Perella explores causes of financial crisis
Joseph R. Perella ’64, chairman and CEO of Perella Weinberg Partners, shared an insider’s perspective of the global economic crisis with an overflow audience of more than 1,200 at Lehigh’s Zoellner Arts Center Wednesday afternoon.
Lehigh University President Alice P. Gast joined Perella onstage for a candid question-and-answer session after his remarks, which featured an historical look at the many developments over the course of the past 20 years that contributed to today’s inhospitable economic climate.
“I’ve always felt that the inscription over the Archives of the United States is an important one,” said Perella, citing Shakespeare’s prescient verse: “What’s past is prologue.”
“I think it’s important to have a sense of history, because you can’t parachute into 2008 or 2009 and look at what’s happening in the financial world without understanding the history of how we got to where we are,” he said. “I mean it in terms of the transformation that goes on in business.”
Perella’s lecture explored that business evolution. He built his presentation around four key categories: cultural transformation, business transformation, changes in business balance sheets, and technology.
The consequences of 'wealth destruction'
Perella’s insight comes from more than three decades on Wall Street, where he is revered as a pioneer and an international leader in the mergers and acquisitions (M&A) industry. Early in his career, he founded and managed First Boston’s highly regarded M&A Group. He also served as the worldwide head of Morgan Stanley’s Investment Banking Division and chairman of institutional securities and investment banking.
But it’s his current boutique firm, Perella Weinberg Partners, that has been thrust into the spotlight with last week’s announcement that the Federal Deposit Insurance Corporation (FDIC) had chosen the firm to help it stabilize the U.S. banking system.
According to a FDIC press release, Perella’s firm could also advise FDIC staff on the disposal of failed institutions and how to handle delinquent loans and distressed securities assumed from banks.
It’s a role that Perella is in an unique position to handle. He said he launched his firm in 2006 on the principle that clients and investors need high-quality, independent financial advice provided by individuals who are bright, creative, experienced, and loyal.
It’s an intentional departure from the current Wall Street culture—one that, in the past 20 years, has seen firms that were once privately held turn public. The result, he said, is a change of perspective among the financial community toward a business model that is performance-driven.
“One of the things I think is that these institutions changed from being very client-centered to being very compensation-oriented, and they lost sight they were in the service business … and that the client was the center of the universe,” he said.
But that change in culture isn’t limited to the financial class, he added. The root of today’s worldwide financial crisis is still the subprime mortage debacle, and America’s response to the problem.
He calls it wealth destruction.
“I think you have, at the base of this, a U.S. consumer that is over-burdened by debt, worried about job security, with a rapidly depreciating home,” he said. “And my privately held view is that, until people perceive that the decline in the value of real estate has been stopped, the confidence will not be regained back into the system.”
That change in America’s attitude toward spending and consumption has reverberated across the globe, affecting economies in China, Germany, and other nations that are critical parts of a global supply chain. Overall, Perella said, Americans’ household wealth has dropped by nearly $10 trillion. That number reaches $37 trillion on a worldwide basis.
“You can’t wipe out that wealth without having huge, enormous consequences,” he said.
Wanted: Financial pilots
Technology, though it was designed with all the right intentions, has greatly contributed to the current situation, he said.
“I think technological innovation facilitated globalization and it eliminated natural checks that were in the system,” he said, referring to traditional paper transactions. “There was a built-in check against exuberance … The rate we innovate is faster than the rate we learn from our mistakes.”
Among other questions submitted by the audience, Perella and Gast later discussed the impact of additional regulation. Perella said Congress needs to take a step back and figure out “what kind of a regulatory environment makes sense for the future, and that probably means consolidating a lot of the oversight … so that all these things can be coordinated.”
“Regulation in and of itself is not the answer,” he said. “Regulators are not business managers. There needs to be some self-regulatory body that is effective and has more finality.”
Perella says regulation can’t come from Washington if it wants the industry to be successful. He pointed to the airline industry as an example of an industry that, to a large extent, holds itself accountable for its actions.
“The great regulator of the industry is the pilot, because if the plane crashes, the pilot is not going to survive,” Perella said.
