Conscience and Character

What do these have to do with the crisis of the American financial system? Nothing. And, that's exactly the problem. Wall Street fosters an environment where a person's governor or self-regulator, called a conscience is switched to "Off" during office hours. The name of the game is always to go to the edge, and over the edge. If someone calls you on it, pull back, with no consequence and go about your business. Each minute, hour, day, and quarter is serially independent of any other. "Size of the book" is all that matters, and the positive or negative sign means little. Size means you're a player, and a negative sign means that you are "aggressive."

Unfortunately, a variation of this theme applied to bank regulation during the build up to the crisis. That truth is slowly coming out. Here's a self-assessment of the Federal Deposit Insurance Corporation's loan review process reported on the Calculated Risk blog:

"The FDIC’s Office of Inspector General analyzed 23 lenders taken over by regulators from August 2008 to March and found that for 20, the agency’s examiners didn’t identify the issue early enough or should have taken stronger supervisory action after recognizing the banks had dangerously high levels of the loans before they failed. ...“It’s often we’ll see in our reports that the FDIC detected problems in the bank in a timely fashion, but in some cases forceful corrective action wasn’t required by the FDIC to be taken quickly enough,” Jon Rymer, the FDIC’s inspector general, said in a telephone interview." (Source: Calculated Risk)

So, it's not a matter of inadequate process or regulation. Examiners were in place, and they went out and followed their processes, which pointed out the issues. What is unclear is why the levels of bad loans were allowed to get so high, and why "forceful corrective action" wasn't taken. It's the same issue: a failure of character and faithfulness to one's mission. Of course, having worked for a few agencies of the Federal government, it's easy to construct a scenario where an examiner calling for shutting down lending in a go-go market in a "free market" administration might not think this was a good career move. And that's a shame.

I've never responded negatively to one of my staff giving me bad news or taking a stand on something. Overzealousness shows passion and commitment; it can always be remodulated, if it has to be. Failing to call attention to a problem or being inhibited about bad news is a more complex problem; it's being tepid, which is a bad thing in sports, life and in the world of character and conscience.

Reverend Dr. Martin Luther King, Jr. longed for the day when a man would be judged "not by the color of his skin, but by the content of his character." Perhaps the latter is something that should start going onto performance review forms.