Years ago I had the opportunity to work with a grizzled old banker from Georgia who had seen more than his share of bad loans and dumb business decisions. This fellow was an anomaly in banking and he usually made more enemies than friends, which is not unusual because of the position he held at the bank.
My friend was the Chief Risk Management Officer for the bank, a position that also goes by several other titles such as Special Assets Officer (the assets are special because they all share one thing in common: they have no value); Managed Asset Specialist (also known as the auctioneer); Bad Loan Department (no explanation required) and Workout and Restructuring Group (a combination of the aforementioned). We became close friends while working on a project (otherwise known as a FUBAR) together and after a few months I decided that this guy could teach me a lot about business and problem solving so I began the delicate process of asking him to tell me everything he knew (well, the Cliff Notes version because the dinners and drinks were getting expensive).
When we parted ways he shared a real nugget of wisdom with me. It was a nugget for two reasons. First, because it was brief and to the point (which meant that all those dinners and drinks were his joke on me) and second because it introduced a subject that on the surface had nothing to do with business. I had asked him what was the single most valuable thing he could recommend to help me in my chosen career (workouts and restructurings of troubled businesses).
His response was to read and memorize Elisabeth Kubler-Ross’ book “On Death and Dying“. I had expected some recommendation of a lengthy tome on corporate finance or banking, so this suggestion came as a surprise.
Many readers here already know about Elisabeth Kubler-Ross so I won’t go into her background other than to say that her major work addressed how terminally ill patients should address death. She broke down this process into five stages:
I have learned through the years that businessmen, when they find themselves in serious trouble (insolvency, bankruptcy, loss of reputation and character attacks), also go through these same stages and almost every time their very survival depends on whether they reach Stage Five.
Presently, we are witnessing this with the auto industry, specifically with GM and Chrysler, both of which are stuck in between Denial and Anger. Consider that the major money center investment and commercial banks have experienced this also. Lehman Brothers never made it past the Anger stage, Bear Stearns barely made it to the Bargaining stage and Merrill Lynch, to their credit, saved themselves (by selling to BOA) before Denial actually set in.
As the economic downturn worsens we should expect to see more major industry leaders go through this process, but the most outrageous example at work right now is the indefensible enabling behavior of Congress toward the auto companies. That Congress is willing to loan money to these companies while bypassing the well precedented, long established U S Bankruptcy Code is a telling sign the Congress is stuck in Denial.
The bankruptcy process is designed to get businesses and their managers from Stage One to Stage Five as quickly as possible while not further damaging creditors. As I have mentioned before, solidly American industries such as textiles, electronics, coal, steel, metal bashing, machine tooling, energy ( anyone remember Texaco?), furniture manufacturing, shoe makers etc have experienced this process. But the auto companies get a pass. Why? Because they, along with the United Auto Workers, are major sources of cash for the Democrat controlled congress.
This is political pandering on an historic scale. It is graft parading around as constituent service and job preservation. It is Denial of reality.
Guess who’s picking up the check?