A Financial, Governmental, and Moral Crisis

On Monday, September 15, 2008, Lehman Brothers, a prominent investment bank that traces its roots to 1850, declared bankruptcy and thereupon triggered a global financial crisis. Literally overnight, borrowing came to a standstill, and widely held assets could not be converted into cash. The liquidity crunch immediately crippled banks owning substantial amounts of securities linked to subprime mortgages and spread very quickly to every sector of the global economy and all types of debt securities. Unable to sell even normally safe and highly liquid investments, on Tuesday, September 16, 2008, the Primary Reserve Fund, the oldest money market fund in the United States, in an action eerily reminiscent of Depression-era bank runs, shocked the financial community by freezing customer accounts and indefinitely halting withdrawals. Ordinary consumers were thus harshly reminded that there were no safe havens for their savings in this economic storm, adding another layer of uncertainty and instability to the financial markets. Within weeks of the Lehman bankruptcy, the resulting shock to the financial system inflicted severe and long-lasting damages on the economy, throwing tens of millions of people out of work and slowing economic growth. Half a decade later, the global economy still limps along in the aftermath of the financial crisis.

The financial crisis sprang from a precipitous decline in the value of mortgage-related securities. The bursting of the mortgage bubble completely wiped out Lehman’s capital base. Other venerable Wall Street institutions including Merrill Lynch and Bear Stearns narrowly averted total collapse through hastily arranged mergers with Bank of America and JPMorgan Chase, respectively. Virtually every major financial institution had massive exposure to the mortgage market relative to its capital base, and even those banks not in danger of imminent collapse suffered staggering losses severely limiting their ability to engage in ordinary consumer lending activities and basic interbank transactions. Because of the financial sector’s centrality to capital and credit markets, the U.S. Congress authorized a $700 billion government bailout to prevent further failures and safeguard the financial system from total collapse.

The global financial crisis and the prolonged economic recession that ensued raise complex and vexing questions inextricably melding economics and morality. What are the economic and moral connections between Wall Street and the overall economy? How did we arrive at this point in history where our most powerful financial institutions and the putative engine room of capitalism thwart rather than promote our free markets, our prosperity, and even our social cohesion? What essential elements and systemic features of our financial system make it possible for a very few individuals to amass enormous personal wealth as they help plunge the rest of society into a deep and enduring economic recession, putting millions out of work? What can be done both within the financial community and by governments to repair the fractured relationship between Wall Street and Main Street? These are the economic, ethical, and public policy questions we address in this book.

Read or download the full excerpt here.

James G. Clawson

The Financial Times recently ranked the Darden School’s executive education (EE) faculty #1 in the world for the eighth straight year. Collectively, we are honored by such recognition and individually, we are honored to be a part of such a faculty cohort. We take pride in designing, developing, and delivering learning experiences for executives that are dynamic, memorable, and value-added.

  Combined, we have spent over 50 years in the EE arena and have assembled scores of EE faculty teams. The goal is to always assemble a team that possesses most, if not all, of the following characteristics in order to inform, wow, delight, and capture the attention of a busy, oft-stressed, talented, demanding group of executives in a relatively short period of time.

The best EE instructors we have worked with are those who…

• Invest time and effort to become familiar with EE participants’ companies;

• Exhibit genuine and infectious enthusiasm and energy for an EE program’s overall learning objectives, each class session’s subject matter, and the program attendees;

• Convey real, and up to date, ‘face validity’ in regards to subject matter expertise and how that expertise is best brought to bear on real, key business issues;

• Can confidently and humbly posit new ideas and concepts that challenge participants’ assumptions and institutionalized ways of doing things;

• Possess a willingness and an ability to tailor classroom materials and instructional approaches to the multi-dimensional attributes of an executive audience;

• Can elicit participants’ semi-conscious wisdom by skilled questioning in a way that informs everyone;

• Are able to quickly and clearly establish an interesting need-to-know foundation for the content of each of their class sessions;

• Are skilled in providing tangible, readily-useable takeaways (e.g., tools, techniques, frameworks, templates, protocols, and change agendas);

• Invest time and effort to integrate their subject matter with that of other instructors in the same EE program for a variety of purposes, not the least of which is to promote the demise of stovepipe views of functional areas;

