Too Big To Fail

I watched an interesting movie on HBO last night titled Too Big To Fail. It was a docudrama about the financial collapse that took place in 2008. It was based on a book by Andrew Ross Sorkin. I always find investing related movies fascinating because the financial sector is one that I am so interested in. In the past, I thought that Wall Street and Boiler Room were two pretty good works of fiction.

too big to failToo Big To Fail is different in that the majority of the movie is supposed to be non fiction. I found the movie to be riveting as it unfolded because it was like reliving the entire financial crisis all over again. I remember the fear that investors had. There were worries about major banks failing and having to become nationalized by the Federal government. It wasn’t that long ago that you could have taken $20 and purchased a share of Citigroup, Bank of America, Wells Fargo, AIG, and General Electric. You still would have had a $1 left over after buying all of those companies.

I also remember how the credit markets were frozen. I remember calling TD Ameritrade and a few other brokers to get a price on bonds and could not. Trying to sell a corporate bond was virtually impossible because the credit markets were locked down. No one was buying. I can only imagine the trouble that the larger financial institutions had accessing capital.

The best part about the movie is that it gives you a glimpse into some of the conversations that took place between some of Wall Street’s heavy hitters. Treasury Secretary Henry Paulson was doing everything he could to arrange marriages between the country’s financial institution. The best figures in the movie are Henry Paulson, Lehman CEO Dick Fuld, and Federal Reserve Chairman Ben Bernanke. There is even a scene where Ed Asner portrays Warren Buffett taking  a desperation phone call from Goldman Sachs.

The entire movie is centered around the last days of Lehman Brothers. The investment bank and its CEO were expecting a government bailout and instead were sent into bankruptcy. The  Lehman bankruptcy devastated the market and had a ripple effect that was felt throughout the economy. The result was the establishment of the Troubled Asset Relief Program (TARP) to buy the bad assets from banks and hold them until the markets recovered.

The TARP program never happened and the government instead injected money directly into the big banks. I remain convinced that regardless of what they say that Bank of America, Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley, and even JP Morgan Chase all would have failed without the excess capital. The extra capital restored confidence at a time when consumer confidence in financial institutions was incredibly low. Big banks like Washington Mutual and Wachovia were dropping like flies. Investors were even losing confidence in money market funds as many of them were breaking the buck.

Whatever you think of the government’s actions from 2008 to 2009, you have to admit that it worked. The economy did not collapse and the majority of the big banks are still around. The irony is that they are larger than they have ever been with the mergers and acquisitions. You just have to hope that they learned their lesson from the crisis of 2008.

Comments

  1. avatar optionsdude says:

    I have to take the experts’ word for it that there would have been utter calamity without the efforts of the government so I suppose it worked out for the best. I do know that there still seems to be a feeling of major recession in my area although people are spending again. There just doesn’t seem to be a lot of confidence or enthusiasm about the economy.

    • avatar Mark says:

      Confidence is one of the main drivers of economic activity. I don’t think things will ever be normal again until people regain confidence in the economy.

  2. Yes. This is a really good movie.

  3. avatar Money Beagle says:

    My issues were when it was revealed that these banks were still paying bonuses in the hundreds of thousands of dollars, or even millions of dollars, to many employees. If you’re going to take money from the government to the tune of tens of billions of dollars apiece, it seems that should be after having exhausted every possible means, and if you’re giving out those bonuses, it doesn’t seem like you’ve gotten there yet. I was also disappointed that (at least in the media) loans for qualified small business owners didn’t loosen up, which held up the recovery for a long time. It seems that banks got scared after having given out so many bad loans that they turned around and started denying good loans to legitimate business owners with legitimate needs (and granting the loans could have resulted in new job growth here in the USA)

  4. avatar Evan says:

    “It wasn’t that long ago that you could have taken $20 and purchased a share of Citigroup, Bank of America, Wells Fargo, AIG, and General Electric. You still would have had a $1 left over after buying all of those companies.”
    - I tried to catch the falling knife on LEH and failed lol but did buy a couple shares of C and that worked out

    I missed it last night – waiting for it to be on HBO on demand

  5. avatar Hunter says:

    Reading this has brought back a lot of memories from the financial crisis. I still recall GW’s press conference, announcing the crisis, and rallying congress to back a bail-out.

    As much as a disliked bailing out Wall St banks, I believe it was necessary. This is not new, America has nationalized failing banks for centuries, and it will happen again. The economy is dependent up all players, and if the banks were let to fail, the broader community would suffer needlessly.

    Public losses, private profits…that’s the way the world works, unfortunately.

  6. avatar krantcents says:

    Although Wall Street needed to be bailed out, I have a problem with bonuses being paid out. To be rewarded for creating the crisis and benefit from the bailout is inconceivable. The Fed policy to boost the economy is helping the very people who caused the problem. Since rates are low, Wall Street benefits more. In any other circumstances, we would think this was made up or a Hollywood movie.

  7. Wow, this movie sounds pretty dry. It’s a great premise, but I think I’m going to give the non-fiction accounts of Wall Street a bigger thumbs up. I guess it is interesting to see behind the scenes though….

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