28 Dec Crash of the Titans a Tragic but Excellent Tale
Just when you thought you couldn’t stand another 450-page epic about the financial crisis of 2008, not only does another come along that manages to get 450 pages written about it, but it manages to get 450 pages all in just covering one company (well, technically, two): Merrill Lynch, along with its 2008 acquirer, Bank of America. And quite frankly, this one was hard to put down.
The coverage of the weekend in which Bank of America bought Merrill Lynch for $29 per share (the same weekend in which Lehman Brothers went bankrupt) is as gripping as can be, as is the coverage of the aftermath of the acquisition (an aftermath that saw Merrill lose an additional $15 billion in one quarter alone, saw Bank of America itself hit $3 per share, and saw a flood of exits from the executive talent of both firms). Ultimately, this book is a historical tale of the death of one firm, the total re-shaping of another, and the extraordinary circumstances that surrounded both events. It is a corporate tragedy, which is to say that it is a human tragedy. But for readers who find this kind of thing compelling, it really was extremely interesting.
As for how it fits into the overall coverage of the financial crisis of 2008, the book is perhaps a better expose of some of the specific characters involved than most of the others (Stanley O’Neal, the disgraced ex-CEO of Merrill Lynch, in particular), but it is certainly not an ideological book. It is amazing to read the book and comprehend the tens of billions of dollars that Merrill Lynch lost under Stan O’Neal’s watch, and then to further comprehend the $165 million severance package the board paid him on his way out the door, and then to further comprehend (in the light of the previously mentioned two factoids) how big of a stir that John Thain’s office furnishings caused. I promise you as one who saw every single minute of the financial media’s coverage of the 2008 crisis that the $1 million John Thain (the CEO who replaced O’Neal and was subsequently fired by Bank of America) spent on his office re-model got 25 times the media coverage that Stan O’Neal’s severance compensation did. I will not speculate as to why that may be, but I have my theories.
The financial crisis of 2008 is a story about a lot of policy blunders, moral failures, and intellectual miscalculations. But the way in which some of the major players on Wall Street are covered in the crisis requires a more nuanced approach than simply pointing out their “greed and hubris”. I think I have studied the major characters in this whole torrid affair enough to have particular opinions about some of their unique strengths and weaknesses. It strikes me as counter-intuitive that greed alone would be a sufficient motive to explain losing $50 billion of the company’s money that employs you. In fact, some people believe that greed is a good motive to not lose $50 billion. So while the entire compensation structure of Wall Street in the 2002-2007 era warrants examination, I would suggest that Stan O’Neal personifies a much greater problem than the mere obsession with financial bonus compensation. The financial crisis of 2008 is one huge story of covetousness, and while I believe that is best illustrated on the avenues and boulevards of Main Street where middle class Americans competed with one another for better houses (that they could not afford), I also believe that CEO’s (who were already richer than anyone’s comprehension of the term could imagine) were prone to an equally insidious kind of covetousness, but one manifested in very different ways. Theirs was almost pathological and wholly unfathomable to regular people. Merrill Lynch was the finest brand name in the greatest business in the world (I am biased about wealth management being the greatest business in the world but not biased in pointing out that they were the finest brand name in that business). For O’Neal to have ruined that brand so he could chase the quick ROE (return on equity) of leveraged mortgage exposure is unconscionable. The author does point out in his epilogue that some investigation of the internal controls at Merrill should have been ordered by the board immediately upon their realization that things were as dire as they were (and I am sure that could be said of all the Wall Street firms), but even these 450 pages lack a clear explanation as to how it was even possible for a firm of this size and capability to lose that kind of money, all without the sightest comprehension from senior management as to what the exposure may have been. Crash of the Titans does not claim to offer a psycho-analysis of the players involved in this debacle (though it does do a great deal of sociological research which is actually quite fascinating, especially as it pertains to the banking culture of Charlotte, NC vs. the investment culture of Manhattan, NY). I walk away from this read with two primary thoughts: (1) I am not sure if I could even stomach a deeper psychological understanding of men like Stanley O’Neal, but I am sure that “greed” alone does not tell the entire story; and (2) In the case of both Bank of America and Merrill Lynch, there are institutional tragedies and personal tragedies that represent the lowest points of this crisis. And those tragedies are made all the more tragic by the fact that they were just so unbelievably, easily, completely, totally, avoidable.