If you have been following the economy for the past year you’ve heard it said more than once, that the complex transactions that the financial industry entered into over the past 5 -7 years are the reason our economy is currently in shreds. If we just untangle things like complex credit default swaps, the economy would quickly recover because financial institutions would be able to properly assess the value of their investments and would then be able to buy and sell them to each other. This in turn would open up the lending spigot and the consumer would then come back to life and voila, all is well.
Wrong! Wrong! Wrong! It is not the investment vehicles that are the problem. They are only a symptom of the real cause. Poor leadership. At the moment, I am f-u-m-i-n-g! Why? Let me put it to you in a story.
You’re driving along the highway when a car up ahead in the fast lane spins out of control. As you watch in horror, the car swerves into your lane and misses hitting you by inches. The car then continues to careen off the highway into a ditch along the roadside. While pulling over to give assistance you call the police and then jump out of your car, wondering what you’re going to find. As you approach the car you notice that the driver appears to be unhurt but his passenger is unconscious.
Luckily, a Highway Patrolman pulls up just as you are trying to decide what to do. Soon an ambulance is at the scene and whisks the unconscious passenger away. While waiting to give your statement to the Patrolman, you notice in disgust that the driver of the vehicle is obviously drunk. You patiently watch the driver go through his DUI assessment by the patrolman and are amused by the drivers inability to stand, let alone walk.
When they are done, the Patrolman approaches you and says, “Too bad that guy’s car is in such bad shape. If he had been driving something besides that old heap, he probably wouldn’t have gotten into an accident.” “Uh, how so officer?” you reply. “You know, a new car wouldn’t have been so sensitive to his motions.”
Not sure what he meant you give your statement and then continue on home. About 3 months later you are sitting in court after giving your testimony. You’re curious about what sentence the judge will give the driver. As you listen in horror, the judge blames the poor condition of the car for causing the accident. In fact, the State has a special program for situations like this, and has bought a brand new car for the driver to replace the one he lost in the crash. The driver is then given the keys to the vehicle and sent on his merry way.
This is exactly what is happening in the financial crisis today. Our financial vehicles are out of control and have crashed. We have a lot of smart people in government, at least I thought so. Why then, are they handling the crisis by trying to fix the vehicle and leaving the drunk in the driver seat?
Ok, so the politicians yelled at some of the drunks. Some of them got a grilling in front of congress. Big Deal. Congress failed to even take the keys away from them when they left HUGE loopholes in the TARP for these companies to abuse at will.
To fix our problem, we need to fire the leaders who got us into this mess. I am probably a bit jaded, but my military training embedded in me a commitment to be responsible for my actions. The captain of a ship is always responsible for what happens to his or her ship. The officer of the watch is responsible for what goes on during his or her watch. From day one at the Naval Academy I was taught the phrase, “No excuse sir!”
The latest fiasco about the bonuses being paid out to AIG employees just illustrates how bad leadership is in Congress as well as private industry. Here is a short list of their leadership failures?
- Lack of proper oversight of the financial industry for many years.
- The inability to let market forces control the market.
- While trying to help by passing various stimulus passages, the inability to get rid of earmarks.
- In a rush to get the stimulus package passed, a failure to build proper procedures for accountability
- The myriad of escapades by corporate executives. Merrill Lynch bonuses, AIG bonuses.
- The passing of the new tax law to tax those receiving the AIG bonuses at a 90% level. While I think this makes sense, it breaks the articles of the constitution. You can get more details here.
- The unbridled spending by the Federal Reserve Bank. How can they just spend $1 Trillion of tax payer’s money without checking with Congress. This may be how it works, but it seems like giving individuals control over $1 Trillion is a bit suspect.
We can no longer afford to go about business as usual. Why? Because we still have drunks in the driver seat. They ruined the economy once and even with a brand new car, unless we make changes to the leaders who got us into this mess, they’re eventually going to ruin it again. It may take 1 year, 5 years, or perhaps 10, but this recession isn’t going to be the last one.
I would love to see someone wrestle control of AIG by getting a voting majority of its stock, then cleaning house. I don’t know how this all works as I’m not a corporate lawyer, but I do know that institutions only own 47% of its stock. That means if we, the individual investors, could somehow get control of the other 53%, and if we could get a single voice to it’s board, (Jack Welch or Carl Ichan come to mind), then we could really shake up the business world. Ok – this is a fantasy, but it helps me to calm down. I’m dreaming, but if we started a campaign over the internet to buy AIG stock (It’s under $2) and people bought what they could, then agreed to give their voting rights to one person… perhaps it could work. Who knows. Carl Icahn… where are you?
All the best!
All the time!