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Exploring Leadership in the News with Steven Pearlstein and Raju Narisetti

THE QUESTION

Building Better Wall Street Leaders?

A major cause of the year-old financial crisis was a failure of leadership in a financial sector that had become focused on its own short-term profits rather than the long-term health of the economy. What does Wall Street have to change to produce better leaders, a different culture and a more long-term focus?

Posted by Ben Bradlee and Steve Pearlstein on September 14, 2009 11:53 AM
FEATURED COMMENTS

Rational4: These people are nuts. The ethics of business is simple and everlasting - serve your customer. Let me put this question about whether wall...

jimb-5: Business will not look out for anything but itself and there is no reason to think it will. The invisible hand won't help either, although ...

grandmothers_inc: I think leaders like the senators from texas need review on ethics they have allowed me to lose my home-senator huttinison my va benefits- n...

Make a Comment  |  All Comments (22)

ALL COMMENTS (22)
m_rth2 Author Profile Page :
 

I believe Wall Street needs much more oversight. I don't think new leaders in the field would work--greed always wins out.

 
Billy1932 Author Profile Page :
 

3.6 Billion in bonuses to Merrill Lynch failures last year, how can any sane person can ask the question? Obscene greed still holds Wall Street in it's grip. Judge Rakoff said it all, they have no sense of justice and morality. I say they are all still obscene creatures.

 
wmboyd Author Profile Page :
 

An ex-SEC attorney told me that anyone still at the SEC after 5 yrs. was there only because no one on Wall Street (private sector) would hire them. That's been proven true, long before Bernie Madoff said "it was easy, I'm just smarter than they are" (the avg. IQ on Wall Street is probably 15 points higher than at the SEC. The SEC has been cowed into "settlements" hundreds of times by people they were investigating telling them, "we'll make fools of you in public..." and so the SEC settles (see the BoA article above.

Regulate Wall Street with Federal Employees, might as well use 6th graders.

 
gss49 Author Profile Page :
 

In today's world, everything is relevant. In the Toyota world, a 1 Mil bonus is considered fantastic, but in the US culture, a 10 million dollar bonus is considered a failure. Bonus structure and salaries of top execs should be tied to reasonable productivity and profits. Tying bonuses of execs to bonuses to workers might work. The staff of the exec also contributed to the success, even if not rewarded.

 
dnjake Author Profile Page :
 

Business is about effectivness not virtue. A number of poor business practices were certainly significant factors in the crisis. They include obviously unacceptable loan standards, excessive leverage, and rewarding risk takers without requiring them to accept any part of the risk. It should be possible to signficantly reduce these glaring problems without too much difficulty. A more difficult set of factors involve the continual evolution of new financial instruments and a poor understanding of their risks. Providing liquidty to asset trading has always been a major function of financial markets. That function always involves short term trading. There is no intrinsic virture associated with the difference between short term and long term trading. But there needs to be a much better understanding of the risks associated with different financial instruments and much more regulation of how these instruments are used to insure a reasonable chance that those using them will actually be able to reasonably evaluate the risks in their trades. Unfortunately, this task will prove difficult and will probably be largely ignored. Take one of the more simple cases, money market securities. The assumption of most people like me who put money into money market funds is that those funds are essentially risk free because companies are not going to fail owing a large amount of short term debt. But it appears to be a common practice to continually roll over short term money market debt instead of borrowing long term. If the government had not stepped in, there would have been significant defaults on money market debt, there would have been a run on the money market funds, and there would have been substantial losses to people like me who thought we had our money safely in funds that made short term, low risk investments. Will this problem be fixed? If not, what can we expect for the more esoteric instruments and the practice of continually inventing new ones.
But the even bigger reality is that Wall Street's problems are just a symptom of a much bigger problem in our economy. The problems in the financial markets were part of processes that overheated our enconomy. That overheatting happened by intention both under Democratic and Republican administrations. The biggest question is whether we are ready to accept the consequences of government policies that get American consumption in better balance with our production and the size of our population relative to the rest of the world. As long as we expect that the Fed can manage endless gowth in our consumption of the world's resouces by playing games with financial markets, the next crisis is just a matter of time.

