After the collapse of Lehman Brothers one year ago, when catastrophe looked to be imminent on Wall Street, no measure seemed too drastic to shore up the financial system. An excerpt from New York Times reporter and columnist Andrew Ross Sorkin’s upcoming book, Too Big To Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves, published in the November issue of Vanity Fair shows just how far the government was willing to go to save an ailing Morgan Stanley from going under and bringing Goldman Sachs down with it. In an interview with VF Daily, Sorkin discusses the reporting challenges he faced, the significance of the book’s revelations, and the grim hypotheticals that could have unfolded had Morgan Stanley not found a last-minute lifeline.
VF Daily: In your own words, what do you think is the significance of the new revelations and the excerpts in your book?
Andrew Ross Sorkin: Well, I think this is the first time the public is going to get a true, inside-the-room account of what happened where you actually get to see all of the machinations, all of the interlinking relationships—the sort of inter-web—and even some of the duplicity among the various actors in this drama. It hopefully brings all of it to life for the first time and also helps solve the larger mystery, which is, How did this happen? We have all read the headlines during those harrowing days, but as I got further and further into my research, I realized that news reports at the time only scratched the surface of what really happened.
Can you describe what the reporting process was like, since this is such a detailed hour-by-hour account?
This was, for me, the hardest job of reporting I've ever had in my life. It relied on interviews with hundreds of people and thousands of documents and information that the participants considered to be some of the most sensitive things they had ever worked on or dealt with in their entire careers. And my job was to get them to reconstruct these sensitive meetings and telephone calls. In the end, oddly enough, it wasn't that I lacked information; it was that I had almost too much information. There was sort of a Rashomon-like nature to it all, where I might even interview all 10 people in a room, and, of course, all 10 people have various versions. So, I spent an inordinate amount of time trying to match the various versions of events, matching the quotes to those provided by others or to peoples’ notes, matching the information to emails that were written before and after these meetings to try to document these people's memories. The worst part was that all these people were so tired and sleep deprived at the time that their memories were often inconsistent. That's where the documents became so helpful as a way to confirm many aspects of the story.
Did you ever run into any instances where people fundamentally disagreed about what was said? What did you do when you reached that kind of impasse?
Sometimes. Everyone has their own memories. People generally seemed to agree on basic facts of a meeting or call— even ones they didn’t want to acknowledge ever happened. The quibbling was always over the details. However, I had one person who had actually convinced himself at one point that he was at a meeting that he clearly never attended. I also had a C.E.O. who told me about a phone call, but everyone else on the call disagreed about when and how it happened. For weeks, the C.E.O. argued with me that all my reporting was wrong until we went back and got the phone records. That cleared it up.
And I had certain people who would tell me one thing in front of their lawyer or P.R. people and then would call me twenty minutes later to tell me the real story. So there was definitely an element of that. There was also an element of almost a journalistic shuttle diplomacy where I’d have to go back to various people in the room to get a general agreement of what had actually happened.
Did you ultimately get that kind of agreement on everything, or do you think there could be parts that the participants might dispute?
I think for the most part, people were in general agreement. There were— and probably still are— some disagreements over certain moments or nuances. Some people wanted to massage a quote or claim they didn’t say it in a certain way. And at some level, as the writer, I had to take sides, deciding to believe one person over another. But that’s why I tried to rely so heavily on interviewing as many people in the room as possible and to try to find documents corroborating as much as I could. There are, of course, some cringe-worthy or wincing moments for certain characters in the book who I'm sure won't be happy about them. But I tried to just tell it like it is. Hopefully they won’t blame the messenger.
Who would you say was more cooperative and forthcoming during the course of your reporting, the government or the banks?
In the end, the level of cooperation was surprising— surprisingly good. I wouldn't say one was better than the other. Many of the participants tried to find a way to speak with me in one way or another. Some, of course, did not. I found, early on, some of my best reporting came out of Wall Street, and that enabled me to take that information, and it helped me in terms of my reporting in Washington.
Well, you have more contacts on Wall Street, right?
