Financial Crisis: What If...?
October 31, 2008 posted by Linda Basch
I’d like to share my op-ed that appeared in the Huffington Post this week about the Wall Street meltdown and the question of how things might have been different with a more diverse leadership in place. I’m also posting the message I received from Subha Barry of Merrill Lynch that prompted my op-ed piece. Subha provides an expert description of the financial crisis and argues for greater responsibility all around. I hope you will pass it on.
How do we find ourselves here?
By Subha Barry
I’ve worked in the financial markets in one capacity or another for the past 25 years and wonder how it is that an industry filled with incredibly smart people was unable to stop itself from going over the precipice. How is it that we are reduced to needing a bailout, even as our firms are sold or bankrupted?!
As I see the players in this drama, there’s plenty of blame to go around and it all stems from a lack of accountability. No one seems to have learned that there is a consequence for every action we take, and that consequence is ours to bear. The moment we take the action, the consequence is set in motion and no amount of denial or finger-pointing can change that.
Where to begin?
- Homeowners purchased houses they couldn’t afford. Banks were willing to lend 100% of the financing without a credit check. Artificially inflated by cheap credit, housing prices went up year after year.
- Banks and financial institutions loaned money indiscriminately. Risk was minimized by bundling and packaging mortgages into complex instruments unrecognizable and untraceable to their origins.
- Banks sold these complex investments to everyone they could. Some institutions, for good measure, kept them on their own balance sheets when they ran out of buyers!
- Stock analysts and investors cheered quarter-over-quarter growth. CEOs fueled growth by the continued creation of these complex products. Rating agencies were happy to stamp AAA on these instruments for a fee.
- Insurance companies, for the right price, wrote policies to cover default risk, never anticipating they would actually have to make any large payments. Regulatory institutions remained in the Dark Ages, enforcing rules that were no longer relevant, unaware that the products and organizations they regulated had become incredibly complex and needed a new set of eyes, guts and rules to shepherd them.
Amazingly, while all this happened, the largest economy in the world wrapped itself with a veneer of prosperity and lulled itself into a false sense of comfort and security.
If it seemed too good to be true, it was.
If any one of these constituencies held themselves accountable for their actions, we would have seen remedies for some of these issues a long time ago. We certainly would not have the meltdown we are seeing today. Sadly, fueled by greed and ignorance, the pyramid continued to build, not standing on its base but on its tip. The tipping over was inevitable.
I have heard it said that if good people stand up, the bad can’t win. Did enough good people not stand up or did they not shout loudly enough? Perhaps the most important lesson we can teach the next generation is to take personal responsibility for their actions. There cannot be a more vivid illustration of what happens when we don’t.
Subha Barry is Managing Director, Head of Global Diversity and Inclusion at Merrill Lynch. She is on the Board of Directors of the National Council for Research on Women and an active member of the Council’s Corporate Circle.