The Obama administration is only a few weeks into its tenure and its capacity for leadership is already being questioned. The biggest problem, however, is that it seems that the whole concept of leadership – at least in the political context – has been completely forgotten. Let’s review. Encarta defines leadership as “the ability to guide, direct, or influence people” or “to provide guidance or direction.” Synonyms include subcategories falling under the headings of management, control, guidance, headship, or direction. Specific alternatives span the spectrum from “command” or “rule” to “influence” and “sway.” Given that understanding, has the Obama Treasury demonstrated leadership?
In order to demonstrate leadership, you have to take the lead. Hence, “consensus leadership,” involving polling those who are being led to find the best direction, is an oxymoron. Consensus regulation is even worse. Treasury, therefore, has to take the lead in forming TARP and other policies so critical right now to rescuing our economy and resuscitating financial intermediation. Instead, Treasury is continuing the Bush administration practice of vetting ideas with Wall Street and the press and then “leaking” them to the public for their opinion before settling on policies and putting them into place. Headlines like, “Senior Wall Street executives said yesterday that they had been sounded out on plans for an “aggregator bank” that would purchase toxic assets from banks,” in the FT last week (Treasury pushes Citi to cancel jet order, Jan. 27, 2009) suggest that Treasury is still feeling its way through ad hoc measures and will only consider those alternatives Wall Street considers comfortable. It’s past time for Wall Street to feel uncomfortable with the situation they’ve created. Only the discomfort of losses from bad decisions will constrain decision making in the future. Leaders need a strong internal sense of direction and confidence. I haven’t seen those qualities demonstrated yet.
But there’s more. Leaders must be above the fray. Conflicts like income tax problems distract from leadership and the validity of the leader’s guidance and decisions. The leader must therefore stay clean, avoiding even the slightest perception of being tainted by the power they command. Many claim such responsibility is unfair, that celebrities should not be role models and held to a higher standard. In reply, I maintain that appointees like the Treasury Secretary accepted the role willingly and are therefore responsible for their behavior. It is important to remember that the current Treasury Secretary is a former Wall Street executive, not a former government regulatory appointee. The Federal Reserve Bank of New York is a private corporation owned by commercial banks in the New York Federal Reserve District and operated for their own behalf. The present Treasury Secretary must therefore still earn the trust bestowed upon him by his appointment and that trust will be crucial for his success fighting a financial crisis.
So far, there seems to be virtually no interest in establishing or maintaining such trust. True leaders do not act for themselves, but must at all times defend the honor and independence of the organization from the slightest appearance of conflict of interest. The recent appointment of Mark Patterson, former lobbyist for Goldman Sachs Group, Inc., until last year does not demonstrate that independence from those the Treasury regulates. Following on bad experiences with other Goldman alumni, the appointment gives the appearance that the Treasury is still in Wall Street’s back pocket.
Socrates is quoted as saying “reform cannot be achieved by a well-intentioned leader who recruits his followers from the very people whose moral confusion is the cause of the disorder.” Let’s apply this lesson. Economists have a great deal of experience cleaning up financial crises and restoring economic growth. Studies show that a large part of success in recovering from financial crises involves regaining credibility. There was great hope that President Obama could provide such credible leadership, but his cabinet members and their appointees have to do so as well. President Obama will soon have to decide whether the donors and Democratic Party members he appeased with his Cabinet appointments are worth eroding his administration’s credibility. He will need to make that decision quickly, however, because those appointees are already bungling key policies that are sorely needed to address the continuing credit crisis and recession.