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Strategic Decision-Making in “Fool’s Gold” by Tett Essay


Management is all about decision making. All managers are expected to gauge options before making decisions concerning different issues and problems affecting the business. Strategic decision making can be affected by rationality and power. Viewing organisations and their surroundings environment as political systems changes our way of thinking regarding the decisions we make. Gillian Tett is Britain’s most prescient journalist on crisis. She talks about how strategic decision making can be affected by power and rationality. In her book Fool’s Gold, Tett talks about how unreserved greed and corrupted visions crushed global markets and released calamity in the world. This paper mainly analyses how people’s thoughts about strategic decision making can be changed if they think of organisations and their surrounding environment as political system. It also addresses how rationality and power go hand in hand in businesses based mainly on Tett’s book Fool’s Gold.

Gillian Tett is aware of how products have complex structures by the way she addresses issues on rationality and power that affect strategic decision making. Tett talks about different managers experiences and how their unrestricted voracity and corrupted visions crushed the global market causing a lot of catastrophes with it. In her book Fool’s Gold, Tett tells the story of J.P. Morgan who is an innovator. She addresses how JPM produced products and took them to the market at an early phase only to recognize later on that they left behind atomic waste that required appropriate cover in regards to residential mortgages. Many banks were not aware of this hence left sedentary on their balance sheets (Tett 2010, p. 101). They also shifted quasi-subsidiary vehicles to its hiding place and were reinforced by short-term funding that vaporized when trouble began. Tett was trying to state that financial innovation may not be an issue but the way it is being utilized may indeed generate issues.

Terri Duhon who is also a female financier agreed with Tett’s core thesis in the book. They both believed that complex derivatives could not be blamed for the major crisis experienced. The two put the blame on the wrong use of power and rationality whereby leaders make major organizational decisions with greed and recklessness (Pfeffer 1992, p. 102). The bankers ignored many issues and decided to adopt and use Morgan’s products in ways which envisaged their investors. Duhon gas a good example of a situation whereby there is a car crash, according to her, the car cannot be blamed for the crash instead the drivers are to blame. The tools used are not at fault instead the people who use the tools are to blame in such a situation and the same applies to the banks case.

Many complex derivatives brought the banks financial system down. Tett stated in her book that social elites always have a means of trying to maintain power not only through immersing wealth but also through ideological domination. These social elites has the power to decide what they want to talk about and what they do not want to talk about leaving and ends up manipulating people into following and implementing what they are saying. It is the social elites who exposed complex derivatives around wealth and managed to influence banking cadre (Eisenhardt & Zbaracki 1992, p. 17). They also helped in the construction and reinforcement of a new structure of power and encouraged financiers to favor their financial activities and detach them from the rest of the society. The financers lacked a holistic vision and this affected everyone. Many families experienced terrible and tragic consequences and are now suffering from loss of jobs, savings and homes. These families were not informed by financers concerning collateralized debt obligation (CDO) and structured investment vehicle (SIV) hence went ahead and got involved but later on they were seriously blown leaving them to face the terrible consequences.

According to Tett, the deadly advancement of the derivatives began as an account of three parties. The initial party was held in Boca Raton, Florida in the year 1994 whereby many established bankers from different branches of the organisation in New York, Tokyo and Japan were present. The young men partied all night and got drunk to a point that they could not recognize who they were anymore. Their bosses took advantage of the situation to discuss how they will develop their derivatives business. The second party occurred in Barcelona in the year 2007.The band called to play on the party comprised of bankers. This was a way to disrupt their attention while the social elites were making other plans. Come the next morning, there was news of catastrophe which was venting at hedge fund. This was however linked closely to Bear Stearns who were the early composers of great unraveling (Tett 2010, p. 281). The third party took place at World Economic Forum early this year in January. Jamie Dimon who is JP Morgan Chase chief executive was present at the party. Actually Dimon was responsible for the collapse of rival Bear Stearns; he had reduced the price of the products in the year 2008 while making a deal where he hosted a mélange party for 200 key heads in Swiss resort of Davos at Piano Bar.

According to Tett, there was no way the crisis could have been foreseen since those involved were too smart with their game. They used their power and rationality to draw away people attention while conducting their dark plans in secret. The derivatives were more like financial hydrogen bombs that were developed on personal computers with MBAs at 26years old (Pettigrew 1973, p. 210). There was no day that the financial innovation appeared good and better, it instead increased and dispersed risks. Nobody was actually impressed by what was happening.

The financial innovation campaigns for JP Morgan and his team went horribly wrong. People began to see the wrong sides of the bankers who had perverted their derivative dreams which were made out of unrestrained greed and corrupted dreams which ended up shattering global markets and unleashing catastrophe. Morgan folks tried to be accountable, response and prudent actors after the bad apples but that could not change the situation or turn around the situation. They had taken for granted economic growth and financial sector concentration; instead, they were driven by their own unrestrained greed and corrupted dreams which ended up shattering global markets and unleashing catastrophe. Trying to be response and accountable after the mess is like politicizing the systems which makes people to change their views on the organisation and its surrounding environment hence rethink about strategic decision making.

All the three parties that were held in Barcelona, New York and Tokyo were all contradicting. They were all based on personal interests and power and rationality ruled everything. It is in one of the meetings whereby default credit swaps took place. Extensions were made on the existing swap rate of the interests. The JPM crew actually made everything to work without the knowledge and opinions of other investors. This is the reason why there was always a crisis after every meeting. The meetings were not held in response to the normal social or market need but instead towards selfish and corrupt goals of greater attacking and rental regulation (Clegg, Carter, Kornberger & Schweitzer 2011, p. 122).

