In a series of unprecedented moves, the Fed came as a "lender of last resort to save a financial system on the brink of disaster. Reuters (19 September 2008), called it an "extraordinary" rescue plan. First it was Bear Stearns, near Fannie Mae and Freddie Mac, Lehman Brothers, Merrill Lynch and AIG were. Then convert the Fed's two investment banks, Goldman Sachs and Morgan Stanley, in conventional banks, a move that significantlyIncrease oversight and regulate these institutions.

In just a few months with the most damage in a few days, the very foundation of the world's financial system was shaken.

Although there were many interesting details that the steps and missteps, which is chronicled on this crisis, and while this saga very likely change the face of banking (investment banking security) in the United States and probably the world, an interesting question leading tobe asked is how we in this mess. Where we are victims of "a pattern of dishonesty on the part of financial institutions and incompetence on the part of politics," as George Stiglitz, a Nobel laureate economist and professor at Columbia University, wrote in the Guardian on 16 September 2008?

There is another interesting question, which must be asked as well. Is there evidence that all managers can take from this extraordinary crisis?

ThreeLessons seem to be worth considering.

Managing in an Age of Complexity
The first lesson is that we manage in an age of complexity. Software Applications (ERP) as an example can be very complex when independent modules as an integrated system function. Drug Discovery (Vioxx), another example, can be complicated, as the simpler breakthroughs have already been made. The Public Works (Boston's Big Dig) can be complicated if the existing infrastructure and social restrictionsAsk.

Certainly the crisis on Wall Street has informed us that the way our financial system has taught developed in the last decade, has added an unprecedented level of complexity to an already complex system.

Look at the players and their recent behavior in this system.
1. Potential home buyers, motivated by the increase in home prices, applied for mortgages.
2. Mortgage broker, motivated by earning commissions, were happy to oblige, and write these mortgages, includingIf the ability of the borrower to meet their monthly payments was uncertain.
3. The mortgages were then sold mortgage consolidators, asked some questions, as they bundled the debt into collateralized debt obligations (CDOs). The goal of this clustering process was to spread the risk as much as buying shares in a mutual fund that spreads with its hundreds of stocks, investment risk.
4. Thereafter, the CDOs as a high-yield investments have been in institutions such as banks soldInvestment firms and insurance companies.
5. AIG then insured CDOs institutions so that these instruments should be confident that their investments and sources of revenue would be secured.
In fact, this was a complex system, one (on trust CDOs were unregulated), and one in which everyone as long as the housing bubble continues to prosper.

But it did not work.

Then, in August 2007, the bursting of the bubble. Home values started to fall. The discovery that the equityless than the value of their homes, many homeowners left the front door to leave the keys back. Well, there were more homes on the market and prices continue to fall. Lower prices continue to accelerate the process and the spiral.

With homeowners missing payments and defaulting on their mortgages, finally, the CDOs were not only less valuable, but they were also difficult to assess.
What were they worth?

The CDOs were like "black boxes", few could see the inside or caredto look inside. The purchase of a home who took out mortgages in the first place was hidden in the ground. Transparency was gone. There were so many players - homeowners, mortgage companies, debt consolidators, insurance companies and banks - that it was impossible to determine the quality of the debt.

Since the value of a CDO was so difficult to determine, and because many banks and investment firms were either unaware of the financial risk or were in a state of denial, the value ofthe CDOs in the balance sheet of the Institute … Statements containing a summary of the financial health of a company … was too high.

Now, on loan, the ability of these institutions to make money, it severely limited in their day-to-day. " Who would loan money to an institution, whose record was not only exaggerated, but their investments in CDOs impossible to appreciate?

What will be a chance for people their own four walls, in a bubble, start turning theThen arose some of the most respected names on Wall Street, the later a credit crisis. The complexity of the process contributed to the biggest crisis since 1929.

We need information not data
The second lesson is that managers need current information to manage effectively. The raw data are of limited value in most cases, what they do not have to be volumes and volumes of data in rows and columns. What they need is information, useful information in summaryForm, which helps sense of complex situations.

In better circumstances, it may have been possible prior to the data, which have moved as part of the mortgage loan package and be part of the CDO package. Then allow the institutions holding these CDOs have a better chance to monitor the quality of the instruments had on its balance sheet. But even if this would be the case, the real estate prices and a rise in foreclosures continue to deteriorate the value of theCDOs.

But the data that could be used to the fragile nature of these CDOs has been suspended stored in different places or non-existent. In any case, it was not possible to bring them together. As a result, decision makers were forced to blind and almost every institution, certainly the most failed, which led the CDOs on their balance sheets at prices to fly much higher than it is actually worth. Consequently, investment banks like Lehman Brothers and Merrill Lynchwere overvalued until reality reared its ugly head.

Had it been possible, for better and more up-to-date information in order to have softened the blow? This is a difficult question to answer, but the lack of information and the uncertainty expressed over and over again about the vulnerability of the system and the inflated values of CDOs on the balance sheets, at least suggests that the lack of information contributed to the crisis .

Denial can bring catastrophicResults
The third lesson is that the management can not afford to be in a state of denial. In 2006, I attended a presentation at a New York investment bank, and asked the senior economist with the company for its views on an inflated housing market that was closed some implode, too. He assured me … Support his argument with convincing data … that this is an unlikely outcome.

A New York Times article by Joe Nocera on 16 September 2008, suggested that "most of the big companieshave a day late and a dollar short in admitting that their once triple-A rated mortgage-backed securities was not just worth a lot. And one after the other, it is killing them. "The article went on to explain that Mr. Fuld, CEO of Lehman Brothers, went to Korea Development Bank for assistance to sustain balance of Lehman's balance sheet ask. It failed because Mr. Fuld wanted more for Lehman than the Koreans thought it was worth it.

Denial was everywhere, from home buyers who feltcould afford a house on an income $ 600,000 $ 75,000 to see the mortgage, the authors in the other direction, the debt consolidator, a list compiled, the CDOs, the banks who bought CDOs on their balance sheets and held them to unrealistically high prices and to the insurers, the grossly miscalculated the risks they took.

Lessons Learned
The complexity has increased in most industries, and in September 2008, we have learned how important it is to understand the interrelationshipsTie that in parallel in the financial industry. To ignore the complexity of organizations and their leaders at their own risk.

Information and use of management decisions at the strategic level, support is more important today than ever before. No one would fly a Boeing Dreamliner without information displays in the cockpit.

Denial is not a river in Egypt, it is a fatal error of pseudo-confident, made leaders.

Chase Credit Home Refinance

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