Fire the Bank Presidents?

Further evidence to support Marc Hersch’s claim that “….Obama ‘gets it’….”

Obama when interviewed by Jay Leno dismissed the AIG bonus imbroglio as missing the point. He said the real problem is that most of what has made our economic mess has been legal behavior and the problem is really a “mind-set” problem. The solution is in re-establishing the bank regulations that had been allowed to lapse.

Consider the Deming Red Bead experiment. (See here)

The AIG crew and bank presidents everywhere were (are) the ‘willing workers’ in a system that favored short-term over long-term thinking, the private accumulation of wealth in place of income redistribution, adopted a “just win baby” decision criterion even in the face of illegal and unethical business practice (sub-prime loans).

Is the solution to these problems to fire the CEO of AIG? Should every bank president in the country be replaced? With whom would they be replaced? Is there a pool of potential bank presidents out in the hinterland that represents a mind-set completely different to the bank presidents currently working? That is very unlikely.

Thus, as Shewhart taught us, the best economic solution is to change the system. Re establishing the regulatory environment would fundamentally change the system and thus, seems to make the most sense as a strategy with which to go forward.