Too Big to Fail

I read "Too Big to Fail" to see if I could learn a bit more about what happened on Wall Street and in D.C. during the financial crash. I wanted to add to the knowledge that I got from "Republic, Lost", "Capitol Punishment", and "The Innovator's Dilemma". I learned a lot. The book is filled with the real time interchanges among the players and with the sense of complete panic as 'solutions' to the crisis just exposed other problems. On this level, the book is a fascinating read.

Unexpectedly, I ended up learning something completely different--about agent based economics.

I found out that while supply and demand is a standard paradigm in understanding markets, to understand markets for financial instruments a person has to realize that there are very few players, who all know each other and who compete and cooperate in real time independent of much of supply and demand and who change sides constantly. In "Too big to Fail", one person is actually working for the government, for a brokerage house, and for a bank at the same time. Another person's ego drove his running of a big brokerage house and resulted in the loss of thousands of jobs when this brokerage house was allowed to fail as part of a complex government deal to support a financial system in which trust between brokers was lost. The actual interactions were not what my understanding of traditional economics would have suggested at all.

It seems that agent behavior is much more important in economics than I wanted to think it was and this book is a great case study.