The Financial Crisis: My 2-cents…

In light of all the recent discussion with regards to the ethical response to the turmoil in finance, I thought I share my thoughts and perspective on this issue. It is MBA related in that a lot of aspirants are looking to break into the industry through an MBA. But I’m giving you a fair warning now. It’s going to be one looooong, but hopefully a good read nonetheless : ). And I’ll try not to go off on tangent too much and keep the rambling to a minimum.
Unless you’ve been living under a rock for the past two years, you probably know that there’s a worldwide recession currently afoot. And it all started in the finance industry, specifically U.S. subprime mortgages. The following is a dumbed down version of what happened: Borrowers with subprime loans started defaulting on their mortgages. And the investment bankers who package these loans into securities didn’t understand the risk associated with them. And investors who bought these securities were caught holding the bag. This spread to other areas and it spiraled from there. Even though I may be the low man on the totem pole on our trading desk, I was still on the frontlines when the sh%t hit the fan, for lack of a better colloquialism. With CNBC blasting at work all day and even worse news flashing across my Bloomberg terminal, I had a front row seat to all the carnage and mayhem. I still remember when everyone expected the Dow to hit 5000. That was a time when human emotion and fear really spread across the market. Most of the senior guys on our desk were comparing it to the crash of ’87 aka Black Monday, a really bad day for the markets.
Bear Stearns was the first casualty. Their building is two blocks from where I work. I remember walking by their building in the morning one day and seeing camera crews reporting outside and recently laid-off employees coming out of the building carrying a box full of belongings. It was a depressing sight. I even interviewed for a job on their muni desk there once. Lucky for me, I didn’t do so well. Otherwise, I would be out of a job by now. The name on the front entrance of their building now reads J.P. Morgan by the way. Lehman Brothers was the next to fall. Lehman’s bankruptcy was even more disastrous because their arms extended deeply throughout the system. I can’t begin to tell you how many trades failed because of them. And how many times I had to stay late at work at night because of the Fed extension. Then Merrill Lynch was taken over by Bank of America. If you ask me, that deal was too big to swallow even for BOA. These top three U.S. investment banks disappeared in this crisis. And to bring it down to the individual level, many people across the nation have either lost their homes or their jobs. And even worse, their company retirement plans (sorry, AIG employees). Older professionals, who planned on retiring, will now have to work much longer and for much less. To think that that this is the kind of market where people would actually start jumping from buildings is unbelievable in this time and age. But it has happened. And I wouldn’t be surprise if it does again.
With everything in the sh%thole, the government has stepped in. They have set aside gazillions of dollars of bailout money to stabilize the banking systems. Critics say the government is using taxpayer money to bail out Wall Street. Advocates say it was necessary to prevent a massive global economic meltdown. This may sound bias coming from a person in finance, but I agree with the latter. If the government didn’t stem the bleeding on Wall-Street, then Main Street would have definitely been next.
The nature of the economy is just like the seasons. It’s cyclical. Economic theory tells us that the economy goes through its ups and downs. There’s nothing we can ever to do prevent that. But I do believe that we can protect or hedge ourselves against future crisis by being more conscientious. And it all starts at the top. Business and finance leaders need to genuinely care for and look at their position from the broader picture. That is, they can’t sacrifice their company’s “long term stability for short term profit.” (Guess who said that). Making money is great and all, but not if you’re hurting others to do it. I don’t know about the rest of you, but I just wouldn’t be able to look at myself in the mirror every morning if I had to do that. I wonder if CEOs of tobacco companies ever feel that way. But that’s beside the point. Anyway, I want to know that what I do matters and am making a difference for the better.
Some people would have been scared away by what has happened in the industry. The words “banker” and “trader” have a negative stigma attached to them now. They think that this business as we know it would never again regain its former prominence. But not me. I’m part of the group that are the believers and hopefuls. That is, I think this is an opportunity for us to fix AND improve our financial system. It just takes a few believers, if you will, to step up and meet the challenges ahead. Which brings me to MBAs. See, I told you it’ll be tie back to that in the end : ). I know I said before that the ultimate responsibility falls on the individual. But business schools can have a positive influence on their graduates. Through incorporating such issues into their curriculum, BSchools now have a chance to address these controversial topics. I guess that is also another reason I want an MBA. So that I can apply the skills and training I learn to furthering those endeavors.

Anyway, if you’ve read the whole entry….Thank you. I hope you enjoyed it as much as I enjoyed writing it. And have a great 4th of July weekend everyone!