There are two factors that I think parallel the present economic crisis with the crash of 1929: credit directed at zero-sum gains and delusional leadership.
Business and markets are not wise. Both the strategic and daily decisions of businesses and individuals are about the marginal utility of a small set of transactions, on the whole. As a community, either global or more local, we can decide whether some processes for money making are good for the whole and under what conditions. It’s easy to see in retrospect that loose lending practices, whether for homes, hedge funds, or corp buy-outs, are a dangerous element in maintaining a society directed at enabling individual prosperity. Only some measure of centralized control can have both the visibility and the leverage to affect the situation.
It isn’t the job of businesses to determine the effect they have on society on the whole. As a business leader, you should make every attempt to understand the impact of your decisions of the welfare of your stakeholders and the community in which you operate. It is imperative that your success, over the long term, doesn’t degrade the context in which you operate. Ultimately, business interests that align their success strategically with the success of stakeholders, customers, and everyone around them will find their efforts supported widely, their success more easily won and multiplicatively more sustainable. As you build your business model, I always suggest that you keep this in mind. Build a model that makes it easy, if not enjoyable, to support you.
However, we should be content to hope that business leaders are so enlightened. Clearly, we have plenty of examples to the contrary and sub-prime lending is a solid example. This crisis was entirely predictable. Shame on these businesses for driving themselves, and obviously, all of us to this point and shame on us for allowing it.
The inability of the present governmental leadership to recognize areas where rational controls could ultimately benefit all business and therefore society makes matters much worse. Now all the President can do is speak hopefully about a clearly damaged market and throw money at the situation.
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