Crisis Revisited: Lazy Greenspan and Other Villains

by Cesar Bacani, 06 April 2011

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topics:
Management Risk Management

tags:
AIG Alan Greenspan global financial crisis Henry Paulson Richard Ivey School of Business UBS

In 2009 a group of academics at Canada’s Richard Ivey School of Business started a qualitative research project into the causes of the global financial crisis and what should be done going forward.

The team engaged with more than 300 business, public sector and not-for-profit leaders, including those in Asia and the world’s biggest banks. The result is a book called Leadership on Trial: A Manifesto for Leadership Development, one of the earliest studies on the crisis that continues to linger today.

“Where the fault is to be found is with individual leaders, and the way in which they led their companies,” says one of the four co-authors, Dr. Jeffrey Gandz, Professor of General Management at Ivey. Regulators, consumers, the media and almost everyone else are also to blame – including Alan Greenspan, whom Gandz describes as suffering from intellectually induced “laziness,” and business schools themselves.

Gandz sat down with CFO Innovation’s Cesar Bacani in a wide-ranging interview. Excerpts:

Your study appears to conclude that everyone is at fault. Does this imply that it’s the Western capitalist system that’s to blame because all the players, regardless of their best intentions, have been compromised?

No, actually, it’s completely the contrary. Part of the things that initiated this research was a sense that we were hearing from people who said this was a collapse of the system. We poor innocent bankers, we’re just caught in the system meltdown.

It was fairly obvious that there were some banks that weren’t engaged in risky lending, that weren’t out of control with their leverage – whereas others were in it up to their necks. There were some countries whose regulators managed extremely well, Canada and Germany among them. There were others where the system was appalling – Iceland, US, UK. So it wasn’t a system-wide thing at all.

So where does the blame lie for the global financial crisis?

Where the fault is to be found is with individual leaders, and the way in which they led their companies.

It wasn’t a given that you had to be a victim. For example, Goldman Sachs. One can argue that it was one of the originators of a lot of the highly leveraged investments [that contributed to the problem].

But Goldman Sachs understood as early as 2006 that this leverage that was being build up into the system was posing an enormous risk. So they started to de-risk Goldman Sachs in 2006 and were fully collateralised by the time people like Lehman had collapsed and AIG was in trouble. .

A bank like Toronto Dominion Bank, which is one of only two triple-A rated banks in the United States today, was out of structured investment products by 2007, had no involvement in asset- backed commercial paper, had no involvement in sub-prime lending.

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