(Note: This agreement is dated September 19, 2022)

I finished reading Too Big to Fail in about 5 days starting from the last day of the Mid-Autumn Festival holiday. The overall feeling is that it is not as "Dan Brown-style epic" or "2012" of the financial world as the cover says. After reading it, I have the following thoughts:

1-【How to understand too big to fail】

Fake too big to fail:

For example, Lehman Brothers during the financial crisis in 2008; HD and RC of domestic real estate developers now; they do not have the same formula, but different flavors. From the perspective of first principles, "history is always surprisingly similar, but with different rhymes"; for example, domestic village and town YHs, some small and medium-sized shareholding YHs; some municipal bonds, state-owned enterprise bonds, etc.

Too big to fail:

Like AIG, Citigroup, Morgan Stanley, Fannie Mae, Freddie Mac, although they have many problems, if the government allows them to go bankrupt, the financial market may have a systemic collapse. In the end, the taxpayers will have to pay for it. Domestically, for example, DC companies of state-owned enterprises; large joint-stock YHs and trust companies.

What the future holds and what it can inspire us:

How to distinguish between too big to fail and not too big to fail, and what will be the future direction? This is a soul-searching question. Frankly speaking, I really took a deep breath after watching "Too Big to Fail". The personal will of the key roles of the competent authorities and regulatory agencies (the Ministry of Finance, the Federal Reserve, the New York Federal Reserve, Congress, the President, the term of office), the historical burden of large financial institutions, all of these are small variables of the butterfly effect that determine the future direction. "A gentleman does not stand under a dangerous wall." For us, how to identify the Ponzi structure and which major economic cycle to participate in is crucial, and it is crucial to formulate a not to do list at the technical level.

2-【How important is confidence】

Why is confidence important? What is the Ponzi model and dissipative structure? The essence of the currency and financial market is the Ponzi model. As long as there is a large-scale panic in the market, the business model such as overnight lending and financing will collapse in an instant. Even the finance ministers and Wall Street CEOs at the top of the chain were full of arrogance and arrogance at the beginning of the crisis. I still remember Fuld's attitude towards Buffett's investment offer and his attitude towards the Korea Development Bank. Finally, at Lehman Brothers, you can feel the ultimate panic when the financial crisis comes. If TARP could not be implemented at that time, 2008 would be an enhanced version of the Great Depression in 1929. However, to be honest, if you wanted to buy at the bottom, you were actually catching a flying knife. How important it is to predict the failure before you win in investment. Because it is easy to fall into the level of supplementing the existing arguments when looking at history with a rear-view mirror, and the actual financial market is responsible. We cannot use induction completely. The combination of induction and deduction and leaving yourself with a sufficient safety margin is the way to survive.

3-【Economic and political complexity】

During the most severe period of the financial crisis, Treasury Secretary Paulson, Federal Reserve Chairman Ben Bernanke and New York Fed Chairman Geithner had directly ordered financial companies at the time (Goldman Sachs, Morgan Stanley, Lehman, Citigroup, Fed and other companies in crisis) to ease the bleak market atmosphere and pessimism in the financial crisis through administrative orders. These administrative intervention measures should not exist in a free market economy. There would be no communication between Paulson and Buffett after signing the Goldman Sachs exemption. Frankly speaking, this is suspected of internal information leakage in normal times, but at the special moment of the financial crisis, no one pursued it. The revelation to us is that the big guys and us ordinary people are not playing a game of winning rate and odds. At that time, if we purely follow the public information, it is obvious that Lehman's profit and loss ratio is much better than Goldman Sachs. Why did Buffett choose Goldman Sachs in the end? In fact, the winning rate and odds calculated by different information channels are completely different. As I said before, for ordinary investors, it is better not to participate in the investment of commodities such as crude oil. Even Biden cannot determine the production and price of oil-producing countries. What advantages do we have in this target? At the same time, the book says that when Treasury Secretary Paulson ordered Goldman Sachs or Morgan Stanley, these Wall Street tycoons who own private jets and luxury villas all chose to obey. In this crisis, managers representing the government directly participated in and even decided the decisions of the company, and he was not the board of directors or management of the company. Many congressmen directly called this "socialism." This also shows that no matter what social system, the economy is a game that people play according to certain rules, and politics is the final decision maker who sets the rules of the game. When the economic game doesn't work, politics must be the last resort.

4-【Financial reports are used to clear mines】

When Buffett excluded Lehman Brothers, he said a classic sentence, "I would not invest in a company with so many problems even if all the problems were clear." Therefore, financial reports are not the key decision for investment, but are used when clearing mines. The book mentioned that when Lehman Brothers launched a glamorous performance report and self-rescue plan, Michael Mayo, a famous analyst at Deutsche Bank, could see through the performance report and the incredibly optimistic valuation of Lehman Brothers' assets. This proves that despite the phenomenon of financial reporting and accounting manipulation in the market, experienced accountants will still be a touchstone for good companies and play an important role.

There are so many exciting points in the book that I look forward to reading it again. In short, Too Big to Fail is an absolute financial investment tome that is even more enjoyable to read.