The human mind cannot grasp the causes of phenomena in the aggregate. But the need to find these causes is inherent in man’s soul. And the human intellect, without investigating the multiplicity and complexity of the conditions of phenomena, any one of which taken separately may seem to be the cause, snatches at the first, the most intelligible approximation to a cause, and says: “This is the cause!”
Leo Tolstoy, War and Peace [via The Big Picture]
The populist pitch-forking movement has duly commenced, and fingers are pointed in all directions. In a classic case of pot calling the kettle black, all the players are now seizing populist rage to divert attention from itself. The momentum must be maintained, should the public calm down and re-assess, everyone is culpable.
Government
The whole debacle surrounding the AIG bonus is ridiculous. The government passed the legislation with the inserted lines that allowed for bonuses in the first place. Even if Chris Dodd is the culprit, surely it only serves to highlights the incompetence and indifference of the system. If what he’s saying is true (that the administration made him do it), then it shows complicity. This indignant outrage shown by politicians from both sides is nothing but political grandstanding to placate mass anger. Better this mess is channeled towards the evil executives than at the government, right?
The de-regulation of US financial system started with Clinton, and continued with the Bush administration. Policies from ten years ago directly contributed to the California black-out (Enron), and the current mortgage crisis. Without the government’s collusion in both banking deregulation and predatory lending practices, corporate greed would’ve had little opportunity to spread.
It doesn’t take much digging to see the hypocrisy of politicians now railing against exorbitant executive compensation or incompetence. For the most part, those very politicians were responsible for the rise in reckless risk-taking behaviour of those financial Einsteins. Members of the public are beginning to see the thinly-guised witch hunt as a way to deflect blame and secure public support. This kind of shameless and ingratiating behaviour from publicly-elected officials is insulting and condescending: because it pushes accountability away from itself, and props up effigies of greedy corporate executives for the public to burn.
Regulators
It’s hard to see how the phrase “financial innovation” could return with any kind of goodwill. Driven by his “Ayn Randian passion for regulatory minimalism”, and fearing lack of competitiveness that regulation weighed on said “financial innovation”, Greenspan opened the Pandora’s box.
In the aftermaths of banking collapses and Ponzi schemes, the SEC can hardly deny its failure in oversight. In one embarrassing expose after another, SEC is blasted for its inept and financial illiterate handling of warnings, its cozy relationship with the very bankers it was charged to regulate, and became a puppet that was captive to the powerful industry. So the court can put the likes of Madoff away and the public can demonize the banking executives all they might, but the SEC deserves just as much wrath as its former wards.
Media
No matter how the broadcast media plays it, it will always run one of two risks. One is setting high journalistic standard, cover the news it deems worthy, works to inform, to investigate, and to inspire. It then runs the risk of appearing out of touch with the public. In the US, where news is de-centralized and competition is fierce, fear of low ratings has sent most networks to the latter approach. This now dominant reporting technique sensationalizes. Reporters claim that this will resonate better with its viewers, which more often than not, send all the networks racing towards the lowest denominator. For an outsider, coverage of highway chases, celebrity mishaps and other juicy scandals does nothing but dumb down its audience.
The broadcast media then commit a severe error in omission. By catering to the public’s guilty indulgences in vices and gossip, the media has missed its calling. So while the excessive liquidity and sub-prime crisis was brewing under the surface a few years back, we heard little serious discussion on the economy and its sustainability. Remember, those were the popular stories of 2007 and 2006.
And then there is the business reporting media that cannot decide which side they are on. The conflict of interest is glaring. Do they exist as mouth piece to the CEOs and analysts invited on the show with a scripted message, or do they exist to slice and dice data in order to inform its viewers? Considering the party footing the network bills, and the ongoing gamesmanship that nobody bothered to call out, are they not just as responsible for failing to do their jobs? Since the Cramer versus Stewart showdown, CNBC and its bretherens have been largely silent on accusations lashed upon it, and instead threw themsleves whole-hearted into the chorus of public fury. Are they silent in their atonement, or merely evading public scrutiny?
Education
Capitalism is a beautiful thing, especially the version taught in business school. It’s competitive but fair, rational and deterministic, and most of all, it’s supposed to be a force for good.
Needless to say, in the past few months, the public has begun to uncover the darker side of capitalism, especially when infused with greed and corruption. Educational institutions are not immune to public probe. Deans of business school across the US are admitting to “widespread failure of leadership”. Its decline in global reputation, along with questionable US economic prospects, has led to a drop in international student enrollment in American MBA programs.
By acts of omission, b-schools nursed a culture that inflated egos, placed a premium on performance at the expense of balance, instilled a reverence for mathematical models (in finance) or salesmanship (in marketing). It also funneled an acceptance of the status-quo corporate hierarchy. My post on some of the shortfalls of business school was picked up by Shafeen Charnia in his discussion of leadership. He says:
In both teaching and the corporate world, experience can give you the confidence to be adept in front of a room, but it doesn’t ensure leadership. It seems that one is taught how to use authority versus leadership. We all know that authority is about power. And power (and its abuse) are why we still and likely always will need workers’ rights laws and unions. It is also why some students don’t get to learn.
The Public
It would be unfair and naïve to not place a fair portion of the blame on ourselves. Granted, when times were good, it was hard to work up the will to ask tough questions. But there were signs, as well as a sizable and vocal group that voiced their concerns over the mortgage market, the banking system, and the economy as a whole.
If nothing else, this recession will force the general public to become more discerning citizens. Whatever trust that existed between the people and the government, its regulatory bodies, its hawking media, will be rigorously tested.
Greed is ingrained in our nature. Many organizational psychologists recognize this indisputable character of businesses and its executives, and work very hard to find a way to align corporate interests with consumer interests. End of the day, it is my belief that only consumers and investors can force and enforce corporate responsibility and accountability. In a society where technology is the barometer for transparency, businesses are finding it increasingly difficult to hide behind carefully orchestrated PR campaigns. Authenticity is not just a buzzword anymore, because the public is becoming more astute. If we can somehow translate our need for transparency and accountability towards a system that either rewards or punishes a business for its corporate behaviour, perhaps then we will no longer rely solely on the government and its regulators to safeguard our investments.
