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Published: 11 December 2009

Created: 11 December 2009

Last Updated: 11 December 2009

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Scarsdale’s own journalist and author Andrew Ross Sorkin returned to town last night and was welcomed by an overflowing crowd at the Scarsdale Library.  Sorkin was invited by the Friends of the Library to discuss his best-selling book, “Too Big To Fail” which chronicles the events and the players in the financial crisis that hit the news in September 2008. He greeted the community as well as Peter Haupt, his fifth grade teacher from the Fox Meadow School, and David Greene, who served as his Senior Options Advisor at SHS in 1995.  He credited Mr. Greene with getting him started on his successful career by helping him to strategize on how he could get a spot at the NY Times for his Senior Option. Those five weeks shaped his life as he ultimately worked at the Times after college and is now their Mergers and Acquisitions Reporter as well as the Editor of the Time’s online financial blog, DealBook.  He had just come from a taping of an interview with Jon Stewart at the Daily Show.  Stewart opened by asking the youthful Sorkin his age and when Sorkin told him he was 32, Stewart said, “where do you keep yourself? In a vegetable crisper?”  At 624 pages, Stewart also claimed the book should be called “Too Big To Read,” so fortunately for us, Sorkin was on hand to give us the highlights. Watch the Stewart spot here.

{mosimage}Sorkin explained that the book was based on over 200 interviews and 800 hours of conversations with bank CEO’s, government officials, and regulators.  Modeled on the movie “Crash”, he develops individual story lines simultaneously and has the plot lines converge in the end.  Rather than pass judgment on people or events, he has chronicled what happened and leaves the reader to decide who are the heroes and who are the villains. Though he began his research by asking for traditional interviews, he quickly realized that in order to get the real story he would have to permit the bankers to speak off the record. And once he did, vivid, detailed stories of the crisis and bailout emerged.  Those involved were eager to reconstruct the events as they felt these historic times should be studied and remembered.

Sorkin revealed a few surprises uncovered during his research.  Though the public first heard of the impending crisis in September 2008, conversations with bankers showed that they knew of the impending collapse as early as the previous spring and indeed the TARP (Troubled Asset Relief Program) plan had been drafted in April, 2008.  Though the government was not sounding alarms at the time, the crisis was quietly emerging.  

Was the bailout necessary? According to Sorkin, after the collapse of Lehmann Brothers Morgan Stanley, Goldman Sachs and General Electric were at risk of failing within days. The government bailed out AIG because they had insured many of the banks on their investment in toxic assets, and with that bailout money AIG was able to make good on these claims, helping the bank counterparties, which in turn helped to shore up stability and confidence.  If General Electric defaulted, Sorkin told the audience the crisis would have moved from Wall Street to Main Street as smaller companies would not have been able to meet their payrolls.  Who was at fault? According to Sorkin though we blame the players on Wall Street for creating the crisis, these are the same people who in the end saved the country from financial collapse.

Has anything changed? Unfortunately not. In his opinion, new regulations have not been passed and the banks are back to their old ways.  Sorkin suggests that the banks are now paying back the bailout funds they received, not because it is the best move for the financial system, but simply because it will allow them to pay out bigger bonuses to valued employees.  Sorkin feels that one way to prevent a reoccurrence of the crisis would be to raise capital requirements and require banks to hold larger reserve funds. Though this would create greater stability and reduce the risk of their default, it would prevent them from distributing big bonuses and limit their ability to make loans.

Are we out of the woods? Unfortunately the answer to that question was “no” again.  He told the audience that he watches a key employment statistic as a bell weather and notes that the “average hours worked per week” in the U.S. now stands at only 33 hours.   Before companies will hire, he believes they will increase the hours of current employees and right now the picture looks grim.

Sorkin has written a book that it is sophisticated enough for his Dad, an anti-trust lawyer, but accessible to his Mother who is a playwright. Though it deals with complex financial terminology, the book also delves into the lives of high-flying bankers, exploring their lifestyles, motivations, petty jealousies and personal relationships that influenced their actions.

An impressive, confident well-versed speaker, Sorkin claimed that he was only a “meager journalist.” But his performance last night displayed his brilliant insights into extremely complex issues.  If he is the product of a Scarsdale education, we can all feel good about what our schools have to offer.