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Why Are Bankers Like Lemmings Over The Cliff?

Lo these many years, I've seen bankers and the overall financial business do so many stupid things. First in no particular order was the Third World debt crisis. Remember? These guys were tripping over themselves to lend to tin pot dictators who had no chance of ever repaying.

Then came the savings and loan crisis. Again, the bankers watched each other and kept moving in the same direction, as it lemmings heading over the Arctic cliff. Or wherever. They suspended their critical judgment capability.

Now we have the Citibanks and Merrills and Morgan Stanleys taking tens of billions of dollars of write-downs because, once again, they did something stupid, collectively. They abandoned the notion of credit analysis and started originating loans for subprime mortgages that they didn't really understand. They didn't want to understand them because they wanted to syndicate and distribute pieces of paper to others, who would assume the risk.

Why the recurrent pattern? That's the question we should be asking. I think it has something to do with governance. The current crop of financial CEOs, much like their predecessors, thought they were gods, or demi-gods. They didn't need really solid boards that were experts in risk management or that knew how to ask the right questions about where the business was going. Nor did these "star CEOs" bother to develop teams of talented executives around them. There were no checks and balances. Raw ego and raw greed took over. Again and again.

Moral of the story: investors and shareholders should insist that banks and financial institutions embrace the same standards of governance and succession planning as every other company in the land. Enough with the lemming routine.

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