopathic megamerger that saved Merrill, and the frantic dealmaking at Morgan Stanley that culminated in a fantastical nine-billion-dollar check from Mitsubishi. You can't make this stuff up.

Reading general books about the crisis is all well and good if one wants to understand the underpinnings and infrastructure of the collapse. But to read about the actual personalities that shaped the outcome gives the reader a totally different, much broader, and much more complete perspective of why what happened happened. To anyone interested in the mechanics of those fateful days in 2008, I highly recommend this excellent tome. In fact, my only gripe is that--at over 500 pages--it was not more detailed.