Hump Day Wisdom: How we respond to the melt down on Wall Street will have as much to do with the future of the financial recovery as the behavior that got us here.
Anyone who reads here knows well enough that I am no economist. But I think it is safe to say that in 5, 10 and maybe 50 years we will look back at this week as the point where capitalism and a market driven economy changed.
I find myself remembering the rhetoric when the USSR collapsed and the characterization of the event as the failure of Communism. Will we be describing these events as the failure of Capitalism in a few years? Already one pundit has labeled the bailout “the beginning of America’s journey toward becoming France”, albeit with tongue in cheek. But in my economically unsophisticated world, I see a different answer- and perhaps a different hope. Could it be that we will be able to look back at this as the next big step in the failure of “isms”.
One thing I have found axiomatic as I coach leaders and organizations. Any asset overused eventually becomes a liability. Pick your core capacity, put it on steroids and watch it become a detriment to the organization. The question is: “When?” At what point does disciplined time management and organization become limiting rigidity? Where exactly does liberal HR policy become over-indulgence? Is there a border over which tight productivity controls become unfair labor practices? Of course not. Wouldn’t we love to have a well marked line in the sand or a sign such as Dante imagined? “Abandon Productivity All Those Who Enter Here!” In my coaching work I have found that there is normally a frontier within which a leader must adjust as situations require. Unfortunately, pretty much any “ism” you care to name does not easily tolerate frontiers.
Then there is the convenience of affixing blame on “those guys”. Courage and integrity would ask leaders who led their financial institutions into troubled waters take accountability rather than a government bailout. The boards and executives of the Bear Stearns, WaMus, Freddies, Fannies and others yet to line up justified their returns based on risk. Ok- if you take the upside from risk then you have to take the downside. It is ironic that any form of the plan on the table puts the burden for the bailout back on the people whose money fueled the bubble in the first place. But that also is a convenient dodge. After all “those guys” they were not alone.
How many people indulged their own greed by taking a mortgage that they could not normally qualify for by not qualifying? What about stockholders who lapped up the growth and dividends- either directly or through mutual funds. That would be most of us with a retirement fund or stock portfolio. We loved the run-up and were willing to go along for the ride as long as the scenery was verdant.
So- my non economist answer is that we now- all of us- have to take accountability for the decisions we made. There is no need to point a finger of blame if we are all accountable. Shareholders get to suffer the loss appropriate to the level of risk that ran the gains. Homeowners who took the deal may pay painfully by losing the house that they could not afford to begin with. Executives should be accountable for their performance in the way that they are paid and the wealth that they built. It will be painful and hopefully within those frontiers, equitably painful.
But please, please, please- let’s avoid the previously inevitable swing of the pendulum. Our markets may have been too free-wheeling. But the equal and opposite “ism” by definition will become a liability when it is off the leash in an equal and opposite way.
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