Rick Wagoner is out as CEO of General Motors, Bernie Madoff is staring at the equivalent of consecutive life terms, and the American tax code may be in the process of a major remodel. And somehow, as a result, millions of Americans can sit in their own homes and point fingers from the glow of a widescreen plasma television. Just as we learn on that television, give the networks 30 minutes (or, in the case of a primetime drama, 60) and the crisis will be solved with clear delineation between good and evil.
Good and evil, however, are much harder to ascertain in this financial crisis than would ordinarily suit the mass media or the attention deficits of its consumers. Sure, Bernie Madoff is a fairly clear villain in this case, but even his prosecution seems to be a grandstand to appease the American public’s bloodlust for one, true culprit; the man faces an unprecedented 150 years for a financial crime, while at the same time the public’s attention is distracted from the fact that some of the most-respected financial institutions in world history — Lehman Brothers, Merrill Lynch, Bear Stearns — lost billions of dollars of investor money, as well. Greed in the form of Ponzi schemes makes for a delicious script, but the fact remains that the worldwide financial collapse has nothing to do with Madoff, but rather with the inability of top firms to do what they do best — assess risk and value and invest accordingly.
Perhaps even more culpable in its inability to assess risk is the behemoth insurance conglomerate AIG, an insurance company for which its primary core competency and mission statement should have been to assess and hedge risk. That its employees may well receive bonuses paid with taxpayer money is lamentable, but the furor over the bonus payments and potential tax code implications only obscures the much more crucial issue: Should a company ever be allowed to become so large that its failure impacts the global economy so greatly, and, if so, how can government and the global community regulate such a firm proactively so that the firm doesn’t get to this very point — one at which it is so essential to the world economy that it can command a blank check from taxpayers with few repercussions?
The global collapse created by the financial markets and AIG is one of two external factors that led to the demise of Rick Wagoner’s tenure at the helm of General Motors. The spike in oil prices that peaked for 2-3 years as a precursor to the crisis was the other. At one point, GM couldn’t sell its fleet of profitable SUVs and trucks because of a sudden shift in market dynamics; soon thereafter, it became another victim of the worldwide credit crunch, which left consumers without the means (or desire) to make large purchases. The double-whammy (“perfect storm” is a little too widely used these days) doomed GM, along with the rest of the industry, to years of deep recession, but without either factor it is likely that Wagoner’s tenure would have been remembered fondly. Under his control, GM made monumental progress with the United Auto Workers, shifting much of its competitive burden in the form of legacy healthcare and pension liability to the union itself, and streamlined its branding and design, reasserting Cadillac as an aspirational luxury brand, moving Chevrolet to the forefront of innovation with the Volt concept, and seizing back industry awards from decades of foreign control with compact winners like the Chevy Malibu. (He also brought in Bob Lutz for a very successful tenure as the company’s product czar that led to many of the aforementioned achievements, something for which Wagoner gets too little credit. — Ed.)
Wagoner’s dismissal, at the hands of the White House, is another effect of the public’s thirst for easy-to-recognize scapegoats in this complicated situation. In fairness, his resignation may be a blessing in disguise for Wagoner, who can live out his days with his millions of dollars and without the responsibility of leading tens of thousands of GM employees through this trying time. But the act of scapegoating Wagoner, or anyone in his position, is shortsighted — it took a vicious cycle of events to tear down the economic system, and the once-proud automaker, and to simply package the subtleties of the situation in to a series of easily-consumed villains is akin to packaging a mess of bad loans in to a somewhat-digestible security. It arrogantly and conveniently hides a host of individual factors and presents them as one user-friendly solution, and a solution that ignores what could be learned from what lies underneath.
The lesson to be learned from this crisis will prove essential for the future of the global economy, as the advances in technology and global trade have created and will continue to hone an intricate and worldwide system of codependent businesses, consumers, and governments. Domestically, governments will need to consider the costs and benefits of varying degrees of free trade and domestic protection (in the case of Wagoner and GM, the very fact that the government protected low fuel costs may have directly contributed to his inability to react to the quick change in product lineup that needed to accompany the surge in costs, while foreign manufacturers whose research and development teams worked in high-fuel-costs areas had a built-in advantage). Individually, consumers will need to assess risk of their own, with the knowledge that the institutional and governmental experts in charge of valuing securities can be much farther off than advertised. And globally, the economic community will need to consider ways to regulate and/or live with the conglomerates like AIG that may inevitably become too large and important to ever risk their failure to the free market.
These questions and others must be considered and analyzed — in business school classrooms, congressional meetings, and in the public discourse. To ignore them in favor of the quick assignment of blame dooms the future to repeat the failures of the economy over again.
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