A Wall Street tale retold, with juicy bits to savor
Nonstop efforts of beavering business writers have given us a good sense of the main contours of the financial crisis. Moreover, there is general agreement on the chronology and causes of the crisis and the cast of characters involved.
If most authors employ the same ingredients - an overheated housing market, complicated financial instruments of dubious value, regulatory failures, rash judgment and more than a pinch of greed - they cook them up somewhat differently. One common recipe involves a reduction of sorts, the case-study approach, which allows hungry readers to savor the fortunes and misfortunes of individual firms, whether the high and mighty (Goldman Sachs and JPMorgan Chase) or the benighted (Lehman Brothers, Wachovia and Bear Stearns).
Greg Farrell's “Crash of the Titans” is an exemplar of this approach, chronicling, as it does, the fall of Merrill Lynch, “America's firm,” and the near-collapse of Bank of America, the “hillbilly” upstart from Charlotte that swallowed up Merrill Lynch during the crisis.
The author, a financial correspondent with the Financial Times, includes useful background on the histories of the firms and scattered insights on the crisis as a whole.
But “Crash of the Titans” is concerned, first and foremost, with providing a blow-by-blow account of how the two troubled financial companies came together over the course of a grueling and gruesome weekend in mid-September 2008.
The fact that the two firms did come together was due in large part to the efforts of a few top executives, and Farrell's depictions of these men and women, particularly CEOs Stan O'Neal and John Thain of Merrill Lynch and Ken Lewis of Bank of America, are alone worth the price of the book. And the fact that these three talented CEOs botched things so badly - each in his own way, to be sure - testifies amply to the profundity of the crisis, the mysteries of the art of management, and the distorted incentive structure that emerged in the financial sector in recent decades.
O'Neal, who led Merrill Lynch from 2002 through October 2007, was late in recognizing, much less responding to, the crisis, and once immersed in it, was distracted when not immobilized. On the verge of ouster, however, he perked up enough to ensure that he exited with a payout of $161 million.
O'Neal's successor, Wall Street legend John “Super Thain,” made some reasonable moves in his year-plus tenure, but his mistaken belief that the financial sector would quickly bounce back and his narrow engineering approach prevented him from getting the “thundering herd” back on track.
As a consequence, Merrill Lynch was sinking fast in September 2008 when it was saved by Bank of America, whose insecure CEO Lewis had craved a Wall Street investment bank as a trophy since taking the helm from Hugh McColl in 2001.
Unfortunately, Bank of America, which, according to Farrell, was poorly managed and plagued by a huge toxic-loan portfolio of its own, paid too much for the teetering Merrill Lynch, and arguably would have collapsed as well without the $45 billion in bailout funds it received from the government.
While Farrell's focus is rather more on Merrill Lynch than on Bank of America, one comes away from the book with a sense that both of these financial giants were borderline dysfunctional at the time of their marriage.
“Crash of the Titans” is admittedly lightly sourced - the author relies mainly on interviews with unnamed executives - but the book is full of “insider” information, much of it juicy, if not shocking. At the end of the day, the portrait Farrell paints cannot easily be brushed away. Peter A. Coclanis is Albert R. Newsome distinguished professor of history and director of the Global Research Institute at UNC-Chapel Hill.