 
truthhurts Author Profile Page :
 

Penal Institutions, as tools of reformation, may afford the best opportunity for consumers.

 
hz9604 Author Profile Page :
 

Wall Street was doing what Wall Street does. It leverages based on asset value. The problem was that Wall Street was handed trillions in bogus mortgages that were graded high quality on which to leverage.

Go back to the source of the bad and corrupt Leadership-- 1998 and the move by Clinton to increase home ownership. Then go to Fannie Mae and Freddie Mac where mortgage lending standards were corrupted and sent to the rest of the nation as the new standard. Then go to the failed Leadership at the Federal Reserve in the person of Alan Greenspan. I had people in my own office shaking their heads in 2003 at the interest only home loans, NINJA loans, the 110% of value home refinances, all of which spurred overbuilding and then the valueless securitized mortgages to which I refer in the opening paragraph. Yet Alan Greenspan seemed to be nodding his head affirmatively and approvingly to these loans.

All discussions that do not focus on the above are more just symptom-solving exercises and not root cause-solving exercise. Yes....Wall Street was a symptom and not a root cause.

Alan Greenspan gets my vote as the failed Leader of the century...and that would be the 21st century. I expect time will show that my selection will stand the test of time.

"Show me an economy experiencing bubble after bubble and I will show you an economy with unreported malicious inflation". Mr. hz9604

 
hz9604 Author Profile Page :
 

Wall Street was doing what Wall Street does. It leverages based on asset value. The problem was that Wall Street was handed trillions in bogus mortgages that were graded high quality on which to leverage.

Go back to the source of the bad and corrupt Leadership-- 1998 and the move by Clinton to increase home ownership. Then go to Fannie Mae and Freddie Mac where mortgage lending standards were corrupted and sent to the rest of the nation as the new standard. Then go to the failed Leadership at the Federal Reserve in the person of Alan Greenspan. I had people in my own office shaking their heads in 2003 at the interest only home loans, NINJA loans, the 110% of value home refinances, all of which spurred overbuilding and then the valueless securitized mortgages to which I refer in the opening paragraph. Yet Alan Greenspan seemed to be nodding his head affirmatively and approvingly to these loans.

All discussions that do not focus on the above are more just symptom-solving exercises and not root cause-solving exercise. Yes....Wall Street was a symptom and not a root cause.

Alan Greenspan gets my vote as the failed Leader of the century...and that would be the 21st century. I expect time will show that my selection will stand the test of time.

"Show me an economy experiencing bubble after bubble and I will show you an economy with unreported malicious inflation". Mr. hz9604

 
hz9604 Author Profile Page :
 

Wall Street was doing what Wall Street does. It leverages based on asset value. The problem was that Wall Street was handed trillions in bogus mortgages that were graded high quality on which to leverage.

Go back to the source of the bad and corrupt Leadership-- 1998 and the move by Clinton to increase home ownership. Then go to Fannie Mae and Freddie Mac where mortgage lending standards were corrupted and sent to the rest of the nation as the new standard. Then go to the failed Leadership at the Federal Reserve in the person of Alan Greenspan. I had people in my own office shaking their heads in 2003 at the interest only home loans, NINJA loans, the 110% of value home refinances, all of which spurred overbuilding and then the valueless securitized mortgages to which I refer in the opening paragraph. Yet Alan Greenspan seemed to be nodding his head affirmatively and approvingly to these loans.

All discussions that do not focus on the above are more just symptom-solving exercises and not root cause-solving exercise. Yes....Wall Street was a symptom and not a root cause.

Alan Greenspan gets my vote as the failed Leader of the century...and that would be the 21st century. I expect time will show that my selection will stand the test of time.

