Banker to the World: Leadership Lessons from the Front Lines of
Global Finance
By William R.
Rhodes
(McGraw-Hill, 252 pages,
$25)
AS ANY tort lawyer will tell you, society has a
habit of demanding an unrestricted supply of baked goods without
any consequences — cake-wise, that is. And so it is
with bankers of whom we demand, “Take risks; just
don’t lose any of our money.” The penalty
for disappointing society can be severe. Perhaps only
Transportation Security Agency junk-touchers at airports are held
in lower regard in America today than bankers.
This is why this memoir by William R. Rhodes, the former
head of international banking operations for Citibank, is more than
a salutatory antidote to the prevailing lynch-mob attitude toward
our financial industry. It should be required reading not only for
other bankers, but also for Washington’s would-be
reformers of Wall Street. and most of all for the ordinary lay
citizen dismayed by the persisting panic that has gripped us since
2007 and which is going to be among us for at least another five
years. I mean, they’re all Bernie Madoffs,
right?
Well, no. Bill Rhodes has been for more than 50 years one
of the true white-hats among American bankers. Next to Paul Volcker
(who has written the book’s foreword), Rhodes has been
the face of American capital probity to the rest of the world.
Hence the accurate title, “Banker to the
World.” A minor quibble might be that bookstall
browsers will be misled by the subtitle, “Leadership
Lessons from the Front Lines of Global Finance.” This
is not your run-of-the-mill
“my-ten-top-tips-to-get-rich” ghost job that
ego-driven tycoons foist off on business school
wannabes.
Nor is it an attempt to alibi the banking excesses of the
past 30 years. Indeed, the most recent senior management of
Citibank comes off as being pretty tone-deaf about the dangers that
were clearly looming in the past decade, as witness the blithe quip
tossed off in 2007 by Citibank’s CEO Charles
Prince, “As long as the music is playing,
you’ve got to get up and dance.” One
comes away from such accounts wondering less why Rhodes never made
it to the top chair, but rather how he was able to last as long as
he did.
Through a series of case studies Rhodes reminds us of an
overlooked truth: that bankers must take risks. We not only want
them to, but we need them to if surplus capital is to do its work
to best effect. Nevertheless, there are rules that apply in most
risk assessments and, and this is underscored, there are
consequences for ignoring or trying to evade those rules. And those
rules apply whether one runs a bank, or tries to run bankers
à la Barney Frank
or Fidel Castro. It may be, as the old commercial says,
“not nice to fool Mother Nature.” But it can be
disastrous to try to fool Mr. Marketplace.
The backstory to the present global financial crisis and
to most of Rhodes’s 53 years in banking is that the
risky behavior of bankers was not the proximate cause of this most
recent bubble and subsequent collapse. Rather, during that time
more and more nations became more and more dependent on
ever-more-expensive energy sources—oil for
one—to fuel growth. Instead of running faster just to
stay in place, entire economies and especially the U.S. economy
began to steadily lose ground. American workers have lost
purchasing power steadily since 1975, the same with household
wealth even before the collapse of home prices. Instinctively,
individuals have made decisions that provided the illusion of
wealth and to demand that their financial
trustees—bankers among them—support
that illusion. Bernie Madoff and Goldman Sachs did not generate the
bubble all by themselves. We helped.
The other hard truth Rhodes tells us is that banking is
always in crisis. That’s what banks do when they take
risks—crisis inevitably follows. Congressional
ignoramuses are doomed to disappointment when they believe they can
protect us with thousands of pages of one-size-fits-all regulations
that will prevent any crisis from ever occurring again.
Looking to today’s slow-motion catastrophes
that roil the once-smug eurozone, Rhodes offers a timely overview
based on a lifetime (he started at what was then the National City
Bank in 1957) in a career that made him the point man for U.S.
banking for five decades of crises involving the finances of
nations that once were considered the basket cases of the global
marketplace—Argentina, Brazil, Jamaica, Mexico, Peru,
Uruguay, Turkey—not to mention the emerging nations
of Asia (especially China and South Korea) and of the newly
liberated financial markets of the Eastern
Bloc—Poland, the former Czechoslovakia, Hungary and,
not least, of the former Soviet Union.
But with a nod to the crisis gripping the so-called PIIGS
(Portugal, Ireland, Italy, Greece, and Spain) that threaten the
financial structure of Europe and thus our own, Rhodes concedes
that “financial crises will continue to occur. Still,
the lessons of the last 50 years show that all crises are
manageable.”
“Each country is unique, and a cookie-cutter approach does
not work when dealing with a nation in crisis. Every country has
distinct reasons for why it got into trouble, for how the problems
could have been prevented, and for how the crisis could have been
resolved,” Rhodes accurately observes. But there is,
he adds, a common threat—that the instability of one
nation will spread like contagion to its neighbors.
With a pointed message that should resonate in both Athens
and Washington, he concludes with a list of remedies that includes
privatization, trade liberalization, tax reforms, and regulatory
adjustments. But repeatedly he argues that a prompt response is
essential if the crisis is to be contained.
HAVING SPENT 40 years reporting from the sidelines of the
banking scene, I found a lot explained in Rhodes’s
inside stories of how and why institutions like the big banks, the
Federal Reserve, the International Monetary Fund, and others
responded to the sometimes painful evolution of the global
marketplace. Sadly, some national leaders—one thinks
of Nicaragua’s Sandinistas, Venezuela’s
Chavez, Zimbabwe’s Robert Mugabe—try to
evade the rules of sound finance and their people pay the price.
Others—a series of Argentinean finance ministers, or
recently the Castro brothers—belatedly wake up to
reality and have to begin a painful period of reform.
More encouraging, however, is his recounting of how some
new leaders quickly overcome the prejudices of their upbringing and
get it right from the start. Success stories such as the East
European governments that broke away from the Soviet Union or the
reformers in Turkey and Brazil show what miracles can occur when
responsible governments work with the financial markets to take the
risks of investing prudently but also profitably.
Is it too much to hope that Mr. Rhodes has dropped off
some copies of his memoir on Capitol Hill and at the White House?
Is it too much to hope that anyone in either place will read it?
They probably won’t. But you should.
