3 Review(s)

Access to new sources:  As a staffer on the Financial Crisis Inquiry Commission, the author personally interviewed five CEOs of financial firms, a dozen risk officers, and numerous traders, investment bankers, commercial bankers, and mortgage lenders, as well as numerous regulators including present and former Governors of the Federal Reserve Board and senior career staff at the bank and thrift regulators. The author also had access to large volumes of internal documents from financial firms and regulators. The book draws on public material at the FCIC permanent website () and helps make it accessible to researchers and the public. New theory: After spending a year at the Commission and months writing this book, the author finally figured out the fundamental difference between firms that failed and those that weathered the crisis. Successful firms had leaders who solicited feedback and engaged in a process of (constructive dialogue) to ensure that they heard many points of view before making decisions. They also had access to high quality information. Constructive dialogue is the essential ingredient for good management, and not merely good risk management. This is something that financial regulators should insist upon in their examination of financial institutions. The book also looks at non-financial firms (BP's Gulf oil spill, Massey Mining Co's mine explosion, PG&E's San Bruno gas pipeline explosion, etc.) and finds the same pattern of company management that makes bad judgments because of lack of constructive dialogue in decision making. Controversial thesis: The parts of this book that review the political process and the failure of regulators to prevent the carnage of the financial crisis raise the specter that the financial services industry, by repeatedly trying to undermine regulators and prudent regulations, lobbies against its own best interests. The book also shows this pattern in non-financial firms and their regulators. Historical record: because this book draws on previously unpublished interviews and documents from the Financial Crisis Inquiry Commission it provides a valuable record of the inner workings of financial firms and regulators before and during the crisis. Thanks to the trove of materials from the Financial Crisis Inquiry Commission and interviews conducted soon after the crisis, participants speak in their own words about what happened. Shows fundamental weakness in both private firms and government agencies, with flawed incentives that are likely to repeat themselves unless we strengthen organizational culture in both the public and private sectors to include regular processes of (constructive dialogue.) The book argues that the regulated companies have a stake in promoting the quality and capability of their regulators so that regulators become a source of useful feedback. Why did some firms weather the financial crisis and others not? This book builds on the author's interviews and access to internal documents from over a dozen major financial companies, investigates their workings, reveals what went wrong and discovers a remedy. A critical difference between successful and unsuccessful firms is a culture that encourages respectful challenge, what the book calls (constructive dialogue.) At successful firms top management engaged in constructive dialogue with the board, a strong management team, and the chief risk officer, among others, in making a decision; firms that failed often featured overbearing (or distracted) CEOs or unit heads, supine boards, incapable management, ineffective risk officers, and poor communications both across silos and up the hierarchy. They often lacked ability to manage the firm as an integrated organization. Companies need good management, and not only good risk management, to stay out of trouble. Successful companies operated with strong information systems and a culture of good communications that brought issues promptly to top management so the company could adjust its operations accordingly. Successful managers had discipline to ask simple questions and pursue answers until they understood the risk-reward tradeoffs in their activities. Regulators too made mistakes. They didn't feel empowered to rein in companies that - at least before the crisis - seemed so profitable. Instead of waiting for a company to take losses, the book recommends that they use (constructive dialogue) as a test of good management and that supervisors require evidence that major business decisions result from a robust process rather than merely the will of a powerful CEO or heads of revenue-producing units. Companies in turn should use their regulator as a potential source of useful feedback. The book concludes by looking at major firms in other industries and finds that its conclusions apply to these companies too. About the Author Thomas H. Stanton is a fellow of the Center for the Study of American Government at the Johns Hopkins University. he is the author of A State of Risk: Will Government Sponsored Enterprises be the Next Financial Crisis? And Making Government Manageable: Executive Organization and Management in the Twenty-First Century. Table of Contents Preface Chapter One Repairing our Public and Private Institutions: A National Imperative Chapter Two Dynamics of the Financial Crisis Chapter Three Coping With the Crisis Chapter Four Company Governance and the Financial Crisis Chapter Five Risk Management and the Financial Crisis Chapter Six Company Organization, Business Models, and the Crisis Chapter Seven Supervision and Regulation of Financial Firms Chapter Eight Hyman Minsky: Will it Happen again? Chapter Nine Governance and Management: Lessons Learned Chapter Ten Governance and Management: Beyond the Financial Crisis References Index