Home > Side conversations > Conversation with Seat 11B continued while getting luggage (Part 2 – what’s going on with US economy)

Conversation with Seat 11B continued while getting luggage (Part 2 – what’s going on with US economy)

I had no idea that my conversation with “Seat 11B”  would receive such attention.  Many readers of my blog wanted to know how the conversation concluded.

My conversation with “Seat 11B” continued while we were standing next to the conveyor belt, waiting for the luggage to arrive.    Ironically, the luggage took about 20 minutes to appear.  This turned out to be just enough time for me to ask “Seat 11B’ about his opinion about the state of US economy.

He replied, “The US economy has the equivalent of H1N1 flu.  This particular strain is however very different, because there is no vaccine or a quick fix that American society has gotten so used to.  This virus is called cumulative failure over time to do the right thing“.

The truth is “Seat 11B” and I talked longer than 20 minutes as the passengers around left ran to the their next destination. Worthy items of interest follow:

– One can easily see how the financial markets forgot to the the right thing. Mortgage-backed securities were designed to increase liquidity and promote home ownership by allowing mortgage originators to replenish their funds. What started as financial innovation, turned instead into a desire to collect transaction fees. What happened to the fundamentals of creating quality credit assets regardless of whether they might be packaged and sold as securities?

– Securities and Exchanges Commission – SEC – also forgot to do the right thing, while credit rating agencies were placing investment-grade (stamps of approval) ratings on questionable mortgage-backed securities. In late 2008, SEC did approve new measures intended to strengthen oversight of credit rating agencies.

– The top four US depository banks also (conveniently) forgot to do the right thing during several years prior to the financial crisis. These banks moved approximately $5.2 trillion in assets and liabilities off their balance sheet into special purpose vehicles. In essence, this approach enabled them to effectively bypass existing regulations regarding minimum capital ratios. Leverage and profits increased during boom. But the losses were dramatic during the crisis, leading to the failure or near failure of companies that were deemed too big to fail.

We talked about many other topics where the root cause was failure to do the right thing, ultimately by people either in the government or private industry.

I exited the airport while remembering a lesson from my Management 101 class at Pace University.

One of the most important jobs of a leader is to balance the needs of customers, shareholders, and employees.

Categories: Side conversations
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