The role of leadership decision-making in the subprime financial crisis

Banking leaders became drunk on their success and blind to the systemic problems they were injecting into our financial system.  By the early 2000's a long-term rising tide in home values had blinded them to the real risk of a housing market correction and falsely encouraged them to use improper assumptions is risk modeling.

An ever more creative list of products (0 -down, pay-option ARM, NINA, and interest only) injected a level of uncontrolled risk into a booming market fueled by speculators and future homeowners desperate to secure their slice of the fantasy pie.  The assumptions loaded into the risk models were based on unsustainable trajectories in housing valuations, market growth, and consumer behavior.  The leaders in the financial world were telling each other what they wanted and needed to hear to keep the party going.  Facts were no longer important; rather sustaining the model and increasing yield were all that mattered.

As early as 2002 prominent Economists were warning of a credit bubble building, and by 2004 the warnings were being discussed at Freddie Mac and other large lending intuitions.  While the evidence was mounting, those in a position to take action double-downed instead.  Lenders such as Countrywide loosened lending standards and many banks followed suit.  Bear Sterns, Lehman Brothers, and others sought far-reaching markets for their sub-prime securities to keep the scheme afloat.  With the pending bust so clear and evident the financial leaders of the time completely ignored the facts and drove their business, the consumer, and the global economy to the brink of collapse.

The sub-prime financial crisis was a crisis in leadership and spurned directly by a lack of ethical and moral conscious by those same leaders.