University News

Times editor: Europe did not learn from 2008 crisis

By
Senior Staff Writer
Monday, December 5, 2011

“I know I’ve depressed the hell out of everyone here,” said Andrew Ross Sorkin, New York Times columnist and editor, to a full Salomon 101 last night.

The event, half lecture and half question-and-answer session, assessed the impact of the 2008 financial collapse and its resemblance to the current financial crisis in the Eurozone. Sorkin wrote the account of the 2008 financial meltdown “Too Big to Fail” in 2009.

Both crises, Sorkin said, ultimately stemmed from the same problem: uncontrolled debt. And while he said the U.S. has learned from the mistakes of the past decade, Europe did “the exact opposite.”

“They didn’t get at the real issue, which was capital,” Sorkin said.

Sorkin also stressed the necessity of the financial bailouts. He recounted a story when a man from the McDonald’s corporation phoned Ken Wilson, a former Goldman Sachs banker who advised the Treasury Department. Because of the meltdown, Bank of America could not continue giving money to McDonald’s and the man was worried he could not pay his employees.

That is the heart of the crisis — the intersection of Wall Street’s problems and Main Street’s, Sorkin said.

“Think about the ramifications across this country,” he said. “I now stipulate to you that this is what the other side of the cliff looks like.”

But the impacts of the meltdown were intentionally downplayed, Sorkin said. When he asked officials why they did not communicate the crash’s severity, they said telling the public “would only have made it worse.” That decision was also reflected in the formation of the Troubled Asset Relief Program, which was planned in April 2008 but not announced until later that year because officials feared instilling panic.

Again, those choices mirror the situation in Europe today, Sorkin said.

“I do imagine what’s going on in Europe is much more than we actually know,” he said, adding that what we currently see is only “the first or second inning” of the Eurozone crisis.

“The Euro is probably going to fall apart,” he said.

Sorkin said the question that torments him personally is that of compensation for executives. He cited the example of Richard Fuld, former CEO of Lehman Brothers. Though Fuld had $1 billion worth of stock in the company, that money was merely “the cherry on top” of the money he already held in cash.

“That $1 billion in stock wasn’t skin in the game at all,” Sorkin said.

Sorkin briefly discussed the Occupy Wall Street movement. Based on his experiences, Occupiers are less concerned about Wall Street executive salaries and more concerned about a system where college graduates are unable to get jobs, he said.

But Sorkin said companies that are outsourcing jobs have an understandable reason for doing so — countries like Brazil, India and China are growing in ways the U.S. is not. And the financial crisis stems from a fundamental flaw in American society: emphasis on the short-term rather than long-term. While managers may promote this ethic, he said they are ultimately reflecting something embodied by the average American.

“We are getting exactly what we’re paying for,” he said.

In the question-and-answer session following the talk, which was hosted by the Brown Lecture Board, students asked Sorkin for his thoughts on the future of the European Union, the significance of credit agency ratings and how the U.S. can move forward from the crisis.

Sorkin said that in the future, the best solution he can see is investing in infrastructure. He said the country should focus on building things like schools and roads and maybe cut back on projects like health care.

“The payoff down the road,” he said, “is real.”

 

See The Herald’s in-depth Q&A with Sorkin at BrownDailyHerald.com.