Right. I think early on I met with more Wall Street people. But there was a moment—there was a tipping point in the reporting process when people really opened the kimono. I got to the point where I could tell the interviewee, “Listen, I know you were in the room; I know it was 8 p.m.; I know these three people were on the speakerphone; this is what you said; you had ordered out from this restaurant and you stepped out to take a call from your wife about your son. ” When I got to that point, people who didn’t want to participate felt a bit more of a desire to talk to me.
It's interesting to me how unclear the balance of power was when you have these negotiations between the government and the Wall Street C.E.O.’s. Because, basically, you have Geithner and Paulson telling these guys what to do, but in the end they sort of—John Mack especially—do their own thing. Who do you think had the ultimate say here? What was each side's bargaining chip, or what did they point to to say, “You’d better do what I tell you because of this,” or “I can do this because?” Or was it all ultimately ambiguous because it was all on the fly?
I think that's the most remarkable part about the story— how ambiguous the power plays were . Everybody thought they had the upper hand at certain points or had more leverage than they really had. In the end, did the government just have moral suasion? Maybe. The C.E.O.’s had to answer to their shareholders. So, there were all of these warring factions and pressure points. But I wouldn't say that Hank Paulson had more power, necessarily, than anybody else. I would say that, in the end, a lot of people have questions about whether the government did the right or wrong thing, and I think that, in the moment, I'm sure you could question lots of different things that were said , but I think you do have to give them an enormous amount of credit for trying. I think there was always a genuine effort to do the right thing. It might not have always worked the way they wanted, but even as you analyze the situation with the government thinking about how to deal with Goldman Sachs—I know there are lots of conspiratorial views about “trying to save Goldman” or this or that—I think in the end they didn't do the deal because they didn't think it was the right thing to do.
To go back to the example of Mack and the standoff between him and the government, you're saying the government had “moral suasion” on its side (as you put it), but when they were saying “You need to do this,” was there any kind of specific threat they were holding out, or some financial strings they could pull?
Absolutely—I think they could've said, “We're not going to make you a bank holding company, and you're going to go out of business.” There were lots of things they could have done, and they did. If you talk to some of the people at Wachovia, when Hank Paulson called that Wachovia board member and said, “You need to strongly consider doing this deal”—those were the words he used—when the board member got off the phone, a lot of people in the room thought, “Ah, this is not him urging us to do this. This is a command performance.” So, I think there's no question that it always felt like there was a threat looming over all of these executives' heads about what was going to happen to them. And I think, to some extent, you probably have to give John Mack a lot of credit for standing up to that, especially considering the outcome today.
That leads to my next question, about the fact that Mack has just been replaced. According to a lot of reports, it's because of Morgan Stanley’s performance since the bailout and his aversion to risk-taking. Is that a sign that Wall Street is already forgetting its lesson?
I don't think so. John was really going to retire at the end of this year.
Was that common knowledge?
Yes, I think so. Within the board at least. He’s been criticized, obviously, for not taking enough risk. But, in a way you could argue that he might have learned the lesson better than the others. The one thing I would say is, to the extent that some of these companies have come out the other side and exist today, many of the executives now consider themselves survivors. That's the word they often use. Like a cancer survivor. Maybe that's deserved for some, but I'm not sure they all appreciate that their survival was in large part paid for by taxpayers. My worry is that, longer-term, some of those who feel like survivors will be emboldened to take on additional risk in the future. But we'll see, because there are a number of regulatory reforms that are going to be put on the table in the fall and that may end up changing the outcome.
What do you think would have happened had Morgan Stanley’s Mitsubishi deal not gone through?
If the Mitsubishi deal had not gone through, I truly believe that Morgan Stanley would have either gone by the wayside like Lehman Brothers, probably putting so much pressure on Goldman that it may have toppled as well, and we would have seen even greater havoc in the marketplace. Now, there was always the possibility—it was never really raised that weekend, or at least not aloud—about whether the government at that point would have decided to step in itself and put capital into Morgan Stanley the same way they did AIG. But barring a capital injection, Morgan Stanley would have died, then Goldman Sachs— and then General Electric.
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