"Show me an economy experiencing bubble after bubble and I will show you an economy with unreported malicious inflation". Mr. hz9604

 
hz9604 Author Profile Page :
 

Wall Street was doing what Wall Street does. It leverages based on asset value. The problem was that Wall Street was handed trillions in bogus mortgages that were graded high quality on which to leverage.

Go back to the source of the bad and corrupt Leadership-- 1998 and the move by Clinton to increase home ownership. Then go to Fannie Mae and Freddie Mac where mortgage lending standards were corrupted and sent to the rest of the nation as the new standard. Then go to the failed Leadership at the Federal Reserve in the person of Alan Greenspan. I had people in my own office shaking their heads in 2003 at the interest only home loans, NINJA loans, the 110% of value home refinances, all of which spurred overbuilding and then the valueless securitized mortgages to which I refer in the opening paragraph. Yet Alan Greenspan seemed to be nodding his head affirmatively and approvingly to these loans.

All discussions that do not focus on the above are more just symptom-solving exercises and not root cause-solving exercise. Yes....Wall Street was a symptom and not a root cause.

Alan Greenspan gets my vote as the failed Leader of the century...and that would be the 21st century. I expect time will show that my selection will stand the test of time.

"Show me an economy experiencing bubble after bubble and I will show you an economy with unreported malicious inflation". Mr. hz9604

 
rkerg Author Profile Page :
 

It seems to me that this regulation debate is just another DC dog and pony show. I write that because, while all of this bailout outrage is smoldering in the constituents of both sides of the aisle, it would seem to be an easy, even popular thing to do to pass a law stating that: the Fed, nor the Treasury dept, nor any other government agency or quasi government agency, can NOT bail out ANY company, whether in the financial, the automotive or any industry. The fact that, as far as I know, no one has introduced such a bill, tells me that this is just another dog and pony show / industry shakedown. Lobbyists will be hired by the dozens and so called campaign contributions will flow in by the millions of dollars.

 
jimtwest3 Author Profile Page :
 

Business schools in the U.S. need to require a class in Ethics. Wall Street has become a financial casino that has lost all purpose in building industry and creating jobs. The complete lack of ethics and responsiblity displayed by Wall Street has cost it the respect of the world, and the trust of investors. There is now little difference between investing in Wall Street and a trip to Las Vegas. Wall Street has failed the American people, and failed the American investor. The greed and arrogance of Wall Street has done our country great damage that will take a long time to recover. Too many Wall Street brokers deserve a jail term far more than they deserve a bonus.

 
brt30 Author Profile Page :
 

Theodore Roosevelt believed:
Business success, whether for the individual or for the nation, is a good thing only so far as it is accompanied by and develops a high standard of conduct—honor, integrity, civic courage. The kind of business prosperity that blunts the standard of honor, that puts an inordinate value on mere wealth, that makes a man ruthless and conscienless in trade, and
weak and cowardly in citizenship, is not a good thing at all, but a very bad thing for the nation.

I suppose conservatives would call T.R. a socialist, rather than an advocate of ethical business.

 
PrairieDog60 Author Profile Page :
 

Does anyone really believe you can corral greed? If you look at the e-mails from some of these corportate types that have leaked out, or remember the taped phone conversations and e-mails from the Enron gang, the greed and disregard for ethics or even humane consideration of the people affected, is stunning. Offer humans the chance to make gazillions of dollars, and you'll always see the worst of mankind creeping out of the woodwork. Stronger regulation AND enforcement is needed, but I doubt we'll ever see it. There's too much money at stake for these people.

 
stanassc Author Profile Page :
 

