It has been said that to get noticed in the media and at events you need to make a spectacle of yourself and the ideas you are trying to communicate. For us “bow-tie guys,” that is an interesting notion given the risk dysfunctionalities that created the latest crisis in the history of financial interoperability. However, in that shock-jock vein, here’s what I have to say — taking a page from the 1976 movie Network, I wanted to say, “I’m as mad as h*** and I’m not going to take it anymore!” Has commonsense left the mortgage and FS markets or are we indeed facing a catastrophic series of events that will make the 1930’s seem like the servicing of “AAA” paper today? Is there a way out with innovative technology and processes and if so, what are they? Do we really think government nationalization of the leading free-world capital market financial system is good for business and innovation?
To allocate groups and personnel into winner and loser columns is increasingly difficult and fraught with egomaniacal risk. To be provocative, the only winners were the executives that profited via their golden parachutes, outsourcing and vendor patronage, and financial government backstops. So, as “old school” leadership heads for the sidelines, how are we going to innovate — what’s left? What does that even mean when we face illiquid markets and regulatory divesture mechanisms that haven’t even solidified 24 hours?
Let’s start with the basics of where to begin. But first, let me again be provocative — cost cutting is not innovation, and neither is outsourcing. The aforementioned are merely techniques and tools to achieve innovation. Ok, so let’s begin of focusing of ideas and control limits — let’s see what it means to YOU. As always, I’ve created a graphic for framing the discussion as part of my overall “industry treasure map.”
Complex, structured financial products are not innovation. Lowering of credit standards is not innovation nor is increasing them to unrealistic extremes. The impairments subsequently created by misguided “innovative” products and securitization have out distanced regulatory guidance and market understanding. The downstream impact and recovery now appears to be measured in years — not months.
There is nothing like failure to spur real innovation in technology, process and business. As we now know, the once successful and highly competitive “old school” organizations full of success and arrogance have lost their bids for independence. Yet, as they “bet” on vaults of complex securities that turned out to contain toxic financial sludge in the form of interdependent, mispriced risk, they never thought “they” could fail — they were too smart and too sophisticated.
Like the blended culture in which we live, prior American immigrants came to his county in search of a new life and homes. They, like the bankers, Wall Street high-flyers, and countless investors believed the roads were lined with gold. Reality has a way of changing perceptions. Market conditions and unchecked leverage — sometimes layered between internal corporate divisions — has been colonic.
As the blood continues to collect in the financial streets, it is as I stated earlier this month, “This great awakening’ has yielded extensive casualties.” Innovation is a key answer. Organization, you must innovate thyself.
Someone said to me this week that “you’re the guy the industry loves to hate.” “Perhaps,” was my reply. However, someone needs to advocate change and real innovation that makes holistic business sense — we shouldn’t adopt instruments, processes and technology just because we can, no matter how our competitors behave. Perhaps it is time for organizations to ditch the pat answers and move into the new, innovative reality?
