Mike Stockman T'85

Amid the crisis, some lessons

Mike Stockman T'85 suggests business practitioners and academics ask themselves the following questions if they sense that 100-year floodwaters are rising:

• Have borrowers and lenders stopped talking?
• Has there been a decrease in transparency and clarity of risk ownership in the lending chain?
• Do you understand the lenders', borrowers', and other intermediaries' business models and profit motivations? Is anyone asking the tough questions about where the money is coming from on the way up? Is it sustainable? Is there an obsessive drive for quarterly earnings and emphasis on short-term profit growth?
• Have business and market conditions changed and, if so, have the old assumptions been objectively evaluated?
• Has there been a drift in the business model? Is one of the responses, "Our competitors are doing it, so we have to keep up"?
• Is there independent oversight of the individual players or the overall industry? Would they be prepared to set off alerts if long-standing principles are ignored?
• Are the players overly confident? Have behavioral patterns changed such that the players believe in their own success and are without challenge?