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Too Big to Manage? Two Book Reviews

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  • Edward Simpson Prescott

Abstract

Roddy Boyd's Fatal Risk: A Cautionary Tale of AIG's Corporate Suicide and Greg Farrell's Crash of the Titans: Greed, Hubris and the Fall of Merrill Lynch and the Near Collapse of Bank of America are reviewed to analyze why AIG and Merrill Lynch nearly failed during the financial crisis of 2007--09. Both books argue that each firm collapsed because of failures of senior management. Using the accounts provided by the books, as well as other sources, the review goes further and argues that both firms were vulnerable to managerial failures because they were inefficiently large, complex, and leveraged, that is, \\"too big to manage.\\" The review also argues that these firms were able to get to that point because 40 years of governmental interventions in financial markets created the expectation that large financial firms are too big to fail.

Suggested Citation

  • Edward Simpson Prescott, 2013. "Too Big to Manage? Two Book Reviews," Economic Quarterly, Federal Reserve Bank of Richmond, issue 2Q, pages 143-162.
    • Handle: RePEc:fip:fedreq:00007
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    References listed on IDEAS

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    1. Edward Simpson Prescott, 2001. "Regulating bank capital structure to control risk," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 35-52.
    2. Robert L. Hetzel, 1991. "Too big to fail : origins, consequences, and outlook," Economic Review, Federal Reserve Bank of Richmond, vol. 77(Nov), pages 3-15.
    3. Anatoli Kuprianov, 1995. "Derivatives debacles: case studies of large losses in derivatives markets," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 1-39.
    4. Hetzel,Robert L., 2012. "The Great Recession," Cambridge Books, Cambridge University Press, number 9781107011885, October.
    5. Gary H. Stern, 2009. "Better late than never: addressing too-big-to-fail," The Region, Federal Reserve Bank of Minneapolis, vol. 23(June), pages 2-7.
    6. Huberto M. Ennis & H. S. Malek, 2005. "Bank risk of failure and the too-big-to-fail policy," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 91(Spr), pages 21-44.
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