Oh, how I wish I could put this book in the fiction category. It chronicles in sometimes mind-numbing detail how some of the world’s largest financial institutions brought the global financial system to the brink of collapse and how the US government narrowly averted this disaster with an almost unimaginably large bailout.
What’s most breathtaking about this book – and there are many such things – is the speed with which embattled CEOs go from being free market zealots to morally outraged supplicants with an expectation that they should be bailed out on the best possible terms by the taxpayer. Of course it’s no surprise that such morally compromised men should be hypocrites; that goes hand-in-hand with what they do. But that they would be prepared to argue for a doctrine that so opposes the logic of their entire working lives is pretty stunning.
Sorkin roughly chronicles the period of time that Henry ‘Hank’ Paulson served as Secretary of the Treasury, during which the Bush administration went from being as opposed as it is possible to be to any kind of market intervention – or, in other words a large part of the problem – to launching the largest federal bailout in the nation’s history. Prior to his appointment Paulson was, in the now familiar corporatist practice, a former CEO of Goldman Sachs, one of the most greedy, unrestrained financial firms on the planet. He was dogged by accusations of favouritism towards his former firm and hostility towards its rivals, including the suggestion that he allowed Lehman Brothers to fail in a way he never would have done had the weakest firm been Goldman. We’ll never really know if this was a motivation or not, but the government performed a near 180 degree change in policy between Lehman’s bankruptcy and the AIG bailout just days later.
What is, frankly, highly enjoyable is watching as the CEOs of the major institutions realise that their seat in the lifeboat isn’t guaranteed. For the first time in their careers, they briefly contemplate the consequences – the real, human consequences – of their actions and their immense greed. Better yet, is the savage logic of competitors being forced to cooperate by the regulators, as they are asked to pitch in to help save the system. As the chaos spreads, so potential benefactors become victims. Watching these men fear for their reputations and their offensive personal wealth, even if most of them end up holding on to at least the latter of these gives a wonderful sense of schadenfreude.
These are men who have, for years, been assured an obscene, immoral remuneration, playing an abstract game that has real consequences for real people, but who have never had to face even the indignity of flying first class on commercial airplanes. It’s company jets all the way with these guys. This, and a host of other luxuries that these offensively extravagant men enjoy, comprehensively gives the lie to the idea that these firms are run with shareholder value as the guiding principle of everything they do. They are in effect the most exclusive gentlemen’s clubs imaginable (hardly a single player in this drama is a woman, and those are and have broken through the glass ceiling are regarded with jealousy and suspicion by their male colleagues, bosses and underlings).
Sorkin’s writing is straight out of the Bob Woodward inside story playbook, which means that it is obsessed with detail, sometimes at the expense of the overall narrative. Like so much of this kind of writing, it seeks to establish a unity of action as though it were a thriller, although this sometimes leads to some very clunky Tom Clancy-esque tropes, such as presenting the imagined thoughts of protagonists in italics rather than quotes. The text is littered with errors, some of them so egregious that it’s hard to believe that some of the pages were checked at all.
It need hardly be said that the bailout exposed free-market capitalism – especially the lightly regulated form that has emerged as the default model in the first world over the past couple of decades – is not sustainable without a government to back it up, or regulators to insist on behaviour that is conducive to the protection of the system. What’s worse for the free-market ideologues is that the market isn’t structured in a way that prevents it from destroying itself, something that is a founding principle of capitalism itself.
There’s much discussion of the technical term “moral hazard”, which broadly speaking is defined as an action taken by the government that convinces the market that there will be no penalty for increasing risk, but the problem is that the bailouts themselves are exactly such a hazard. One might even say that the idea of the bailout has to be inherent in free-market capitalism, and therefore that moral hazard is baked into the system.
A brave government would take a broad series of actions to regulate remuneration, forcibly reconfigure firms such that they could fail without damaging the system as a whole, and find ways to incentivise financial institutions to behave in a way that is consistent with the requirements of a just society. But we haven’t got one of those, and nor are we about to get one.
The system therefore remains basically as it was, prone to further convulsions, panics and bubbles. The least we can hope for is that a few of the greedy bastards get their comeuppance as a result.
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