I was with my wife buying baby stuff in Target yesterday. Needless to say I was actually screwing around with my blackberry and found some notes from an aborted review of *Too Big To Fail* the 2009 book by Andrew Ross Sorkin.
– dealmakers are all the same. “To a man with a hammer, every problem is a nail”. Paulson did deals to fix the problems. In the end, he had to force the deals! Every dealmaker’s dream, being able to force an agreement. The problem is that disagreement isn’t always easy to understand; which was it?
1. One/both parties misunderstands a good deal (false negative)
2. One thinks it’s awesome for both, but doesn’t understand the whole situation (false positive)
3. Everyone gets that it sucks.
TBTF is Paulson falling into and out of and into #2s.
– Klingian [edit: that’s not Klingon, that’s Arnold Kling, see here for example] power vs knowledge is overarching theme. These guys didn’t (couldn’t) have anything like the right answers. Knowledge is too dispersed.
– maybe the financial system got too complicated? Knowledge became too dispersed within organizations.
– there are limits to what an individual can comprehend. TBTF is a symptom of this.
One idea that sticks in my head is Sorkin’s interpretation of Dick Fuld’s failure to ‘save’ Lehman by selling it to someone. He characterized Fuld as a trader, which he was by profession, and suggests that traders are horrible deal-makers. They are ‘take it or leave it’ negotiators who’d rather walk away than find a way to yes. He, his firm and his reputation all came up one deal short.
Hank Paulson is different: he’s a corporate finance guy, an intermediary. Doing deals is what they do. He took himself, his government and taxpayers one deal too far.