Global Financial Crisis
Lessons from Technological Crisis Management
Analyzing the recent global financial crisis through the prism of technological crisis management is a particularly timely exercise and yields interesting insights into how to better understand and prevent financial crises. However, the massive complexity and interconnected nature of the financial system differentiates it in many important ways from technological breakdowns, product failures, and natural disasters. As the managing partner of GPS Partners, an energy-focused hedge fund that managed more than $2 billion at the onset of the recent financial meltdown, I had a front-row seat for the unprecedented events that began in earnest in 2007.
The chapter outlines the unintended consequences of certain landmark events that ultimately played a key role in triggering the recent financial collapse such as the Community Reinvestment Act, the Gramm-Leach-Bliley Financial Services Modernization Act, and the abolishment of the net capital requirement for investment banks. This failure of lawmakers and regulators to understand how these various events could and would interact to trigger the largest financial meltdown since the Great Depression demonstrates the dangerous combination of politics, a balkanized regulatory system, and an increasingly complicated financial system.
Additionally, I particularly like the use of Goldman Sachs’s initial public offering as a metaphor for a financial system in which incentives are asymmetrical. Market participants in a multitude of roles, ranging from bank chief executive officers to hedge-fund managers and lending officers and investment