Sales and Sales Management Blog

Truth, Trust & the Economic Mess – A Rant
By Randy G. Pennington

Stock markets throughout the world are experiencing more ups, downs, and sharp turns than the roller coaster that scared you to death as a youngster. And the root cause for the pain and suffering you are now experiencing is … truth and trust.

More precisely, the absence of truth and trust is the culprit.

Despite what some would have you believe, there is money to be loaned – plenty of it. Most banks just don’t want to loan it to you. They don’t even want to loan it to each other.

The reason is simple: they lack the trust that they will be told the truth about the lendee’s ability and commitment to repay.

It is easy to understand why financial institutions are reluctant to loan money. They were told that the sub-prime mortgages would be re-paid, that real estate would hold his value, and that the loans they bought from other financial institutions were all great quality.

Now even people with good credit are stiffing the lenders. There are growing incidents of people with incomes to pay the increased interest on their adjustable rate mortgage simply walking away because their house has plummeted in value. These individuals are making a “business decision” to damage their credit and rent a house for five years rather than honor their commitments.

Economists talk about market liquidity, the difference between the 2-year and 10-year Treasuries, and other technical financial stuff, but it comes down to fact that the risk of loaning money is greater than the potential reward for doing so.

W. Edwards Deming, the father of the quality movement, once said, “Without trust, there is no cooperation between people, teams, departments, divisions. Without trust, each department will protect its own immediate interests, to its long-term detriment and the detriment of the entire system.”

Substitute the words “financial institutions” in Deming’s quote, and you have a concise explanation of what’s going on in the market place.

What does this mean for you?

On an economic level, you can expect the roller coaster ride to continue. Nothing ever changes until we tell ourselves the truth. And right now, the banks and markets are not yet admitting how bad things are. The term “recession” doesn’t really mean much. A GDP growth of anything less than 1.5% still looks and feels like bad news.

Let’s look beyond the numbers to understand what is really going on – greed and the lure of short-term profit has over taken honor and integrity as the ultimate basis for doing business for a significant number of Americans.

The mortgage brokers and bankers who fudged applicant income to enable people to purchase more house than they could afford? They are guilty.

The individuals who didn’t tell themselves the truth about the size of mortgage they could responsibly take on? They are guilty.

The mortgage companies who packaged and bought loans without doing due diligence? They are guilty as well.

The home builders who put people in homes they should not have been in so they could make money from the financing? They are guilty, too.

There is plenty of blame to go around in this mess, and it could have been avoided had those involved simply operated from a position of truth and trust.

I am for making a profit. I believe turning a healthy profit is a good thing. And, I also believe that there are times when the best course of action is to tell ourselves the truth about the long-term impact of our decisions and choose to do what is right rather than what is easy.

Banks will start making loans again later this year. Gregory Miller, Chief Economist at Sun Trust Banks, recently said, “A time will come when greed overtakes fear.”

At that point, companies will ramp up hiring, consumers will ramp up spending, the dollar will stabilize, and a feeling that things are getting back to normal will begin to take root. That is the good news.

The bad news is we have been here before. History tells us that there will be another bubble or crisis of some sort in ten to twenty years. At that point, we’ll have another opportunity to see if we have learned anything from the past.

In the meantime, get ready for a bumpy ride over the next six to nine months.

And most important, use this as a lesson about the pitfalls that occur when truth and trust are sacrificed at the alter of irrational expedience in any business relationship. A failure to learn that truth creates unhealthy friction in the marketplace that hurts us all.

Randy Pennington helps leaders create cultures focused on results, relationships, and accountability. For additional information or to schedule Randy for your organization: contact via telephone at 972/980-9857; e-mail at Mary@penningtongroup.com; or on the World Wide Web at http://www.penningtongroup.com or http://www.resultsrule.com. Send comments to Randy@penningtongroup.com.

Paul McCord of the Sales and Sales Management Blog may be reached at pmccord@mccordandassociates.com