Before–and after–the fall

June 20, 2008

Maybe you’ve heard and read all you can stand about the subprime mortgage crisis, but if you haven’t, there’s some really excellent thinking about the causes of the problem and where we go from here in a new Knowledge@Wharton special report.

The report includes an overview on the financial crisis and how it developed, a look at the Fed’s response and an examination of whether new rules could prevent a similar crisis in the future. On the latter score, the report cautions that while regulatory changes might be able to prevent another credit crisis, crafting the changes that would be able to do so requires a clear understanding of exactly what went wrong, an understanding that is only beginning to be realized.

In an opinion piece written by former Wharton School Dean Russell Palmer included in the package, Mr. Palmer suggests that while in the aftermath of the crisis much of the conversation focuses on its causes and needed reforms, in his opinion the issue is one of leadership.

“I believe the situation offers on opportunity to learn crucial lessons about leadership, and if these are heeded, the U.S. will end up with a financial system that is stronger than ever,” the former dean writes.

Calling greed the underlying cause of the subprime crisis–as with other financial bubbles over the centuries–Mr. Palmer identifies several leadership lessons he thinks can be learned from the current financial mess.

The first, he says, is that “integrity is the key to leadership.” Another is the importance of board members providing effective oversight. And, Mr. Palmer writes, leaders of the firms involved “must be at the forefront of addressing the crisis and taking personal responsibility.”

It’s a great report that also includes video interviews with Wharton faculty, a timeline of the events that were like dominos falling on the way to the ultimate crisis and links to other stories on the subject Knowledge@Wharton has published over the past 18 months. If you’re not subprimed out–and even if you are–it’s worth taking a look.