>> New York Times reporter Andrew Rosss Sorkin has just published a new book: Too Big to Fail the Inside Story of How Wall Street Fought to Save the Financial System and Themselves. He joins me in our MoneyWatch Studios. Hi Andrew thanks so much for joining us.
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Andrew: Thanks for having me.
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Jill: Alright I haven't read the entire book .586 pages is big but I did do a cram course
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Andrew: Hopefully it reads like Danielle Steel though it's not that long.
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Jill: It's just like that not as much sex
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Andrew: Thanks.
>>Jill: but tell me something why did these people talk to you so candidly?
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Andrew: That's a great question it's a question I continue to ask myself sometimes but I think there were 2 issues. Early on in the project you know I was trying to get behind the scenes and I really wanted to tell the story from sort of the personal perspective you know you talk about institutions that are too big to fail I wanted to talk about people who themselves thought they were too big to fail and I think there was a view among some early on that they wanted to help me reconstruct the historical record that there was something important here and I actually remember one of my very early interviews was with a CEO who actually showed up at the interview with these notes from the weekend at the fed, the Lehman weekend and these notes were better than any reporter notes you've ever seen. He'd actually drawn out on the piece of paper where everybody sat and I thought I had paid dirt and so there were those people and there were other people by the way who participated clearly to save their legacy, to spin, to screw the other guy or their best friend or what have you and then there also became an inflection point a moment where certain people who didn't want to participate I think recognized that I had gotten along pretty far in the process. I knew that you were at the meeting at 2 in the afternoon and so and so was there and you had taken a call and this is what you had said and once you could actually go to somebody with a lot of information I think more people felt compelled to participate. Having said that there are characters, not many who felt compelled to do it through a lawyer or to not participate.
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Jill: And you'll be telling us those at the end of the interview.
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Andrew:
>> Right.
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Jill: So great. So here is your authors note you quote Galileo and you say all truths are easy to understand once they are discovered the point is to discover them. So what did you discover? What was surprising in this process for you?
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Andrew: Well you know the hardest part about writing a book like this is you know the ending right? We all know how this ends and so the trick was trying to figure out how many twists and turns there were along the way that we as the public get and me as the reporter didn't know and I thought if I give you enough twists so that you can and I think that the biggest twist, the biggest truth was how much activity there was going on behind the scenes prior frankly to the Lehman weekend and then after the Lehman weekend in ways that I don't think we understood. So you know the book starts the day after Bear Sterns is sold to JP Morgan and I use that as sort of an inflection point from a political perspective, from a Wall Street perspective puts the pressure on Lehman Brothers. From that moment on Lehman Brothers was talking to Warren Buffet assumed spelling behind the scenes. The government was trying to orchestrate deals with Barkely's assumed spelling and Bank of America not in September but back in April, May, June, July and so the a lot of these folks saw the train barreling down the track and yet and they were all trying to get out of the way and of course sadly they don't.
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Jill: Right and if you look at this I mean essentially you've transformed this amazing moment in American economic history but you have boiled it down to human beings who have obvious human traits so what were those traits? What led us in and what's come out of this? What are the traits that you really think were led us astray and maybe all of us?
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Andrew: I think greed was part of it; inaudible was part of it. Power I think actually more than even those things. You know people talk about the need for money, the big paychecks that was actually a score card for a lot of these people. I'm not sure that it was the dollar amount itself that they were after and it was it became a power play it became a game and I think that there was sort of a lack of appreciation for what your responsibilities are beyond to the share holder and what risks you were creating to the system.
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Jill: Right and frankly it's funny we can always paint someone the villain pretty easily so I think as we were going through and we said oh Dick Foldman assumed spelling, Lehman he's the bad guy
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Andrew: Right.
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Jill: or those dunces at AIG didn't know what they were doing but who were the heroes? Who did you find were either even glimpses of a hero you don't have to be the hero the whole way through.
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Andrew: You know it's a tough book to write because for a very long time during the reporting process there was no hero. There was no frankly no even heroic moment and I got very lucky about maybe 2/3 through the process somebody mentioned something to me about John Mack someone who I didn't actually think would be a John Mack the CEO of Morgan Stanley someone I didn't think would be a big character in this book and they said do you know about the call and I said what call and of course they said well there was a call with John and Tim Geitner assumed spelling and Hank Paulson and Ben Bernanke and if you can figure that call out I'm not gonna tell you more you have your heroic moment and there's a terrific moment where his company is really on the cusp of collapse and the government says you must merge with JP Morgan actually if you can imagine that for $1 a share do it, do it now and he stands up to them and says no I'm not doing it, I'm not doing it to my employees and I thought that was actually for that moment quite heroic because I think had he not I think there would have been a good chance today there would be no Morgan Stanley
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Jill: So you wrote this book and 586 pages later
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Andrew: Yes
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Jill: Ok what's changed?
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Andrew: Well I think the sad part actually is that not enough has changed. The ethos on Wall Street is so similar and it goes back to this responsibility issue about who are you responsible to? For so long you focused on the share holder. Everything was done in the name of the share holder and now there's this shift which is the government's come they've saved people, they've saved these companies and now the responsibility, how much of the responsibility has to be towards the tax payer towards the system and we have had no new legislation. We may have some new legislation coming weeks and months about too big to fail firms but at the moment they are still too big to fail and frankly my worry is that memories are so short on Wall Street that 2,3,4 years out people who survived this the first time will then feel embolden the next time.
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Jill: And so now that we are in the midst of talking about regulatory reform and I know everyone is very excited and gets their pitch forks about executive compensation. I agree with you that I don't think that's the primary issue. What are the 2 most critical things that you think need to get done in terms of regulatory reform coming out of this crisis?
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Andrew: Two things and they're very easy to do. One is what they call resolution authority which when you think about Lehman Brothers being this domino that cascaded throughout the system it was because it went bankrupt through the bankruptcy process which locked up all of this money and undermined confidence in ways that we never imagined. Regulatory authority is like the FDIC it means that we can actually take over a hedge fund, an investment bank, an insurance company and do it in an orderly way so A that's number 1, that keeps you from ever having this type of crisis again. Two and it's really actually most important is higher capital ratios, higher capital requirements which means you need to have more money physically in the bank and so when you hear today about all of these enormous profits all over again on Wall Street and bonuses that are so high what would really happen is you take those bonuses and you put them back in the bank and that would make the system safer. Now it cuts both ways and immediate term you probably won't get the lending that you want because people are gonna have to put more money in the bank but long term those 2 things I think would make the biggest difference.
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Jill: Andrew thank you so much.
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Andrew: Thank you.
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Jill: And thanks for watching.
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