The $700 billion bailout of American financial institutions is likely to be rubber stamped this week. I can’t say that I’m particularly happy about it, but at least this morning’s television news wasn’t as polluted as usual with bankers crying out for Uncle Sam to rescue them. It’s been reported that matters became so pathetic that US Treasury Secretary Henry Paulson got down on one knee before the Democratic leadership and begged them to pass the bill.
I liked Nancy Pelosi’s response to this grovelling: “I didn’t know you were Catholic.”? I have to admit that I would have found it somewhat difficult to come up with an adequately polite quip for this former “Master of the Universe”? (to use the Tom Wolfe term) reduced to prostrating himself in such a manner.
This incident is perhaps symbolic of an end of an era: we haven’t seen Wall Street this humble in a long time. Ever since Michael Douglas (as Gordon Gekko) said “Greed is good”?, we’ve been living in a world where investment bankers were a privileged minority: the dot com bust, Enron and the death of Savings and Loans couldn’t bring them down. Now they really need to be saved and the shoe is well and truly on the other foot: it may stay there.
I come from a banking family. Both of my parents held high level jobs in the technology departments of large institutions; my Dad in particular had a front row seat to much of the senior-level decision making. We had a chat yesterday about what caused the crisis; it’s partially correct to use words like “avarice”? and “stupidity”?. One word that didn’t instantly spring to my mind is “cowardice”?. After all, high stakes gambling is not an activity for the faint of heart.
However, according to my Dad, the bankers have known for a very long time that the financial incentives for short term gains were potentially destructive. A number of institutions have discussed restructuring investment bankers’ packages so that they would get only part of their bonuses up front. The remainder would be paid later, after it was seen that their bets had paid off. This alteration alone probably would have headed off some of the riskier ventures, and furthermore would likely have created at atmosphere of greater stability and employee loyalty. After all, if you’re not going to get a payoff for a number of years, it’s worth hanging around to get it.
So what stopped them? Apparently, the banks were afraid that if they changed the bonus structure, all their talent would jump ship for an institution which decided to keep present arrangements in place. Under these circumstances, no one was brave enough to fly in the face of the overriding culture; when times were good, this hesitancy bore no consequences.
It’s not the job of leaders, however, to just surf along the waves of prosperity: anyone can do that, and it’s not really exercising leadership if you indulge in a Lacanian outburst of “Enjoy!”? The jouissance of the markets needed to be curbed: real leadership would have taken into account the potential downside, and prepared for turbulence.
I don’t accept that the banks had any natural obstacles to change. I’ve been in a similar business situation in which rival firms hated and mistrusted each other; the only cure was courage, a willingness to talk and extend an open hand. In my case, I worked with others to achieve agreement on the creation of an open standard for data transmission; the firms who created it hadn’t ever spoken collaboratively prior to this venture. Admittedly, my business realm was quite humble. However, this example shows the fundamental simplicity of change: someone in Goldman Sachs or Morgan Stanley or JP Morgan Chase just needed to get on the telephone and say, “Let’s talk”?. It’s highly probable that they would have found they had more in common than previously realised, and would have been able to agree a solution.
Competition sometimes can bring out the best in people; after all, this is an Olympic year and we’ve had ample evidence of this. However being mindlessly competitive is destructive: it’s appalling to think of how many people are going to lose their jobs, how many homes will be repossessed (there are already reports of “tent cities”? of the repossessed springing up in American cities), how many dreams are going to be shattered because the bankers shilly shallyed and said to each other, “You first”? and “No, you”?. Paulson may think that he is being brought to his knees by political intransigence; the truth is, he and his ilk brought themselves down because they were too weak to admit that they should help each other.
As an American (as well as British) taxpayer, I’m not looking forward to getting the bill for decades of others’ spinelessness. I probably should have realised that I’d be picking up part of this tab some time back: a very long time ago, in what almost feels like a different life, I worked as a lowly intern in the technology department of my Dad’s Wall Street bank. I vividly recall a summer’s day, with 32 degree Celsius heat, on which I had to push a cart with a heavy UNIX workstation down to another office on Broadway. In my way was a photo shoot, featuring several male models dressed as bankers. I had difficulty, but I manoeuvred my cart around the scene: I noted that the models were uniformly tan, smiling, and hadn’t broken a sweat even though the air was so hot and oppressive that I couldn’t help but feel grimy just by breathing it in. I recall resenting them because of their air of arrogance and presumption. They embodied the spirit of the Street, as it stood astride the world. We will be better off if the bankers finally accept that it’s time for them to step out of the way; after all, their skins are going to be saved by the people pushing the carts.