How could the world's most advanced and enlightened economy allow an irresponsible, greedy and self-deluded congregation of Wall Street bankers to accumulate such gargantuan financial losses that the whole country was imperiled? For, as Churchill might have put it, never in the realm of economic activity have so many suffered so much at the hands of so irresponsible a group of bankers.
Michael Lewis attempts to answer this question through the stories of the relatively few professional investors who took the time to dig into the subprime mortgage market and perform careful credit analysis of the loan quality underpinning the whole market. What they found was not surprising. It was a credit disaster waiting to happen. What is revealing is the reception they received from mainline Wall Street firms, their own investors, and the credit rating agencies. In nearly all cases their views were discounted ("it could never happen in the US housing market;" "subprime loan losses will not all happen at the same time") and they were dismissed as misfits. The Wall Street money machine, fueled by huge financial rewards, animal spirits and a "we know better" culture, simply moved on heedlessly to even greater risks and excess. Well worth the read, but I would start with David Faber's book ("Then the Roof Caved In") if you are new to the mortgage-backed security world of Wall Street.
I read this book not long after "Too Big to Fail." It has the benefit of being a first-hand account by the senior government official in the midst of the 2008 financial crisis: we learn much more in this book of the background thinking and concerns of top Treasury and Fed officials who were trying to cope with the onset of financial panic and meltdown. Put another way, the book offers much clearer context and explanation of the policy thinking than did the Sorkin book. The book keys on personal conversations and meetings, which keeps it interesting. There are revealing sketches of Mr. Paulson's interactions with Congressional leaders and the President, which show how completely unprepared they all were for the scope and severity of the financial crash. The weakest part of the book is the Afterword in which Mr. Paulson lays out the policy reforms that are needed in order to avoid a like financial disaster in the future. Although a vitally important and urgent reform (and one Congress and the Administration to their shame have still not addressed 18 months after the 2008 meltdown), this part of the book reads like a bland press release from the Treasury Department.
This book is well worth reading for a better understanding of the 2008 financial collapse. It is focused on the response to the financial meltdown at the highest levels of government and industry. It does not, however, provide particular insights into the irresponsible business practices that led to the crisis in the first place.
What distinguishes this book from others about the 2008 financial meltdown is the author's extraordinary access to the high-level government and industry players who were at the center of the drama. The writing style is easy to follow (once you have the names clearly in mind) and flows very well. The picture that emerges is a group of executives and officials trying to improvise remedies for a devastating and unprecedented financial collapse on the fly, under intense time pressures, and with no assurance they would be successful. In the circumstances we can be fortunate things did not go into complete meltdown. It is also abundantly clear that sensible financial reform is a must so that the country does not face a similar crisis in the future.
The book is mainly useful for understanding the course of events, policy decisions, and mergers that occurred once the scope of the financial meltdown became apparent at the highest levels of the government. It is less useful as a source for understanding the background and business practices that led to the enormous build-up of irresponsible investments in subprime mortgages and their derivatives that were the prime cause of the crisis. For that background, I would suggest Gillian Tett's book (Fool's Gold); A Colossal Failure of Common Sense (dealing with the Lehman collapse); and articles by Michael Lewis.