The Crash of '08 Story that Nobody is Telling

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We’re approaching the 10-year anniversary of the most convulsive part of the financial crisis: the implosion of Lehman Brothers and the subsequent Great Recession. And so, in between the Trump-Can-You-Believe-It-News-Du-Jour, you’re seeing a rash of articles on it: its causes, where the major actors are now, how it led to greater wealth inequality, how it thus may have led to the rise of populism.

I was there. I was running Smith Barney at the time.

And here’s what you’re not going to read in these anniversary articles … anywhere: the role of gender as a factor in the crisis.

“Huh? What?” you may say.

Yes, the financial industry had too much financial leverage. Yes, there was greed. Yes, the regulations hadn’t kept up with the industry “innovations.” But what we don’t often talk about is that the industry suffered from too much complacency, from too much confidence in their understanding of the business and the markets, from too much groupthink. And groupthink can, in turn, be caused by cognitive homogeneity. (In other words, too many people who think alike because they are alike.)

Wall Street in 2008 was a business of mostly men — mostly white men — on its trading floors, in its management, among its financial advisors.

As a test: Raise your hand if you think the financial crisis would have been worse if the trading floors were 50% women, instead of 90%+ men? (Even when I ask this question of a roomful of men, no one ever raises their hands. Not a single person.)

On the one hand, this intuition is backed up by research that shows that poor risk-taking increases with testosterone levels and that homogeneous groups of traders tend to show off for each other, by taking on more risk. On the other hand, it’s also backed up by research that gender diversity is correlated with better business results across a range of metrics, including lower risk.

So … what happened to diversity in the financial services industry in the wake of the financial crisis?

It went backward. It went backward on the leadership teams, and it went backward throughout the companies’ rank and file.

Even today, this aspect of the crisis — and the vulnerabilities that homogeneity implies — remain virtually unexamined: Trading floors remain mostly men. Money managers are mostly men — despite the fact that the research indicates that women as a group deliver superior investing results. Financial advisors remain mostly men. Industry leadership remains mostly men.

This stubborn status quo is why we founded an Ellevest, so that we women are well-represented and well-served.

So, happy anniversary. I guess.