On Sunday, February 05, 2006, when some US media commentators began thinking about their own economy, Why The Economy Is A Lot Stronger Than You Think, I challenged their perspective:
"...Are we measuring the right aspects of our individual economies?"
The commentators were talking about missing data...I was talking about measuring the right things...measuring behaviours not activity.
Twenty months later the same problem has reared its very ugly head again...in the form of the current global financial mayhem.
Because of our personal short-term financial hells, many of us have been blinded to the core issue - the behaviours that have caused the problem - instead focusing on our perceived losses.
Former US Federal Reserved Chairman Greenspan said (October 23) that he had made a "mistake" in believing that banks in operating in their self-interest would be sufficient to protect their shareholders and the equity in their institutions.
Greenspan called this "a flaw in the model that I perceived is the critical functioning structure that defines how the world works."
Greenspan seems to have been unaware that the world is made up of humans. Countries are collections of humans in the same space, Teams are groups of humans with a supposed common interest (though we doubt this when they lose). Banks are structures employing humans with particular and common personal interests.
When we incentivise those humans in the banks with personal gain targets (otherwise known as bonuses and commissions) what do we expect will happen? That they will think of the national interest?
Any performance professional worth their salt will tell you that it is the aspects of a role that are measured that will drive the performance of the individual concerned. If we measure the profit the bank makes from the activities of an individual, in order that the bank can share that profit with them, guess what is going to happen?
Recapitalising, or offering guarantees, might stop the bleeding. It is only by changing the model that we can be sure the same problem will not occur again in the future.
