A Perfect Storm? No, a Failure of Leadership

It was no different for Sam Zell. By last year, when he was negotiating for Tribune, was there anyone in America who didn't know that the Internet was stealing readers and advertisers from the mainstream media, eating away at profit margins and calling into question the business model on which the entire industry was based? Did he wonder why nobody else in the industry seemed anxious to bid for some of the country's best newspapers and broadcast stations? Had he not seen the flurry of articles in the financial press warning of ridiculously loose lending and over-leveraged deals?

The only perfect storm to hit the Tribune was the one that resulted from the collision of Zell's ego, his arrogance and his utter ineptitude in running a media empire, along with a total disregard for the financial well-being of thousands of employees whose retirement assets he commandeered for a financing scheme that gave him control of the company while putting in very little of his own money.

I suppose we can have a bit more sympathy for the car guys, who might not have understood that the reason Americans were buying record numbers of foreign vehicles in recent years had nothing to do with cheap credit or mortgage cash-outs and everything to do with the superior styling and quality of the products. But are we really supposed to believe that when giant century-old companies hit a sudden downturn in sales, the reason they run out of cash in a matter of months has nothing to do with the billions upon billions of dollars they spend on reckless promises of job security and lavish health benefits for workers and retirees?

When it comes to self-delusion, however, Wall Street's top bankers and financiers take the prize.

The most common rationalization is that because housing prices had not fallen nationwide since the Great Depression, nobody could have anticipated the current meltdown in the housing and mortgage markets. Oh, really? Had they somehow missed all those discussions back in 2005 about whether there was a housing bubble? Or had they considered that something unusual might be in the works when housing prices nationally were rising two and three times the rate of inflation, year after year, which was also without recent precedent?

In fact, as we were reminded again yesterday at the congressional hearings on Fannie Mae and Freddie Mac, everyone understood that housing prices and mortgage lending were out of control. What they didn't know was what to do about it. Any company that dared pull back on lending and sell off mortgage-backed securities would almost surely have lost market share and seen its profitability and share price fall behind the competition. Before long, analysts, investors and the press would agitate for a management shake-up. So they convinced themselves that the safer strategy was to keep running with the herd.

What capsized the economy was not a perfect storm but a widespread failure of business leadership -- a failure that is only compounded when executives refuse to take responsibility for their misjudgments and apologize. General Motors took an important step this week with a full-page mea culpa in an industry publication. But until many bankers and dealmakers come clean, my guess is that the growing anger and resentment of ordinary Americans is likely to hamper any government effort to deal with the crisis.

Steven Pearlstein will host a discussion today at 11 a.m. at http://washingtonpost.com. He also moderates a new Web site, On Leadership, at http://washingtonpost.com/leadership. He can be contacted at pearlsteins@washpost.com.