The Washington Post’s Steven Pearlstein calls out Wall Street executives for failing to lead in the years when the entire economy shackled itself to the unsustainable rise in housing prices. In this case, leadership means accepting reality and helping other people see and accept that reality as well.
Throughout the expansion of the real estate bubble, there were plenty of people out there who were saying that the bigger the bubble got, the more damaging the collapse was going to be. Unfortunately, none of them were in a position to do much about it.
One thing we know about leadership is that it rarely involves using excuses such as “All the other kids were doing it.” That’s only a slight oversimplification of what we’ve heard from the masters of the financial universe in explaining how things could have gone so wrong. The more elaborate explanation goes something like this:
“Yes, we saw that there was a deterioration in underwriting standards for loans, and yes, we understood we were taking on additional risks to our company and to the system by making lots of those loans and putting them on our books. But you have to remember that this was where the big growth in the industry was coming from. If we had refused to go along, we would have effectively put ourselves out of the game. We would have lost market share. Our profitability would have been significantly lower. Our stock price would have been hammered. We would have been crucified by analysts and the financial press, short-sellers would have begun to circle, and before long some hedge fund masquerading as an ‘activist investor’ would have bought a stake and begun to agitate for a change in management.”
Pearlstein then goes on to describe what real leadership looks like. And what I like is that he makes the most important point — leadership is more than telling the truth. Anyone can explain what’s wrong and hope people listen to them — leadership is about bringing about needed change. None of the many economists, journalists, bloggers, or innocent bystanders who saw this coming were able to prevent the subsequent unraveling. But the CEO of one major investment bank could have. One highly placed cabinet official could have. One committee chair in Congress probably could have. The head of the Federal Reserve could have. The President certainly could have. They all declined because it was easier to try to blend in with the herd.
It’s not as though I, a programmer who blogs about whatever shiny idea captures his interest, is any smarter than the CEO of Lehman Brothers or wiser than the Secretary of the Treasury. I just don’t have any vested interests or any influence over what actually happens. The risks are much greater for people who are in a position of leadership, but they’re the ones who asked to be put in these positions in the first place. The fact that they opted into the shared delusion rather than facing reality is the most damning indictment of their leadership that can be made, and none of the excuses they’re making should be accepted.