The greatest spectator sport available the past few weekends has been the systematic dismantling and reassembly (of sorts) of many of America’s financial icons and of America's capital markets. 

In case the return of college and pro football the last few weekends kept you from paying attention to the financial news, the American financial infrastructure (or at least the world’s confidence in the American financial infrastructure) has teetered on the brink of disaster.  Last weekend, the U.S. effectively bailed out the FNMA and Freddie Mac and this weekend, we watched as Lehman Bros. was sent into oblivion, Merrill Lynch was sold (at 66% less than a reported buy-out offer in 2007) and AIG, the venerable insurance giant scrambled for liquidity.

I’ve chatted with a number of my financial friends and I ask my naïve and still unanswered question: “How did this happen?  After receiving some elegant explanations backed by all sorts of terms like derivatives and mortgage backed securities etc., etc., I invariably derail the discussion by saying, “Oh, so you’re saying that greed run amuck is at the root of this problem.”  I’ve yet to receive anything other than shoulder shrugs and comments like,  “Yeah, that’s the bottom line.”  And while we should take comfort in the fact that humans are at least predictable and consistent, I’m still left wondering where the true leaders were during the build-up of this mortgage-backed house of cards.

I’m left wondering how some of the world’s supposedly smartest and best educated professionals managing the firms that have created the world’s most effective, efficient and liquid capital markets allowed this mortgage-driven disaster to systematically destroy confidence and credibility in their firms and in large part, in the U.S. financial system.  What happened to risk management?  Heck, what happened to sanity? 

Where were the leaders making the hard calls on their firm’s activities?  Whose job was it to take away the punch bowl? How did the activities of quasi-public and private but accountable publicly traded institutions seemingly operate in a black box?  Who was writing and approving the compensation plans that said that the laws of finance and risk were suspended and it was everyone’s right to crank up the money machine.  Who forgot to highlight that there are no money machines?  Where was the accountability?

The Bottom-Line for Now:

While leadership on Wall Street seems to have taken most of the decade off, there are some remarkable opportunities for new leaders to stand up, deal with the crisis and begin restoring confidence by imposing accountability and sanity on their practices.  Additionally, the tendency of society and government will be to potentially move too far in the wrong direction towards regulation and governmental intervention.  The credibility and ultimately the liquidity afforded by the American capital markets are at stake.  The implications for global economic health are significant the implications for health on Main Street profound.  While I take comfort in my naïve faith in the long-term survival and success of a free market system, prudent and deliberate leadership is required to keep this system free and effective.