Posts Tagged: Timothy Geithner

American Society / Corporate Behavior / Political — 0 Comments
6
Jul 11

Recycling Losers

A curious feature of institutional behavior is the tendency to hire or retain executives who have failed in their jobs.  A prime example of such behavior is the hiring of baseball managers.  Baseball is enthralled with the familiar.  So it seems the best way to get a manager’s job is to be fired from one.   Despite their undistinguished records, managers like Jim Fregosi (win/loss record 1028-1095); Jerry Narron (291-341); Grady Little (385-290); Dallas Green (454-478) and a host of others were fired by one club, and then hired by another.  Many were given veteran clubs with proven stars, and yet they could not win championships.  Anecdotally, baseball was often accused of recycling old white men.  But recent reforms in baseball have demonstrated an equality of mediocrity if you will, as baseball has recycled minority managers with losing records.

The same dysfunctional thinking occurs in American business.   After being fired in the wake of the Bank of America merger, John Thain went from leadership at Merrill Lynch to head the CIT group.  Robert Rubin remained as Chairman of Citicorp after the financial crisis (although he resigned in 2009).  Lloyd Blankfein at Goldman Sachs and Jamie Dimon at J.P. Morgan continue in their positions.

President Obama assembled his financial team and shamelessly recycled flawed people: Ben Bernanke (Federal Reserve Chairman); Timothy Geithner (Secretary of the Treasury); Lawrence Summers (Head of the Council of Economic Advisers); Robert Rubin (economic adviser) and Jeffrey Immelt (President’s Economic Recovery Advisory Board).   Without cataloging their financial sins, clearly each of them contributed in a major way to the near collapse of the American financial system.

Failing Upward

In an aptly named article, Failing Upward, Yves Smith highlights the hiring of Madelyn Antoncic as Treasurer of the World Bank.   Ms. Antoncic’s previous position was Chief Risk Officer of the bankrupt Lehman Brothers:

The World Bank has appointed Madelyn Antoncic as its new vice president and treasurer.

Ms Antoncic served as Lehman Brothers’ chief risk officer from 2002 to 2007 and following the collapse of the bank, stayed on for a year as managing director and senior advisor at the Lehman Estate, helping to maximise value for creditors….

Commenting on the appointment, World Bank Group president Robert B Zoellick, says: “Known for her forthrightness, I am delighted Madelyn is taking up this important role.” See Failing Upward

Ms. Smith concludes that large financial institutions are comfortable hiring familiar people for big jobs, no matter how poorly they have previously performed.

Forthright but Ineffective

Robert Zoellick praises Ms. Antoncic’s forthrightness.  Another analyst comments that she “was likely the only person on Lehman’s executive committee who had any sense.”   See World Bank Taps Ex Risk Officer as Treasurer. But we then learn that senior management knew that the firm was taking on too much risk.   What was Ms. Antoncic’s role in controlling risk; indeed what did she know?  Was not controlling risk essentially her job?

So where was Antoncic to reign in such risk during that time? Well, she was being kicked out of executive meetings where risk was being discussed. Antoncic, with her PhD in economics and a prior 12 year stint at Goldman Sachs, might have know Lehman was taking too much risk but her opinion was blatantly disregarded when she was removed from Lehman’s executive committee in 2007. See World Bank Taps Ex Risk Officer as Treasurer

So Ms. Antoncic, the lonely voice of reason, was kicked off the executive committee. I do not know Ms. Antoncic, but her behavior raises important management questions.  Did she resign from Lehman?  Did she inform the Board of Directors or government regulators that the bank was taking on too much risk and might collapse?  No, she continued to collect her paycheck, a monument to her ineffectiveness and her questionable ethics.  If she was one of my employees, I would have fired her.  Forthright but ineffective just does not cut it.

Too Comfortable

Executives become too comfortable.   Instead of hiring a challenging subordinate who can bring fresh ideas, they are more likely to hire a loyal unchallenging stalwart who can maintain the status quo.  In a more cynical view of things, I would suspect that Mr. Zoellick found the right employee in Ms. Antoncic.  She would be beholden to him, be loyal to a fault and never challenge his decisions. Unfortunately, these are valued traits in corporate America and in government and can be summarized: “go along and get along.”

In my own experience I watched poor performing executives fail and then be promoted to a larger assignment.  I once quipped that you could not be promoted until you made at least a $500m dollar mistake.   That would demonstrate that you were a real player.  Obviously, Ms. Antoncic was a “real player.”  It took a real talent to be part of team which bankrupted a major investment bank and nearly crashed the entire economy.

The financial crisis will remain intractable as long as we continue to recycle the same financial players and government advisers who got us into this mess.  We need smart people with new ideas and different energy who can get us out this quagmire.  It is going to take the truly exceptional Board of Directors, CEO or US President to get rid of the wrong people, locate and hire the right people, and break with the past.    Perhaps it is time to afflict the too comfortable.

