Indeed, it is increasingly clear that Wall Street chief executives themselves didn't fully understand the risks they were taking on during the boom years of this decade; they have seemed as blindsided as any regulator.
The problems on Wall Street may go deeper. Financial firms have expanded vastly in the past decade, hiring tens of thousands of bright business school graduates to engineer new financial products, find ever more complicated ways to manage other peoples' money, and dream up new ways to combine, divide, and recombine corporate America.
Some large portion of that work, it now appears, wasn't really creating any value for the company's clients or for the U.S. economy. No matter how many times crummy mortgage loans are recombined into clever packages, they're still crummy.
- Washington Post, 15 September 2008
Business journalists today are talking about the new economic architecture, the new financial regulatory regime following the continued collapse of financial services companies that stretched themselves too thin during the recent housing bubble.
The Washington Post citation above hits on one of the core drivers of the current financial crisis - the expectation that companies will exceed market expectations each quarter - the magic trend line that only goes up.
What the business community needs to do, and quick, is to reign in the expectations of business analysts so that investors can make solid decisions and executives are not pressured to try to spin straw into gold.
This is something that cannot be regulated by the government, but requires a conscious shift in corporate culture beginning in business school and continuing in team meetings and corporate boardrooms. Until we change the culture of business in America to reflect not just economic potential, but economic reality, we're fooling no one but ourselves.
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