A Time for Leadership

We are living in a time of great change-and even more, a time of great uncertainty. As I write these words, it is a crisp morning in late September and the sun is shining brightly outside the window of my Charlottesville, Virginia home where I live and work. Our resident bluebirds of happiness are hunting for bugs in the back yard just as they always do, quite oblivious to the turmoil in our country’s financial system.

What a strange juxtaposition to the crisis that unfolds before us! Bear Stearns sold to J.P. Morgan Chase in a federally assisted bailout. Fannie Mae and Freddie Mac rescued in another federal bailout as the U.S. government tries to avert a potentially catastrophic seizure of the home mortgage market. The storied firm of Lehman Brothers carved up and sold off in pieces like so many farming implements at a country auction. Merrill Lynch acquired by Bank of America in a shotgun wedding. The remaining two titans on Wall Street-Goldman Sachs and Morgan Stanley-scrambling to adopt commercial banking charters like sailors jumping from their sinking ship for a life raft. Two troubled banking giants-Washington Mutual and Wachovia-acquired by J.P. Morgan and Wells Fargo, respectively. And the lollapalooza of them all: a proposed $700 billion fund to buy distressed mortgage-related assets (effectively creating the world’s largest dump for toxic financial waste)-the fate of which is very much in doubt at this writing.

Never in my 27-plus years in financial journalism, most of them spent as a reporter, writer, and editor, have I witnessed such times as these. The collapse of the U.S. mortgage industry, which pulled Wall Street down with it like tethered mountain climbers falling off a cliff together, is surely one of the most momentous events in U.S. history.

Regulation will almost certainly change (i.e., get tougher) regardless of which presidential candidate-John McCain or Barack Obama-takes office next year. An angry public will demand it. And it will most likely take years for home values to recover their pre-meltdown values, even though prices will hopefully stabilize within the next 12 to 18 months. Indeed, finally hitting bottom would actually be a step up, so to speak.

Other changes are more difficult to predict. Will the U.S. economy rebound in just a few years, putting this painful episode behind us-or are we doomed to relive the Great Depression of the 1930s, with its haunting sepia tone images of breadlines and hobo camps? Or will our fate be 10 years of Japanese-style stagnation as our economy just stumbles along? Who knows? And I doubt anyone else does either.

However, there are two things of which I am certain. One is that Americans are made of strong stuff, and we have the capacity to recover from this crisis. An indefatigable can-do attitude is a central element of the national character and is one of the things that make the United States unique among nations of the world.

This is also a time for leaders to step forward and lead. Some, like Federal Reserve Chairman Ben Bernanke, have already been so designated-they are accidents of history, if you will. Bernanke will be a central player in whatever happens from here on out, since he not only oversees monetary policy for the world’s largest economy, but also will manage a big piece of the bailout to come. The next secretary of the treasury will play a similarly crucial role in designing a new regulatory architecture for our capital markets and banking system, which I am certain will occur. Other important leaders have yet to be identified. Whoever takes up residency at 1600 Pennsylvania Avenue will have to rally this country’s will to strengthen our national balance sheet. And Congress will have to pass some sort of regulatory overhaul that ends the abuses that brought us to this calamitous point in time without strangling the financial markets in the process.

Finally, there is an extremely important-even courageous-role for the CEOs and directors at the nation’s banks to play. While it is prudent for every institution to think in terms of self-preservation, it is equally important for bankers to remember that they are in the business of lending money. At its core, a credit crunch signals a lack of confidence in the future. Bankers are by nature risk-averse, and often, the conservative thing to do when faced with uncertainty is to do nothing. But our economic recovery will be fueled as much by optimism as by the capital markets’ return to stability. It will take both faith and credit to get us back on our feet.

I believe Bank Director magazine will also provide a measure of leadership in the months and years ahead. To the extent that you look to us for ideas on how to manage a successful institution, we intend to be there. With this issue we have adopted a new reader service line that accompanies our Bank Director logo: Charting a Course for America’s Banking Leaders. While the change was not a reaction to the important events of the day, it suddenly now seems more relevant than ever.