 

 

 

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Banking / Financial / Justice System — 0 Comments
15
Apr 11

Untimely News That’s Unfit to Print

In the The Very Late News, we examined the media’s late and lazy reporting on important stories related to the 2008 financial crisis.  Today the New York Times does it again with Financial Crisis, No Prosecutions of Top Figures. The lead reporter, Gretchen Morgenson, has a weekly column in the Times.  She is no neophyte on issues of financial fraud.  Why has it taken the New York Times three years from the onset of the crisis to report the lack of prosecution of Wall Street criminal conduct?

A Lame Apology

Morgenson asks the hot question:  why has there been no prosecution of high profile executives?  But instead of hitting hard, she opines on the “complexities of pursuing legal cases in times of panic.”   In a meeting between the Fed’s Tim Geithner and Andrew Cuomo, Geithner never suggested “any lack of diligence or a slowdown” in ongoing investigations.  He did not have to.  He was the perfect third base coach.  All he needed to do was run through the signs: “bunt, take, hit – Do Not Prosecute.” Mr. Cuomo did not miss the “don’t prosecute” sign.

The remainder of the Times article explains why federal prosecutors chose not to bring an action.  I recommend it in its entirety for a treatise on federal and state prosecutorial delay, obfuscation and denial.  The article begins and ends with Andrew Cuomo, but where were the other government prosecutors?

Coincidence

Also today, the Times reports on the 650 page Senate Permanent Subcommittee report: “Wall Street and the Financial Crisis: Anatomy of a Financial Collapse.”  From Senator Carl Levin, head of the subcommittee:

“The report pulls back the curtain on shoddy, risky, deceptive practices on the part of a lot of major financial institutions” …“The overwhelming evidence is that those institutions deceived their clients and deceived the public, and they were aided and abetted by deferential regulators and credit ratings agencies who had conflicts of interest.” See Naming Culprits in the Financial Crisis

Will we be prosecuting these offensive deceptive practices?

Banks and Bonds

Ironically, today’s Times also reports that Barry Bonds was convicted of one count of obstruction of justice.  The investigation of steroid use in baseball started in 2002.  After nine years of investigation, huge prosecutorial resources  and 25 government witnesses, the government could not prove that Mr. Bonds used steroids.

Too bad Mr. Bonds is a baseball player rather than a Wall Street bank.  Perhaps if his name were Ernie Banks instead of Barry Bonds, he could have confused the prosecutors, who might have overlooked the offense.  We don’t want to rattle or hurt the Banks.

Dual Standard of Justice

Bonds stole no money, yet the full force of Congress and federal prosecutors pursued him for years.  Banks that stole billions and nearly destroyed the economy were deemed too fragile to prosecute.  These “fragile” banks were back in business with near record bonuses in 2009 and 2010.  We have a dual standard of justice that weakens all  respect for law.

 

 

 

 

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American Society / Banking / Business / Corporate Behavior / law / Political — 0 Comments
20
Jul 10

Team Play: How to Lose the Game

Corporations and politicians love to emphasize “team play.”  A whole mythology surrounds the concept.  There are 1,800,000 Google search results under ‘team play.” Websites are devoted to “team building,” “effective team work” and “team play.”  Corporate and political entities adopt sports analogies and metaphors for success: teams that play together as a unit win.  Thus, if we convince independent and sometime maverick executives to sublimate their needs to the “team,” the team will be more successful, that is, win more.

By extension, we obviously must isolate and demonize the non-team players.  Those who have not embraced team play are mavericks, lone wolves, naysayers, whistleblowers or worse.  If we round up these “stray camels” and get them all under the corporate tent, how much better off will we be?

Team Play Sounds Great, Right?

Superficially, ‘team play” sounds like a great concept: everyone on “the same page,” effectively communicating, sublimating individual ego and producing outstanding results.  But there is a more insidious inner lining to team play.  ‘Team play” is a way of quashing independent thought and dissent.  What upper management or senior government officials really want is an employee who will carry out directives from above blindly, without assessing the wisdom or integrity of a particular strategy or project.  This paradigm values adherence to “the program” and loyalty over competence.  Even when some thoughtful criticism can produce a much better result, the team will value mediocre results.

Unfortunately, “team players” get promoted disproportionately, perpetuating the “team play” cycle.  Those not promoted learn an important corporate lesson:  “go along” and “get along” or look for other opportunities elsewhere.

I am not privy to BP succession planning, but I would guess the lead management representative on the Deepwater Horizon rig was the consummate team player.  One has to wonder if common sense came in second place to “team play.”

The Strange Case of Elizabeth Warren

Elizabeth Warren, a Harvard law professor, was named chair of the Congressional Oversight Panel looking into the bank bailout program (“TARP”).   Unfortunately, Prof. Warren had the temerity to grill Secretary Geithner on the AIG bailout and backdoor assistance to Goldman and other banks.  Indeed, by doing this she was questioning the wisdom and integrity of a measure that would ensure that these banks would be paid in full on credit derivative positions with the failed AIG.