First, the corporation is a creature of government legislative law. They are not citizens. Their governance, liabilities and responsibilities are all the result of legislative action. Theoretically, legislatures could abolish limited liability if they wanted to. They would seem to have no Constitutional protection other than its shareholders not "be deprived of... property, without due process of law".
The corporation is an autocratic, single focused feudal society with the sole objective of "making money", subject only to the rules the public and their representatives through government care to impose on them. Corporations are amoral; they should/have to be. They have been since Merchant of Venice.
The incentives, strict regulation, stiff tax on high incomes, stiff tax on short term profits, minimum holding period on stock trading(3 days?), strict rules on financial instruments (with public procedures for introduction of new instruments), require much more personal capital - slow Wall Street down - cut down the adrenalin rushes - make banking boring world-wide. Reduce the tax code to 800 pages. And on and on for 1200 pages.

 
ravitchn Author Profile Page :
 

No one involved in ethical matters -- not the Social Teaching of the Catholic Church, not John Calvin -- has ever said that business was to take account of anything but profit. Individuals may have ethical requirements but hardly a business institution.

 
NLNGRNVRLDD Author Profile Page :
 

Wall Street bankers have always been profited from the creation and destruction of a wealth. Creative Destruction of wealth is something that Wall Street is adept at. The destruction of wealth does not lead to creative destruction of Wall Street banks, but destruction of jobs,economy. The other thing to consider is the magnitude of the profit that the CEO makes to magnitude of the loss during the boom bust cycle. The magnitude of the profit does not equal the pain that the economy suffers.

The only way to stop is to have strong regulations, ensure that bankers and ceo's have long term profit motives and not short term profit motives. Shareholders having say on pay for CEO's.

One thing that Regulators should do is to quickly start a market with regulations for all Finanical products which exceed say $xxx Billion in transaction.

One thing that I would really like to see is something that Doctors did during graduation - A Hippocratic oath for CEO's taken in front of shareholders and ethics reform.


 
mibrooks27 Author Profile Page :
 

American businesses and the people who run them and profit from them live in this society. They make use of our infrastructure and, when they do harm, as banks and investors did, leading to the current economic collapse, then they should be punished. People forget that a "corporation" is a pseudo-citizen and has the rights and *responsibilities* of a citizen. So, of course, businesses have an obligation to this country, a greater obligation than to their shareholders. If a business does no serve the needs of society, i has forfeited it's right to exist. The Founding Fathers recognized this when they granted Congress the right to issue **and void** patents, trademarks, and copyrights (AND that power to void has been used in this nation's past).

 
Rational4 Author Profile Page :
 

These people are nuts. The ethics of business is simple and everlasting - serve your customer. Let me put this question about whether wall street should serve the public interest another way:

- Should an engineer design things that work for his customers or that work for society?
- Should a farmer grow foods that meet social goals or that taste good and are desired by his customers?
- Should a journalist write stories that people want to read or that conform to the public interest?
- Should a cab driver take his customers where they want to go or limit each trip to 2 miles to save gas for the country?

So the wall street ethics question is simply ludicrous. Should a wall street trader make trades that serve the financial interestes of his customers or that further the country's economic goals? This is after all a country built on the premise that each of us has a right to pursues his own happiness. The public interest is, as it must be free country, a very, very minor consideration in our day to day lives.

 
Rational4 Author Profile Page :
 

These people are nuts. The ethics of business is simple and everlasting - serve your customer. Let me put this question about whether wall street should serve the public interest another way:

- Should an engineer design things that work for his customers or that work for society?
- Should a farmer grow foods that meet social goals or that taste good and are desired by his customers?
- Should a journalist write stories that people want to read or that conform to the public interest?
- Should a cab driver take his customers where they want to go or limit each trip to 2 miles to save gas for the country?

So the wall street ethics question is simply ludicrous. Should a wall street trader make trades that serve the financial interestes of his customers or that further the country's economic goals? This is after all a country built on the premise that each of us has a right to pursues his own happiness. The public interest is, as it must be free country, a very, very minor consideration in our day to day lives.

 
jimb-5 Author Profile Page :
 

Business will not look out for anything but itself and there is no reason to think it will. The invisible hand won't help either, although it will pick your pocket if it gets a chance. Things will not change because new regulators are on the beat, even if you assume they know what the right thing is and they want to achieve it (a stretch, if you ask me).

