Too Big to Fail [292]
Unless those regulations are changed radically—to include such measures as stricter limits on leverage at large financial institutions, curbs on pay structures that encourage irresponsible risks, and a crackdown on rumormongerers and the manipulation of stock and derivative markets—there will continue to be firms that are too big to fail. And when the next, inevitable bubble bursts, the cycle will only repeat itself.
The financial industry had always been intended to be something of an unseen backroom support for the broader economy, helping new businesses get off the ground and mature companies adapt and expand. Yet in the years leading up to the crisis, the finance sector itself became the front room. The goal on Wall Street became to generate fees for themselves as opposed to for their clients. As this book went to press, the handful of proposals that have been introduced to put the financial system back in its right place and rein in risk have seemed tepid and half hearted, at best. Relieved that the worst is supposedly behind us, the Obama administration seems to have moved on to other priorities.
Meanwhile, Wall Street, bent but not broken, rumbles on in search of new profits. Risk is being reintroduced into the system. Vulture investing is back in vogue again, with everyone raising money in anticipation of the collapse of commercial real estate and the once-in-a-lifetime bargains that might be available as a result. Perhaps most disturbing of all, ego is still very much a central part of the Wall Street machine. While the financial crisis destroyed careers and reputations, and left many more bruised and battered, it also left the survivors with a genuine sense of invulnerability at having made it back from the brink. Still missing in the current environment is a genuine sense of humility.
As this behind-the-scenes tale has, I hope, illustrated, in the end, whether an institution—or the entire system—is too big too fail has as much to do with the people that run these firms and those that regulate them as it does any policy or written rules. What happened during this period will be studied for years to come, perhaps even by a new generation of bankers and regulators facing similar challenges.
When the post-bailout debate was still at its highest pitch, Jamie Dimon sent Hank Paulson a note with a quote from a speech that President Theodore Roosevelt delivered at the Sorbonne in April 1910 entitled “Citizenship in a Republic.” It reads:
It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.
It was a remarkable quote for Dimon to have chosen. While Roosevelt’s words described a hero, they were deeply ambiguous about whether that hero succeeded or failed. And so it is with Paulson, Geithner, Bernanke, and the dozens of public- and private-sector figures who populate this drama. It will be left to history to judge how they fared during their own time “in the arena.”
ACKNOWLEDGMENTS
This book had its origins in the wee hours of the morning of Monday, September 15, 2008. I had just gotten home at about 2:30 a.m. after working flat out for days with my colleagues at the New York Times as we sought to report all of the details