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The book Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System from Crisis — and Themselves, written by Andrew Ross Sorkin, explores the events and consequences of the 2008 global financial crisis. To reveal how economic issues turned into the worldwide crisis, the author provides the inside stories of the large affected companies, such as Lehman Brothers and Merrill Lynch. The book represents economic events as the drama of wrong decisions, broken lives, and the business giants’ striving to maintain strong positions regardless of the consequences.
The financial crisis of 2008 led the United States to the severest economic decline since Great Depression. The most significant cause of the crash was the housing market bubble filled with high-risk loans, which led the banks to fail and ask for a governmental bailout (Merle). Merle (2018) states that “in the United States, the stock market plummeted, wiping out nearly $8 trillion in value between late 2007 and 2009”. The particular event that prompted Sorkin to write Too Big to Fail was the Lehman Brothers, an investment banking company, drowning in the credit crisis and the attempts to get support from the U.S. government.
The characters of Too Big to Fail are the affected companies’ executives and Henry Paulson, the Treasury Secretary who initiated the bankruptcy of Lehman Brothers. Paulson interacted with Lehman Brothers’ competitors and other enterprises like Freddie Mac or Fannie Mae, which could be at the highest risk caused by the housing boom (Sorkin 44). Sorkin provides the list of the characters, based on the companies affected, governors, and legislators. The book states that the actions from the government’s end were irresponsible, leading the financial structures to unnecessary risk-taking (Sorkin 160). Executives of the most influential U.S. businesses also appeared in the story as Sorkin included their stories and opinions to emphasize the severity of the crisis that was up to becoming global.
Key terms and definitions related to the economy featured in the book are liquidity, collateralized debt obligation (CDO), and derivatives. Liquidity is a firm’s ability to turn its assets into cash or sell them without price changes. CDOs addressed the payments to investors from the mortgages monthly, and they severely influenced the financial crisis (Sorkin 105). In economics, derivatives are the contracts like futures or swaps that derive an asset’s value for the involved parties.
The book’s characters highlighted several laws and regulations as the measures that affected the crisis’s downturn. For example, Dodd-Frank Wall Street Reform and Consumer Protection Act regulated the financial sector benefitting the consumers. Then, Emergency Economic Stabilization Act and its Troubled Asset Relief Program (TARP) were established to provide the affected enterprises with the proper support (Sorkin 436). The laws of TARP were instituted because of the financial meltdown and helped speed up the recession’s ending. The Dodd-Frank regulation is addressed as the most efficient because it identified the mortgage standards and risk evaluation approaches.
To summarize Sorkin’s Too Big to Fail, it is crucial to mention that the non-fiction book was released in 2009, right after the crisis and during the consequent recession. Hence, the story instead provides the timeline and highlights the turnaround events than any critical evaluation. Sorkin conducted more than two hundred interviews, and the 2008 financial crisis’s severity was described through characters’ interactions and people’s lives’ events.
The narrative began in 2008 when the arising market issues emerged the demand in creating a supportive program for the financial institution. Troubled Asset Relief Program appeared and was signed by the President in October 2008 but failed to eliminate the crashing bubble (Sorkin 383). The story goes around the “too big to fail” enterprises, such as Lehman Brothers, Barclays, Golden Sachs, and JP Morgan, the wellbeing of which is crucial for the national economy (Sorkin 57). By the end of the book, the many events seem to be avoidable, and the wrong decisions made by the right people make the reader understand the fragility of the U.S. economy.
The financial crisis of 2008 provided the economy, society, and politics with various lessons required to learn for further development. The continuing themes of Sorkin’s book are the lack of confidence in the enterprises’ power, the government’s inability to quickly address the problems, the mortgage crisis, and the investors’ refusal to take risks. All these events are the causes of the economic downfall and the further recession.
For example, it impacted the housing industry when “the market crashed as homeowners with subprime and other troublesome loans defaulted at record levels” (Merle 4). Based on Sorkin’s story about companies involved in mortgages, strict regulation is required to prevent risky loans from appearing and the bubble from expanding in the future. Moreover, Barack Obama promoted strong government regulations for the economy during the presidency. He established rules for the banks in the Dodd-Frank Wall Street Reform Act that regulated credits and mortgages.
Although the crisis based on the mistakes of the large enterprises might not cause the global financial crisis, the world has recently faced a COVID-19 pandemic that harmed the economy even worse. The United States is in an economic recession again, and the measures are similar to the 2008’s, but today there is strong support for small companies rather than for the largest ones. The effort to administrate the “too big to fail” enterprises was an economic stimulus package that cost $787 billion but led the economy’s recession to a quick end by June 2009 (Sorkin 507). The Bailout proceeded within the Emergency Economic Stabilization Act, which was not the best course of action but the quickest solution. Sorkin emphasized that the government measured the efficiency of their resolutions by the instant benefits rather than the ethical side and equality in support for “too big to fail” enterprises and other financial institutions.
Works Cited
Merle, Renae. “A guide to the financial crisis — 10 years later” The Wall Street Journal, 2018. Web.
Sorkin, Andrew Ross. Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System from Crisis — and Themselves. 2009. Viking Press.
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