The political talking heads and mainstream media stooges can say what they will about the recovering economy. Beyond the inflated chutzpah of painting rosy pictures, there’s a bad moon rising in the financial world. And the suffering economy will be suffering more, because of it.
The recent resignation of Goldman Sachs executive, Greg Smith and his very public op-ed piece (full text) offered up in the New York Times, sheds a glimmer of light on a much darker and deeper problem. The culture he describes at Goldman Sachs is not an anomaly, it is systemic in Wall Street and in the Federal Government – lack of honest credible leadership and with it meaningful disclosure. And by credible leadership, we mean leadership by honorable men and women of good will.
In his op-ed, Smith zeroes in on leadership, “The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing.” Smith then describes what the three ways are to become a leader at Goldman Sachs. There is nothing noble in the three ways Smith describes the Goldman Sachs’ leadership culture.
However, Smith offers one sound piece of advice that would be well served, if applied at any organization, but especially in all of the financial industry and the Federal Government, “Weed out the morally bankrupt people, no matter how much money they make for the firm.”
Smith is not the first person to bring attention to the rising trend in unsavory behavior in fostering misleading business practices and promoting unmitigated greed at someone else’s expense. Unfortunately, it seems the honest voices are being crowded out in favor of a philosophy that espouses money now – ethics later. That may work in the short-term, but in the long-term, as Smith points out, the client must be the focal point and without them, “you will not exist.”
Another individual, several years ago, tried to set off alarm bells about the bubble in derivatives. Her name is Brooksley Born. She is now retired, but back in 1998 her voice was squashed by the likes of Alan Greenspan and Larry Summers. She was shut-up and shut-down.
Born had been appointed to the CFTC (Commodity Futures Trading Commission) on April 15, 1994 by President Bill Clinton. Born became concerned about a lack of transparency regarding financial instruments (swaps). Any regulation of these swaps was opposed by Alan Greenspan, Treasury Secretaries Robert Rubin and Lawrence Summers. Born’s warning was that financial dealings without regulation invited fraud.
As it turned out, Born was correct in her assessment, of which the more publicized result was the bankruptcy of Lehman Brothers and the larger financial crisis in the United States and the rest of the world’s financial markets. The world’s financial crisis continues to this day. A Frontline piece, The Warning, later addressed Born’s role in trying to avert the coming financial disaster involving derivatives.
The failed leadership on Wall Street and in Washington, DC has led to the cataclysmic outcomes on Main Street. Principled leadership is the key to the success of any business, institution, or government. The lack of principled leadership, always results in corrupt ideas and ultimately systemic corruption, if left unchecked. As evidence, we need to look no further than our nation’s 15 + Trillion dollar debt, an ever increasing burden to our nation and the economic abyss created by failed leadership. Many have forgotten that doing the right thing is always the right thing to do. The bad moon remains.