All the Devils are Here: The Hidden History of the Financial Crisis
Bethany McLean and Joe Nocera
Whether you have or haven’t is irrelevant. I bring it up only because the flat accents of NPR‘s on-air staff led me to believe that there was a financial journalist I hadn’t heard of: Jonah Sera. He must be a descendant of the good friar, I thought.
In reality it’s just my old friend Joe Nocera (we’d never not come down hard on that ‘Joe’ in the boros; there’d be no doubt where one word ended and another began), author of A Piece of the Action, and a guy who’s been writing about the financial industry at least as long as I’ve worked around its fringes. In this instance he has a co-author, Bethany McClean, a former Fortune staffer who co-authored The Smartest Guys in the Room, the story of the Enron debacle. Between them that’s a lot of financial journalism firepower.
Yet, my obsession with the subject aside, what more is there to say about it? I’m not being unkind when I say this has the feel of a just-less-than-instant book. Published in 2010, it’s distant enough from the events of 2008 to quote other books about them. But then why do we need this one? So the publisher can have a horse in this race, too?
It’s not carping to note that the promise of that sub-title is never really paid off. There’s nothing new here and since so much of this took place in plain sight referring to it as a hidden history makes me wonder if that’s a ploy to attract attention and sell books. The subtitle of the Australian edition (pictured above; I couldn’t find a shot of the US version) strikes me as closer to the mark.
Other books on this subject have looked at the aftermath, the guys who benefited from it, the journalists who may not have done their jobs and the math whizzes who made all this possible. This time, as befits the pedigrees of the authors, the focus is on the C-suite and its local precincts. The big boys don’t come off looking so good.
The smartest guy I ever worked for used to say that almost everything boils down to a communication problem. I can’t read about the crisis without seeing all the communication failures: people aware of problems who can’t or won’t tell anyone; truth-speakers shunted aside by colleagues who benefit from the current state of affairs; senior managers so disconnected from the details of their businesses that they couldn’t ask a pertinent question if the idea of doing so even occurred to them.
I’d be a lot less scared if these behaviors were restricted to Wall Street. Sadly, I think they describe the way most organizations are managed. It’s just that other organizations don’t serve the same purpose in the economy as the financial sector. By now we all know how the rot contaminated everything else. It’s the failures of the principals that are illuminating.
And so we see Stan O’Neal, of Merrill Lynch, posing as the poster child of insularity. This was a guy so isolated that he played golf alone. And Maurice R. ‘Hank’ Greenberg of AIG. At the big insurer the problem wasn’t communicating with Hank, it was that Hank didn’t believe in communication between anybody else. And Angelo Mozilo, of Countrywide, who was so persuasive on the subject of mortgages he drank his own Kool-Aid. And a host of others.
Astonishingly, it’s Goldman Sachs who comes out best in this telling. All their questionable behaviors are here, of course. And it’s apparent that a large part of the GS culture is pushing the limits of just what can be gotten away with. So much so that at almost every other firm on the Street it seems like there’s a schizophrenic tendency to bemoan ‘Goldman being Goldman’ while at the same time wanting to be more (or just) like them.
It’s not the ‘accept no limits’ thing, though, that is remarkable about their culture. It’s the two things missing everywhere else. One is that everyone talks to everyone else and what they talk most about is the bad stuff–what can go wrong and how could that hurt us? And second, those conversations go all the way up to Gary Cohn and Lloyd Blankfein. Because the firm is run by traders the discussion of risks and details, with a genuine understanding of what both mean, is what differentiates GS management from everyone else’s.
That and an aversion to the comforts of the half-truth or saying what one wants to hear–at least when the thing being spoken of is money. My favorite vignette, which I hadn’t come across before, involved the Goldman alum at the center of trying to avert a meltdown. After Bear Stearns failed in March 2008 all eyes turned towards the new bottom rung on the bulge bracket ladder: Lehman Brothers.
What was happening at Lehman? Not enough to ultimately save the firm, a point the Treasury Secretary, Hank Paulson, late of Goldman Sachs, tried to convey. Yet Dick Fuld, Lehman’s insular CEO, was reportedly telling people he was keeping his balance sheet big to insure government support. Reportedly Paulson told him, “Dick, hope is not a strategy. You’ve got to have a Plan B and a Plan C.”
I love it. Too often Plan B and Plan C don’t exist. I have firsthand acquaintance with firms where to conceive such plans is considered to be planning to fail and disrespectful to one’s colleagues. Most of the firms I knew that had managers who believed such twaddle no longer exist.
Neither does Lehman Brothers.