We Don't Solve Problems Because We Don't Look At Them

The Wall Street Journal in an article on an upcoming Senate probe into bond-rating firms had what I think is a telling quote:

Sen. Carl Levin (D., Mich.), who heads the investigations subcommittee, has called attention to financial derivatives known as credit-default swaps, which he calls "one of the prime culprits responsible for this financial disaster." Investigators are expected to look into how those derivatives were marketed and used by banks.

Consider that language carefully for a second: one of the "prime culprits" for the current financial debacle is the category of financial derivatives called credit default swaps.

When disaster hits and we as a people look for answers, we tend to point to the simplest and most obvious causes we can cite. These, however, are not causes. They are simply mechanisms that allow individual and collective weaknesses of greed and lying to act with increased effect. Derivatives of any type are nothing more than a legal fiction, a business arrangement between two parties that may or may not be based on quicksand. It is the behavior and willingness to ignore sense on the parts of the people involved that is the problem. You might as well say that cars cause automobile accidents, not their drivers.

I've lately been working on some articles about how executives pull their companies out of difficult economic times and otherwise manage risk. According to the experts I asked, the biggest problem companies have is when top managers refuse to see reality. They pretend that the worst cannot happen. They create one excuse after another for why the company must operate as it does. When bad things happen, they look for people to blame and don't think about the further unintended consequences of their actions. On BNET, I recently covered how high tech lay-offs were generally bad management. That was nothing more than a specific instance of a more general case. The problem is bloated staffing for the business that is here. But who is responsible for that level of hiring? The executives who then lay off the employees with no control over how the business runs. It is those top managers who are responsible - and who execute the innocent.

That's a practical example of finding someone else to blame, and of not noticing the problem as it developed. How long has GM had to see and fix its problems? Instead, management blames the high cost of employees, not the lack of understanding customers and providing what they would want. Until managers overcome the baser parts of their human nature, or at least struggle with them a bit, nothing will change, none of us will learn lessons, and the same behaviors that got us into trouble will shortly restart and then continue as though nothing happened. What a pity.