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Increasing the Net Worth of the Customer Experience

Short-Termism Is the Biggest Threat to Trustability in Financial Services

The term "IBGYBG" is a text-messaging acronym, like LOL or OMG. It was shorthand for a phrase often used in the investment banking business during the run-up to the 2008 Great Financial Crisis: I'll be gone; you'll be gone. During this period investment banking fortunes were being made by packaging mortgages that were less and less sound into securities to be sold to investors who were less and less discerning, until finally the entire house of cards collapsed. The IBGYBG expression perfectly captured the rationale behind this process.

A high proportion of the individual traders and investment bankers involved in this death-spiral knew (or strongly suspected) that the increasingly hectic traffic in mortgage-backed securities was based on a precarious idea, and likely to implode sooner or later. In a riveting book about the crisis titled The Big Short: Inside the Doomsday Machine, Michael Lewis tells a story about two private investors who were highly skeptical about the values being traded in mortgage-backed securities, and tried to understand the market's logic.

In January 2007 they journeyed to a convention of investment bankers in Las Vegas. They were convinced that many of the securities being sold had immense long-term risks—risks so substantial, and yet so obvious, that they just couldn't understand how deals were getting done at all. While at the convention they wanted to find out who the peole were who were "taking the other side" of these very bad deals. Surely, these two investors reasoned, there must be something they themselves didn't fully understand about the business, because the volume of deals continued to skyrocket despite the obvious risk.

Lewis writes in The Big Short: "Usually when you do a trade, you can find some smart people on the other side of it," one of the investors said. 'In this instance we couldn't.' His colleague added, 'Nobody we talked to had any credible reason to think this wasn't going to become a big problem.'"

At one point the investors approached a banker from Bear Stearns and asked him what was likely to happen to these securities in seven years or so. Weren't they almost inherently doomed, in the long term? The banker's answer: "Seven years? I don't care about seven years. I just need it to last for another two."

In the long term IBGYBG
One way to explain the crisis is that individual bankers were getting very nice commission checks for selling securities and doing deals that many of them knew full well weren't very sound, at least not in the long term. Another way to explain the crisis is that the banks themselves, the individual bankers, the ratings agencies, the politicians, and the regulatory authorities succumbed to rampant, unadulterated, highly destructive short-termism. As long as we can get the commission now, who cares what happens later? As long as we can keep our quarterly revenues in line with our competitors, the long term will have to take care of itself. As long as we can get more votes by pushing out more favorable and leveraged financing terms, others can deal with the long-term consequences later.

IBGYBG was shorthand for a phrase passed between individual bankers, but it could just as well have been used by the banks themselves, or by any of the other culprits at the root of the crisis.

When if two bankers who were putting together a securities deal or a trade stopped to think more carefully about it, one might worry about the deal's long-term consequences, in which case the other would console with the advice not to worry about the long term because in the long term IBGYBG­—"I'll be gone; you'll be gone."

Somebody else will have to pay the price. Later.