Fans of the economists Gary Becker and Richard Posner have no doubt been glued to their blog during the current banking crisis. But one set of comments caught my eye.
"The fourth [factor behind the crisis] was the difficulty of "selling" a conservative business strategy to shareholders in a bubble environment. Borrowing more and more at low interest rates while home or other asset values are rising enables financial institutions to make higher profits, and a firm that refuses to jump on the bandwagon will as a result experience lower profits and will have difficulty convincing shareholders that they really are better off because the higher profits of the competing firms are unsustainable."
Temporal economics bites again. It's equally difficult to persuade management to ignore bad profits when "everyone else is doing it" and the short term economics are attractive. For example? In a booming economy where demand for your goods is high relative to supply, why worry about long term loyalty?
From a different (and perhaps obtuse) angle: would you quibble with me that earnings from inflated mortgages are bad profits? They don't look like good profits (or any kind of profits for that matter) right now. And while their NPS is not published, do you think that a firm genuinely committed to creating long term promoters from their customers would sell you a product they knew had a high risk of financial harm for you?
I would argue it's all part of a pattern of management decision making. You be the judge.