Two of us at MIT Sloan Management Review grabbed good seats at yesterday’s MIT Sloan campus-event headliner: a downwind reflection on fallout from the financial crisis. Featured attraction: a high-level round of bank bashing, with a high-level banker on hand to help do it. OK, it wasn't only banks that were bashed. Ungenerous attention was paid to politicians, insurance firms, mortgage companies, and the general ethical standards of business people, as well. The usual suspects, in other words.
But the hall was overstuffed because the two speakers were not usual: a candid Lawrence K. Fish, longtime (now former) Citizen’s Bank CEO, and, as his interlocutor, MIT Sloan prof Simon Johnson, the former IMF chief economist and co-founder of acclaimed global economy blog The Baseline Scenario. The conversation was part of the Dean’s Innovative Leader Series. Along with heat, it generated a fair quotient of light. Plus some activist heckling.
We’ll post an edited version of the entire chat in weeks ahead, but for now, some brief highlights:
ON “JUST HOW BAD” THE FINANCIAL CRISIS WAS:
Note, first, the past tense. “It was really bad,” said Fish, “but we’re coming out of it.” TARP has actually helped, and the government will end up ahead, he said. “The returns will probably mean that the government will make money.”
Will a crisis happen again? “Yes.”
ON REGULATORY REFORM (OR NON-):
“I’m worried we’ll overreact,” Fish said. “We need better regulation, not more regulation.” Two big risks: “One, competitiveness globally [of the U.S. financial services industry]; and two, we may protect consumers so well that consumers can’t borrow.”
Johnson argued for aggressive reforms (see his blog), but Fish thinks that’s a nonstarter. “Profound regulatory reform—of the kind Simon is talking about—is probably a political unreality” because the financial services lobbies are too good and donate too much money to be countered.
ON ETHICS, LACK OF:
“There are no B-pluses in ethics, it’s pass/fail,” said Fish. And it’s not hard to assess the grade. “You know what’s right. You know.”
He added for illustration: “It makes me crazy that someone gets a $100 million bonus.” (He mentioned, more than once during the hour, the “platinum trader” who gets a bonus that’s 50% of the $200 million in trading revenues he or she generates.) “Who needs that much?” he said, rhetorically—begging the question of just how much is the right reward in a market economy where incentives are created to produce outcomes.
If not $100 million, then what should be the reward for producing $200 million in trading revenues? Fifty million? One million? Five thousand dollars and a good steak?
We joke, but not entirely. We can all decry the “obscene” bonus (though some wouldn’t), but naming the “right” amount is less easy. Where’s the line?
We’ll ask Fish, and get back to you. And, if you want more Fish while you're waiting, see his MIT World talk.