Sunday, September 4, 2011

Opinion: Why Boards and Governance Matter

Cedar Rapids/Iowa City Gazette weekly column, “On Topic,” from 07-10-11,

For all our talk in this country about gettin’ gummint off the backs of workin’ folk, we do care about rules.
Or we savor watching the big and mighty fail.
Either or both would explain the brouhaha over Jim Tressel and Ohio State University. (Disclaimer in regard to Coach Tressel: I worked for a few years at OSU and I graduated from Youngstown State University. So if you view everything I say from here on as suspect, I’ll understand.)
But I do believe we, for the most part, try to play by the rules and want everyone else to color within the lines, too. And now, within a few weeks of each other, come two seductive books about governance, about the people charged with establishing regulations and ensuring those rules are followed.
And in both cases — though one book is nonfiction and the other fiction based on true events — we see those powerful watchdogs abuse the rules for personal gain. The books caution that many of those powerful decion-makers survive to sit in their plush offices and collect massive perks.
The nonfiction book is the “Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon” (Times Books), by the lauded “New York Times” business columnist Gretchen Morgenson and financial analyst Joshua Rosner.
No, wait — it’s really better than you think. A lot better.
For one thing, the authors note the causes of the recent tsunami of a recession didn’t begin in 2008 with Lehman Brothers, the usual-suspect starting point. They trace the nasty roots further back, to 1991, when a politically connected James A. Johnson became CEO of Fannie Mae.
That, they write, is when the trouble began.
Morgenson and Rosner contend the ambitious Johnson’s goal all along was not so much to help regular folk realize the American dream of homeownership — and, boy, does that notion come in for a hiding in this book. Instead:
Under Johnson, Fannie Mae led the way in encouraging loose lending practices among the banks whose loans the company bought. A Pied Piper of the financial sector, Johnson led both the private and public sectors down a path that led directly to the credit crisis of 2008.
It took more than a decade to assemble the machinery needed to create the housing mania. But it took only a year or two for the juggernaut to collapse in a heap, destroying millions of jobs and retirement accounts, and devastating borrowers.

The writers find lots more regulators, lawmakers, bankers and boards of directors to blame, guardians who stuffed their own wallets and increased their own political capital — after all, there’s lots of blame to go around.
Bankers also come under substantial fire in John Sayles’s novel “A Moment in the Sun” (McSweeney’s Books). Sayles, better known as a movie writer and director — “Return of the Secaucus Seven,” “Eight Men Out” — read a particularly apt chapter from his 955-page epic at Prairie Lights in Iowa City in June.
His selection was an exciting sequence telling how, in 1894, an “army” of proud unemployed men — followers of socialist “Gen.” Jacob S. Coxey who were struggling through a brutal four-year economic depression — stole a series of trains to storm Washington, D.C., to tell U.S. President Grover Cleveland what’s what.
One of the fictional characters, Hod, lays the background for their disillusionment:
It had been the banks and their tight money that drove his old man off the farm, town people putting an arm around his shoulders and cooing into his ear till he took the loan and then there they were out in the yard with Sheriff White behind them, saying how it was just business and you had to be prudent with your finances. His own father, Esam Brackenridge, working for wages at the granary till it killed him with shame ….
He’d never quite understood how they worked it, no matter how many speeches he heard and meetings he sat through. That was part of the con, of course, making it impossible for a simple toiler to follow, wrapping it in a gauze of words and laws and proclamations and economic ciphers, but somehow he knew somebody was getting rich without lifting a finger, and here they were, honest hardworking American men, without a pot to ---- in or a window to toss it from.
The bad guys get away with evil deeds in Sayles’s novel, too, just as in “Reckless Endangerment.” In real life, miscreants keep getting put in high places and brave men and women always stand up to wave a red flag.
But that warning only works if we’re paying attention. The lesson of these books is, well, maybe next time, right?

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