• Engage participants personally as well as intellectually, touching them at a deep level;

• Are gifted at distilling, in a compressed amount of time, the essence of complicated topics into a few action-oriented points that EE participants are highly likely to recall upon returning to their employers;

• Tell provocative, engaging stories in order to demonstrate and dramatize the practicality and achievability of the specific ideas under discussion;

• Desire to establish both a personal and professional connection with the program attendees by interacting with them outside the classroom in order to learn more about them and the challenges they are facing;

• Insightfully ascertain the right level and pace for presenting their subject matter content and make real-time classroom and program-wide adjustments as dictated by an audience’s questions, interests, first-hand accounts, and emergent learning needs; and

• Are able to shed new light, establish new connections, and/or facilitate the generation of new ideas on old topics that executives may initially want to discount or dismiss.

In Teaching Management:  A Field Guide for Professors, Consultants and Corporate Trainers, we share the lessons we have learned over the years in striving to be EE classroom instructors worthy of the time and monies executives invest in attending our programs. Similarly, the book also explores the related set of challenges and opportunities resident in becoming world-class business school instructors.  We invite you to aspire to be the best instructor in your school and in your field.  With reflection, observation, curiosity, and a commitment to excellence, it is possible.

 An earlier discussion of some of these points can also be found at, “The Executive Education Classroom:  Instructor Selection Criteria” Development and Learning in Organizations: An International Journal, M. Haskins, (Vol. 26, No. 1, 2012).

Recently, marketing associate Abby Lindquist and I sat down with Timothy M. Devinney: an Australian-American business guru/consultant/professor who flies about 380,000 miles a year, has offices on several continents, and is known for aiding businesses solve countless business problems. He explained how businesses and companies market a product that is both good for business and the environment that doesn’t rely entirely on consumer’s guilt, but also taps into their spending habits, values, and needs.

In this video from Australia’s Business 21C, he talks about consumer social responsibility. I think this is a great introduction to the core concept the book discusses:

TIMOTHY M DEVINNEY | WHAT IS CONSUMER SOCIAL RESPONSIBILITY? from Business 21C on Vimeo.

Please check back here for more from Devinney et al. The book will come out later this month, so if you would like to read more on the myth of the ethical consumer RIGHT NOW, check out the website.

Pity the college football coach. With all those talented student-athletes, how much energy and time should he spend on the student versus the athlete?

For any coach at the 120 universities playing big-time football, the choice is easy if he does what the school’s contract rewards.Contracts specify “performance-based” bonuses, and so we examined coaches’ contracts to answer the question: How do football coaches’ rewards for winning games, attending to the athlete, compare with their rewards for advancing the student toward graduation? There’s no contest.No one is surprised when a corporation talks about its devotion to the social good but then pays its CEO bonuses for raising profits. Likewise, it should be no surprise that despite talk about education, coaches are paid to win games. But it may be surprising how clear the contracts are in specifying what it takes for a coach to get bonuses.

Under state Freedom of Information acts, we obtained contracts from 70 public universities playing big-time football. The University of Florida contract with its football coach, Urban Meyer, for example, rewards him generously for players’ athletic success: for getting to his conference championship game, he receives $37,500. For getting to even a minor bowl game, another $37,500. For playing in any of the four major bowls – Fiesta, Orange, Rose or Sugar – the coach is given a hefty $100,000.

For stellar athletic performance – winning his conference championship, winning the national championship, being named national and conference coach of the year, and finishing in the top 10 of the Associated Press or USA Today coaches’ polls – Meyer can make $450,000 in bonuses.

But what does Meyer’s contract say about student-athletes graduating? The contract is vague, saying he may be rewarded for players’ academic success, but there is no mention of how much. Subject to such incentives, would a coach concentrate on winning or would he sacrifice practice time to spur players to graduate?

OK, but how typical is Florida’s financial reward structure? Very.

Read more at the SF Gate >>

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ARLINGTON HEIGHTS, Ill. — The public library here had just closed its doors one evening in December when two homeless men who had been using the stacks as shelter from the cold got into a fight on the outside steps.

What began as bickering took a violent turn when one of the men pulled out a knife and stabbed the other six times, leaving him bleeding beside the book drop.

