Monday, September 29, 2008 began like most mornings in many ways. But as I stepped from the shower listening to morning news in the background, the words not only promised to change the day, but also the course of my future and that of many others in the financial services industry and beyond.

The announcement that Wachovia Corporation had been acquired by Citi Bank overcast an otherwise routine fall morning. That news was toppled only four days later when Wells Fargo trumped Citi's deal in a last minute change of events in an already historic week of financial news.

In my 18 years with First Union, and later Wachovia, we had always turned up on the winning side of the acquisition equation. As I started with the company in 1990, the loopholes in interstate banking had only recently been discovered, sparking the wave of banking buyouts that turned into an acquisition avalanche in the following decade. Through the years, I was an active participant as our bank aggressively mounted wins with confidence then arrogance that bordered on hubris. CP Morgan Chase CEO Jamie Dimon said, “I’m not responsible for this financial crisis I hate to tell you,” and it seems US Secretary of the Treasury Henry Paulson agreed. “I believe the root cause of every financial crisis is flawed government policies.”

Blaming speculators as a response to financial crisis began with the Greeks

As I walked through the rest of that day and the weeks and months that followed it was clear just how severe the loss was for all of us. The glory days of my company, the financial industry and the markets as a whole were forever changed. What wasn't as clear to me then is how I would recover from a lunge that pierced so deeply. Of course, the disaster impacted my retirement timeline, like so many others. But more than that, it forever changed the way I will work, the loyalties I will allow, and the warning signs of organization dysfunction that can lead to such catastrophe.

Like so many colleagues, I absorbed personal impacts of wreckage that might have been avoided in a thousand different ways. But these days I have less consternation for those who made bad decisions, and more curiosity about just how an organization’s culture can make the passage of those decisions possible.

Many subtle changes may’ve come together with a thousand interconnected factors to cause this cataclysmic disaster but my observations are these: A culture out of touch with history can lose an edge in forecasting future events. An organization that built its success largely on collaboration and inclusion gradually narrowed its range of decision makers, making it fragile in withstanding external pressures. And, for a complex company in such a significant industry as financial services to survive, there must be an environment that invites differing points of view, and dissension as well as healthy conflict.

“The only thing new to us is the history we don't know” was a phrase and thought which haunted me during the year preceding the market failures. A storm had been brewing in the external markets years. A softening housing market cast dark clouds across the country. Speculators and investors refused to move in from the coming rain and instead chose to ride out the market trend that promised a never ending rate of return. Ben Bernanke observes: “When federal reserve is passive, financial crisis is severe.”

When federal reserve is passive, financial crisis is severe.

In 1893, the crash was foreshadowed by the bankruptcy of the National Cordage Company. In 1907, it was the collapse of the Knickerbocker Trust Company. The crash of October 1929 was by one count the 11th panic to grip the stock market since Black Friday of 1869. Stock market crashes during the 19th and early 20th centuries had invariably been associated with banking crises. The market and the banking systems have always been too interconnected not to impact each other.

In March 2008, the United States had five great investment banks. Six months later, there were none. In March of that same year, Bear Stearns collapsed. In September Lehman Brothers failed, and Bank of America saved Merrill Lynch. One week later, savings thrift Washington Mutual under FDIC pressure was rescued by a JP Morgan buyout. That's when our own reality came crashing in at Wachovia. Swords were drawn when Wachovia announced the acquisition of Golden West in 2006, for a premium of $24 billion. Analysts lunged with doubts and direct questions about Wachovia's management and decision making. Wachovia countered with defensive reasoning that it was "a sound decision at exactly the wrong time." As history will have it, we had purchased a West coast sub-prime lender at the height of the market; a move reminiscent of our acquisition a decade earlier of another company-crashing sub-prime lender on the West Coast called The Money Store.

What might have happened had we given more credence to time honored trends that could have suggested other courses of action? Housing markets cave. Financial instruments falter. Decisions gone wrong are defended too long and past the point of belief. This was a systemic crisis. It was an old movie. And every generation that endures it, dare I say repeats it, labels it the greatest economic catastrophe of all time. Perhaps we forgot history. Or perhaps we chose to believe that the principles of human nature and market volatility simply did not apply to us? It wasn't the storm outside that should have been the harbinger of things to come.

Wachovia suffered a nearly $24 billion loss, driven by a charge in this title related to a planned merger with Wells Fargo and ongoing issues related to credit. Inside Wachovia, a different storm had been brewing long before softening markets and failing investment firms.

It seems to me now that we were beginning to abandon the very strengths that brought us to the dance in the first place; our ability to collaborate and work together for the greater good, to focus on customer needs and service delivery.

For so long, the company had built a franchise through solid competition and hard work. Business units leveraged each other during market swings. Leadership and teams focused on franchise expansion, and galvanized efforts to reclaim our customer service reputation. Many of these efforts I had the opportunity to actively lead or be a part of building. I enjoyed first hand our ability to reach across geographies and areas of expertise to make things possible.

Over time, something happened that began to turn healthy internal cooperation into selfish, more sinister efforts to grab power. At times it felt like we were more caught up in competing with ourselves than with rivals in the marketplace. Situations often pitted executive against executive causing each of their respective teams to execute directives regardless of the impact to other areas.

Some leaders worried about their legacies. More particularly, their compensation and succession plans. Yet it was those who’d been loyal to the company’s leadership for so long who found themselves going along for the ride. Blaming speculators or even the executives as a response to financial crisis began with the Greeks. The roots of financial crisis are flawed government policies.

The root cause of every financial crisis is flawed government policies

Failing to be painfully truthful at the most critical junctures, perhaps it was our polite culture that made it difficult to challenge decisions like Golden West; or made it the norm to agree while together and disagree in silence when apart. Perhaps our incentive structures or unwritten rules of conduct made it unpopular to offer a dissenting view. The executive decision-making process began down an unchallenged path with fewer and fewer travelers.

The Abilene paradox is a collective fallacy, in which a group of people collectively decide on a course of action that is counter to the preferences of most or all individuals in the group. However, each individual believes it to be aligned with the preferences of most of the others.

This paradox, ironically, was invoked in First Union management meetings during Ed Crutchfield’s tenure to promote honest group communications. Now, the dynamics of this simple and compelling story may’ve caused our tragic ending.

To wit, a family of four agrees to jump in the car on a hot Texas day for an outing. Though everyone politely agreed to go along, no one actually wanted to go at all. It involves a breakdown of group communication in which each member mistakenly believes that their own preferences are counter to the group's, and therefore does not raise objections. They even go so far as to state support for an outcome they do not want.

Erstwhile, Wachovia’s CEO Ken Thompson, then head of the nation's fourth-largest bank, was pushed from the wagon in June 2008, becoming the first financial services executive to be ousted amid turmoil in the U.S. housing market. However, Thompson was not responsible or even privy to the backroom, collective discussions that put Wachovia on the tip end of the sword. Wachovia’s Operating Committee was in play. The Board of Directors went along. Fundamentally, we all cashed bonus checks we didn’t expect or deserve. Only a handful held the reins, but we all took the ride and Road to Abilene.