No, what we need are structural changes that will put the genie back in the bottle for another 50 years or so. Let us again separate investment banking from commercial banking. Ban ALL off-books accounting. Require firms too big to fail to shrink until it no longer is a threat and enact regulations to insure that it no longer gets large enough to be a systemic threat. Require investment banks to have 75% of equity held by employees, to reduce risk-taking and ensure that long-term and short-term interests of employees are aligned. And remove all implications of government guarantees for market participants (with possible exception of Freddie and Fannie which, if guaranteed, should be nationalized for all to see.)

Change will only come with restructuring. To rely on the good faith of regulators is folly when the financial institutions have the ability to pay off Congress and get the rules and/or the regulators changed. Just review the history of the last 20 or 30+ years, to say nothing of the past 6 months of Congressional inaction.

Those who wait for corporate America to reform itself better be prepared to eat cat food in retirement, or worse. It won't happen because it's not part of the makeup of the beast. Corporate capitalism can deliver the best for the most only when contained by a strong yoke. It has always been that way and it always will be. Shrink finance to it proper support role. Regulate industry to prevent the worst and most obvious calamities. Then let things work, tweaking to correct problems that become apparent along the way.

Of course, none of this can happen if the Supremes rule that corporate spending on whatever it wishes to achieve in the political world is protected by the 1st amendment. If they rule that way, then "Katy bar the door" because it will be opened to thinly disguised bribery (much as it appears to be today).

No, corporate America cannot and will not work for the long term benefit of all citizens without regulations and substantive restrictions.

 
grandmothers_inc Author Profile Page :
 

I think leaders like the senators from texas need review on ethics they have allowed me to lose my home-senator huttinison my va benefits- no cvc protections after assult by harris county officers- now they allow fraud commited by julie krempa and her dad bob-ignoring texas code and not persuing fraud charger against this illegal company - costing my homestead they wont enforce my idenity theft nor will the FBI i am discrimitated against and these texas senators promised investigations since ike nothing has been done but more fraud by the state of texas and julie krempa killing my husband by omission at st josephs hospitial and i can not prove it i am sure her or my senators allowed another beating by officers and humilitation by them i am a widow of 23 years i still have not been given a no fraudlent death cirt my family is in danger i cannot gain acess to my homestead
the DA wont do his job the ME as required by law will not do a police report and the cause of death is also fraudlent my civil and legal rights have been taken by mr rosenthal the local police and now senator huttinison promising to retun my assets stolen by probate court 2 and my homestead that is in contested probate due to fraud what should i do i have realtime id theft internet domain theft and cant be safe please it seems there is no justice dispite ms kremps intentional lies fraud and the state is not enforcing their own codes allowing these crimes federal fraud from her false filing of insurance to her statements now how can anyone be safe i want my son out of the navy now so much for being good people so much for senator huttinison and coryn who have lied to me for yrs my tort is almost up and we are in danger thank you
elizabeth gardner aka phipps
owner of federal state and dns copyright, trademark, and registration att wont release it saying someone else is paying my account and i cannot id the fraudlent card i find e-mails i didnt send my ids are hacked
I would not suggest either of these well since 07 i was promised help and nothing has happened senator huttinison was supposed to get my va benefits lost due to federal fraud by joan stokes not mentioning my birth she has not nothing these senators and my attroney general just lie thank you
elizabeth gardner aka phipps
state prior to my husbands death and my va they kept is vauled over 1,000,000,000 i wonder did julies dad run probate court 2 or perhaps like travlers he took a cut of my birthright i dont know i do know i am a victum and my family is in danger
409-750-9012

 
 
 
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