Short Term Pessimism, Long Term Optimism


With the combined passion for story telling and dogged persistence, New York Times Reporter Andrew Sorkin’s glimpse into the recent economic turmoil tells a compelling tale of what could have been. While Sorkin thinks the country is in a relatively “good” place, he believes many of the consequences of the past few years have yet to shake out. Concerns over whether the big lessons of the financial collapse of have been learned paired with what he terms “the ultimate ADD society” could lead to future crises, especially in the face of the European struggle with debt.


A large portion of Sorkin’s address was focused on putting the current financial situation into perspective given the details he was privy to while writing his best selling book, Too Big Too Fail. Sorkin spent a year interviewing over 200 principals involved in the financial collapse for a total of over 500 hours. His persistence and quest to provide an objective record of the meetings and decisions surrounding events of 2008 resulted in some shocking discoveries.

“When we all judge where we are in the economy today…it doesn’t feel too good, I’m going to tell you it’s the wrong bench mark,” said Sorkin. “We are benchmarking the economy against the way we used to live in 2007. I would argue to you, that what took place at 2:30am [September 18, 2008] and what happened during the rest of that week should change your benchmark and everyone in this room should probably be a lot happier than we are.”

First, he explained the view on Wall Street at 2:30am on Sept 18 was that if Morgan Stanley filed for bankruptcy on Monday and Goldman Sacs filed for bankruptcy on Wednesday, that GE would file for bankruptcy on Friday. A collapse of GE would had meant disaster for the economy, D-day if you will. The resulting fallout would have created an economic crisis magnified by 20 to 30 times.

Second, Sorkin was privy to a model of estimated unemployment numbers from a source at the NY Federal Reserve. The model projected what unemployment would look like if the U.S. had done nothing – no TARP, no bail outs, nothing. The spreadsheet started at 12 months out with unemployment at 24.6 percent. Three years later it was over 30 percent.

Finally came a tale from one of the largest franchisees of McDonald’s restaurants. A Bank of America client, the franchisee was told on September 15, 2008 that B of A might be stopping the paychecks for his employees the next Tuesday. The guys flipping burgers, the cashiers and all staff across the country might not get paid.


The question emerged, Why didn’t the public know? Maybe we would have understood had we known about McDonalds; no one ever explained the connection (or disconnect) between Wall Street and the banking industry, between McDonalds and the potential of no paychecks from Bank of America. Why didn’t we know?

After asking this question of all the principals he had interviewed for his book, the resounding answer was, “If we had actually told the public what we really knew, we would have made it worse. Ultimately what it proves is that the markets are based on confidence. The confidence in the system to work.”

“[There is a] real issue about how much we know and how much we want to know,” Sorkin stated. “What is the role of government in its ability to be transparent with us and it’s ability to either raise confidence or undermine confidence? When I was writing Too Big To Fail, that term was used in relation to financial institutions. Today it is used in relation to municipalities, states and countries…In relation to what is happening in Europe, [I believe] we don’t know the half of it.”


“What I worry about most is that the great lesson from this period has not been learned,” said Sorkin. “Every financial crisis is a function of debt, it is leverage. Unless there is too much leverage in the system, you don’t have the problem. It is the leverage that creates the problem.

“The good news is that we have seen leverage come down on Wall Street. I don’t think we are going to have a wall street generated crisis in the next decade because I think we are going to have a lousy economy for the next decade and there won’t be too much debt in the system on the Wall Street side.”

He posits the real crux of our immediate economic future lies with Europe. “In Europe the issues about debt are not being addressed,” said Sorkin. Europe has, “not gotten to the real problem of capitol vs how much leverage is in the system.

“There is not enough money to go around….What troubles me tremendously is that we still don’t know who is holding the bag. Three years later we still have not figured a way to make sure that we understand who are all the counterparties to all of these institutions.”


During a recent conversation with a CEO of a large business, Sorkin learned the company had recently hired 5,000 people. Of those 5,000 people, only 1,000 had been hired nationally; the other 4,000 were outsourced engineering jobs with a starting salary of $72,000. The CEO explained it was hard to find those 4,000 people in the U.S.; they may exist, but finding them is an inefficient process – engineers are easier to find in other countries.

Second reason, the growth for a company in today’s market is overseas.

“It used to be in America that foreigners came to this country, got their degree and went back to their country to start a new business. But now Americans, some of the most entrepreneurial kids we have today, are taking their diploma and getting on a plane, because that is where they think the opportunity lies. That is a wholesale rethink about what we as a country need to do.

“My great worry is that there really isn’t an answer and clearly there is not a quick fix answer. This is a 20 -30 year education story,” said Sorkin.

Returning to the topic of failing institutions, he said, “I found our problem is not if we have solved the too big to fail problem; the bigger problem is that we are creating institutions that are too big to manage.” How does a government manage firms with thousands, hundreds of thousands of employees? “When we demand bigger, bigger, bigger, it is difficult to understand what the true risks underlying that are.”

Sorkin’s final point of the morning was a sobering look at the willing participants of each issue he had raised: us. “There has been a lot of blame around the financial crisis, one of the groups of people that rarely get blame is us…I’m talking about the role that we as tax payers and shareholders think about how we approach governance. So many of the problems have been a function of short termism.

“We all think we want more shareholder democracy…that we would think longer term…we would force management and senators and congressmen to make long term decisions…the problem is not with them, it is with us,” he said. “We are the ultimate ADD society. The average shareholder today owns shares for less than seven months. The average CEO is in their job for 2.1 years, how are they supposed to make long term decisions? We are getting exactly what we are paying for. We are the short timers, the managers are making short term decisions because we want them to make short term decisions.  Patience will be the ultimate salvation.

“Recognize that what is happening in the world is never black and white.”


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