Like libraries across the country, Arlington Heights Memorial had strived to keep pace with the changing times, ensuring its relevance in the digital age by becoming something of an indoor town square, and emphasizing that its money-saving services catered to the community’s needs.

These days, however, community need reaches far beyond reference help — and in many libraries, it is turning a normally tranquil place into an emotional and stressful hotbed.

As the national economic crisis has deepened and social services have become casualties of budget cuts, libraries have come to fill a void for more people, particularly job-seekers and those who have fallen on hard times. Libraries across the country are seeing double-digit increases in patronage, often from 10 percent to 30 percent, over previous years.

But in some cities, this new popularity — some would call it overtaxing — is pushing libraries in directions not seen before, with librarians dealing with stresses that go far beyond overdue fines and misshelved books. Many say they feel ill-equipped for the newfound demands of the job, the result of working with anxious and often depressed patrons who say they have nowhere else to go.

Read the full article at NYTimes.com >>

As we see in diarist Kunitake Kume’s breakdown of wine economics, some things ring very true today.

That’s right — the first thing they found: American Champagne in imported French bottles.

From Japan Rising:

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January 29th. Fine.

We visited a winery [Landsberger’s in Oakland] which produces 232,000 bottles annually. Champagne costs $7 to $10 per case; wine, $2.50 to $3 per case. The bottles are imported from Paris at a cost of 1 3/4 cents each. The corks are imported from Spain and Portugal, with five corks costing 2 cents. The winery employs twenty-four workers each day.

Wine bottles are made of crude glass. Even copper and iron slag can easily be used to make glass, so it would be quite possible to make the bottles in America. Why, then, do they import them from such a far-away place as France? French wine is a well-known product whose fame has spread and is acknowledged throughout the world. French wines are given names according to their regions of origin, such as ‘Bordeaux’ or ‘Champagne’, and in making and bottling wine Americans pretentiously borrow French names. Probably this is because the market is still poorly developed. In the practice of trade, reputation (that is, credibility among customers) is so highly valued that even millions of dollars in capital cannot compensate for its loss. A good business works to enhance its name year after year. The reason for foregoing short-term profits is to use the reputation or the name to add value. Bad business practices, on the contrary, sacrifice reputation and grasp at small immediate profits. If you compare results over a few years, there may seem to be no difference, but in the long run the difference in profit is like that between Heaven and Earth. This frequently happens. If a wine has a name which is well known, it will easily generate enough extra money to pay for the bottles. This principle is worth noting.

Although Japan has only recently begun intercourse and commerce with foreign countries, many items made in Japan are regarded as unusual and attractive by Europeans and Americans. Nevertheless, Japan does not profit from exports for the following three basic reasons: 1. The volume of exported goods is so small that it does not satisfy overseas demand; 2. Shipping is unreliable, and we have not yet established a regular presence and role in foreign markets; 3. Aiming only for short-term profits, we do not build any reputation or fame; worse, we even squander any recognition we may have won.

The example of the corks proves that spreading one’s reputation and promoting demand throughout the world creates profit and results in the volume of trade increasing tremendously. Corks are made from the bark of a tree (cork-trees were growing in the flower-beds in Woodward’s Gardens) and are exported from Spain and Portugal. In Algeria, in Africa, planting French cork-trees on about 350,000 acres of land yielded a profit of 10,000,000 francs a year. If cork-trees and corks can yield such profits, how large a business it must be!

take heed of the traditional Greek dictum ‘moderation in all things, nothing in excess’. These words were carved on the temple of Apollo in Ancient Delphi and Richard believes we should hang them above our beds today and chant them to ourselves each morning.

Ah, how many kids read The Nichomachean Ethics anymore? Let’s get to work on that.

Listen to the full program >>

For Dr. Florida, probably not. He cites Cambridge author Yousef Cassis and his book Capitals of Capital — financial capitals have really only shifted three major times, from Amsterdam, to London, to New York. The NY shift is fairly recent too. For Florida, the at-risk financial centers are those in less-populated areas with less diversity of industry.

In other words, look out, Charlotte and Sioux Falls, where banking plays a proportionately heavier role (instead of the 7% of NY jobs).

Here’s the clip >>