Ms. Warren is the champion of establishing a consumer financial protection agency.  The new bill establishes a new Consumer Financial Protection Bureau.  Knowledgeable financial commentators such as Yves Smith and Simon Johnson believe that Prof. Warren would be the right person to head the new bureau.

Warren is the obvious choice to head the otherwise-guaranteed-to-be-a-joke consumer financial services agency due to set up its shingle at the Fed. She has been a tireless consumer advocate, is trusted and well liked by the public at large, an effective communicator and a respected legal scholar, and is willing to stare down political opponents. All those qualities make her hugely threatening. Banksters and their lobbyist allies have been saying loudly and clearly that they are firmly opposed to having Warren head the new consumer agency. So, predictably, Geithner acts as their water-carrier. See Elizabeth Warren in Treasury Crosshairs Again

Mr. Geithner has proved to be a toady for the big banks and Wall Street firms. Of course, he would like to block  Ms. Warren’s appointment.  He instead wishes to install a “team player” such as his pro-bank rubber stamp lieutenant, Michael Barr, Assistant Treasury Secretary.  Mr. Barr’s bona fides are set forth:

This Administration has acted quickly and aggressively to confront the economic challenges facing our economy and the housing market. See Elizabeth Warren or Bust, I’m Drawing the Line

No comment is required.

Afflicting the Comfortable

Humans are tribal. We are comfortable with our own tribe and team.  Along comes an individual of integrity, conviction and unquestioned competence like Elizabeth Warren.  Those individuals attack “group think,” upset the powers that be and make some  a little uneasy.  Suddenly, the name calling comes out and Prof. Warren is called a “commie” or a “weirdo” because she questioned the overly cozy relationship between the Administration and the banks.   Moreover, perhaps hidden in the discomfort is the fact that she is a female in the largely male world of banking and the Treasury.

Undercutting the maverick in a corporation is a little more subtle:  is the person sound, can we rely on him in a pinch, or isn’t he a little different from us?

For the sake of the country, we need more more mavericks like Prof. Warren.   Sometimes it is good to afflict the comfortable.

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American Society / Business / Financial / Political / Regulation — 0 Comments
2
Feb 10

Timothy Geithner and Plausible Deniability

Congressional hearings often make wonderful theater.  Last week at the House Oversight and Government Reform Committee, the American public heard testimony from Timothy Geithner, former head of the Federal Reserve Bank of New York and now US Treasury Secretary and Henry Paulson, former US Treasury Secretary.  Both men’s testimony relied on one premise: if we did not bail out AIG and pay its counterparties 100 cents on the dollar, the financial world as we know it would have ended,  i.e., the US would have plunged into a second Great Depression.  By written statement, Fed Reserve chair Ben Bernanke informed the Committee of his full support for this decision.  In person, Henry Paulson agreed.  However, both men said they had nothing to do with the decision.  Further, Mr. Geithner testified that he had relied on his staff or details of the bailout.  And even further than that, he later distanced himself from the decision whether nor not to disclose the details of the bailout. America was treated to the concept of “plausible deniability.”

Plausible Deniability

Working in a corporation one gets a firsthand look at the concept of “plausible deniability.”  Plausible deniability works something like this: a crisis starts; an important decision must be made; a senior executive is charged with making a decision; the senior executive delegates much of the preparatory work to  staff or a trusted lieutenant; the staff or trusted lieutenant ultimately makes a recommendation which later becomes “The Decision. “  If or when something goes wrong in the future, the senior executive denies involvement and places the blame on the staff or the trusted lieutenant.  Almost every time, the superiors of the senior executive accept this scenario.  The senior executive survives.

Let’s Get Real

Harry Truman said “the buck stops here,” meaning that the most senior executive has ultimate responsibility for a decision.  Perhaps with President Clinton or at some time it became fashionable for the senior person to distance himself from the decision so that he would have plausible deniability.  Further, it was expected that subordinates would “throw themselves on their swords” to preserve their boss.

It stretches credulity that the three most senior financial executives in government, The Chairman of the Federal Reserve, the President of the New York Federal Reserve and the Treasury Secretary did not know the intimate details of the AIG bailout.  At stake at the time was $62b of taxpayer money to effect this phase of the bailout.  All three men agree that if the bailout did not take place financial Armageddon would have ensued.

More is expected of our public servants. We appointed these individuals because of their unique skills, judgment and character. Apparently, these individuals were unavailable in the AIG crisis to make critical decisions.  Based on these stated actions, I deplore the confirmation of Ben Bernanke.  Moreover, I would ask for the resignation of Timothy Geithner.

It is time that high level government officials took responsibility and become the watchdog of the public purse. Trying to blame subordinates should elicit the response from the public: “that dog won’t hunt!”

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