JPM and the crew went ahead and politicized the system. Based on their own standards, they took few years to sludge about their knowledge and the big arrangements they had in store. However, their main aim with the mucking was to regulate their selling strategy which they considered delicate. In the end, they managed to bundle $10billion risks on corporate loans which were existing in the organisation. They went ahead and securitized it and introduced Mood’s to provide an AAA rating for the securities to blind fold the investors that the deal was actually progressing well (Pfeffer 1981, p. 118). At the end of 1997, JPM marketed their deal through SPV Shell Company so as to evade paying taxes. Eventually, they successfully managed to sign their deal.

The world ignored major signs of trouble once dotcom bubbled stopped working after which issues started arising at Enron and WorldCom. These were good signs to realize that financialisation was being reined. However, politics and rationalization also played a good part in hiding the reality to the people concerning financial reins. It was the same period that CDS were mentioned to have successfully spread out its major risks and Fed had managed to get back to its usual easy money policy. The CDS spurs appeared clear but the world did not realize that they were being utilized to setback bubble mortgage. In the end families faced terrible consequences since they could not own homes nor make any form of savings in the banks.

JPM unrestrained greed and corrupted intentions became clear afterwards. After they renovated CDS appliances they stopped their obligation towards mortgage securities. JPM was not able to comprehend how correlated mortgage defaults were conducted for CDS hence were not able to comprehend the level of the risks they were facing. So after doing the two major CDS-MBS deals JPM decided to back off. In 2005, Dimon began on a selfish mission again whereby he made plans of prioritizing mortgage securitization. They took their time throughout that year to prepare an assembly line arrangement to package, amass, retail and wedge its securities (Pfeffer 1981, p. 122). In early 2006, the appliance was ready but the mortgage market exhibited symbolism of delay. JPM was forced to relent when defaults began in Las Vegas, San Francisco and Miami. When the crash occurred, JPM got its rewards; it was among those few banks that did not have noxious papers on their balance sheet. JPM was the only bank the government could turn to bail them out in the face of corporatists. This was due to their corporate culture that had been implemented for a long period of time. JPM used to value loyalty, teamwork and long term relationship with their investors. The bank also had a wonderful vision of engaging first class business people in a classy way. Actually JPM was an intonation at the bank.

In 2008, the branding came back again something they had done in 2000 when JPM acquired Manhattan. Despite playing politics like usual to change people’s perspective on the organisation and its surrounding, JPM studies dropped in a short period of time regardless of placing Morgan’s name first on their new brand which was known as JPMorgan Chase. Their pride was actually lowed when the studies dropped since for a long period of time, JPM has valued their studies. The periods of vengeance had commenced for JPM. Their whole system was at the verge of collapsing, the only thing that added value to them was their brand name. They however never had any social value implication since it had turned into a fiddle. The organisation was in real disaster mode of capitalism. Dimon was flicking through the prospect for the chance they had found within M&A since JPM was not in a position to acquire the post. In the past, JPM used to utilize WaMu and First Bear to avoid the world and lessen their menaces.

In conclusion, in her book Fool’s Gold, GilianTett gives an account of JPM, how they managed to use their power and political systems to change the way in which people viewed the organisation and its surrounding. JPM used its rationality and power to change buyer’s views about their organisation and its surrounding environment through manipulation which lead them to acquire their products and use their system. JPM knew how to play its politics well and get away with whatever thing it had set an aim of achieving. However, JPM unrestrained greed and corrupted intentions became clear afterwards which changed the world’s views concerning the organization. This eventually led to their downfall after people realized that they were using their rationality and power to manipulate them into buying from them.

List of References

Clegg, S., Carter, C., Kornberger, M & Schweitzer, J 2011, Strategy: Theory and Practice, Sage Publications: United Kingdom.

Eisenhardt, K & Zbaracki, M, 1992, ‘Strategic decision making’, Strategic Management Journal, Vol. 13 no. 4, pp. 17-37.

Pettigrew, A 1973, Politics of Organizational Decision-Making, Tavistock Publishers, London.

Pfeffer, J 1992, Managing with Power: Politics and Influence in Organizations. Harvard Business School Press, Boston, MA.

Pfeffer, J 1981, Power in Organizations, Pitman Publishing: Marshfield, MA.

Tett, G 2010, Fool’s Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe, Abacus: New York.

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IvyPanda. (2020, September 5). Strategic Decision-Making in "Fool’s Gold" by Tett. Retrieved from https://ivypanda.com/essays/strategic-decision-making-in-fools-gold-by-tett/

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"Strategic Decision-Making in "Fool’s Gold" by Tett." IvyPanda, 5 Sept. 2020, ivypanda.com/essays/strategic-decision-making-in-fools-gold-by-tett/.

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IvyPanda. "Strategic Decision-Making in "Fool’s Gold" by Tett." September 5, 2020. https://ivypanda.com/essays/strategic-decision-making-in-fools-gold-by-tett/.

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IvyPanda. 2020. "Strategic Decision-Making in "Fool’s Gold" by Tett." September 5, 2020. https://ivypanda.com/essays/strategic-decision-making-in-fools-gold-by-tett/.

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IvyPanda. (2020) 'Strategic Decision-Making in "Fool’s Gold" by Tett'. 5 September.

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