Pilots make sure the plane is safe before they get into the cockpit to fly it. They scrutinize the work of their crew chiefs and manually check, for themselves, that the plane is prepared to take off safely.
“The pilot is probably the number one safety officer in the airline industry,” Perella said.
Paul R. Brown, dean of Lehigh’s College of Business and Economics, emceed the forum. Lehigh will host its next lecture about the economic environment on Feb. 24 in Lamberton Hall’s Great Room. The topic for discussion is, “Navigating Economic and Corporate Distress: An Investor Perspective.”
--Tom Yencho
Becky Straw also contributed to this report.
Photos by Theo Anderson
Lehigh University President Alice P. Gast joined Perella onstage for a candid question-and-answer session after his remarks, which featured an historical look at the many developments over the course of the past 20 years that contributed to today’s inhospitable economic climate.
“I’ve always felt that the inscription over the Archives of the United States is an important one,” said Perella, citing Shakespeare’s prescient verse: “What’s past is prologue.”
“I think it’s important to have a sense of history, because you can’t parachute into 2008 or 2009 and look at what’s happening in the financial world without understanding the history of how we got to where we are,” he said. “I mean it in terms of the transformation that goes on in business.”
Perella’s lecture explored that business evolution. He built his presentation around four key categories: cultural transformation, business transformation, changes in business balance sheets, and technology.
The consequences of 'wealth destruction'
| Joseph R. Perella '64 traced the history of the financial crisis during his talk at Zoellner Arts Center Wednesday. |
But it’s his current boutique firm, Perella Weinberg Partners, that has been thrust into the spotlight with last week’s announcement that the Federal Deposit Insurance Corporation (FDIC) had chosen the firm to help it stabilize the U.S. banking system.
According to a FDIC press release, Perella’s firm could also advise FDIC staff on the disposal of failed institutions and how to handle delinquent loans and distressed securities assumed from banks.
It’s a role that Perella is in an unique position to handle. He said he launched his firm in 2006 on the principle that clients and investors need high-quality, independent financial advice provided by individuals who are bright, creative, experienced, and loyal.
It’s an intentional departure from the current Wall Street culture—one that, in the past 20 years, has seen firms that were once privately held turn public. The result, he said, is a change of perspective among the financial community toward a business model that is performance-driven.
“One of the things I think is that these institutions changed from being very client-centered to being very compensation-oriented, and they lost sight they were in the service business … and that the client was the center of the universe,” he said.
But that change in culture isn’t limited to the financial class, he added. The root of today’s worldwide financial crisis is still the subprime mortage debacle, and America’s response to the problem.
He calls it wealth destruction.
“I think you have, at the base of this, a U.S. consumer that is over-burdened by debt, worried about job security, with a rapidly depreciating home,” he said. “And my privately held view is that, until people perceive that the decline in the value of real estate has been stopped, the confidence will not be regained back into the system.”
That change in America’s attitude toward spending and consumption has reverberated across the globe, affecting economies in China, Germany, and other nations that are critical parts of a global supply chain. Overall, Perella said, Americans’ household wealth has dropped by nearly $10 trillion. That number reaches $37 trillion on a worldwide basis.
“You can’t wipe out that wealth without having huge, enormous consequences,” he said.
Wanted: Financial pilots
| Lehigh President Alice P. Gast joined Perella onstage for the question-and-answer session. |
“I think technological innovation facilitated globalization and it eliminated natural checks that were in the system,” he said, referring to traditional paper transactions. “There was a built-in check against exuberance … The rate we innovate is faster than the rate we learn from our mistakes.”
Among other questions submitted by the audience, Perella and Gast later discussed the impact of additional regulation. Perella said Congress needs to take a step back and figure out “what kind of a regulatory environment makes sense for the future, and that probably means consolidating a lot of the oversight … so that all these things can be coordinated.”
“Regulation in and of itself is not the answer,” he said. “Regulators are not business managers. There needs to be some self-regulatory body that is effective and has more finality.”
Perella says regulation can’t come from Washington if it wants the industry to be successful. He pointed to the airline industry as an example of an industry that, to a large extent, holds itself accountable for its actions.
“The great regulator of the industry is the pilot, because if the plane crashes, the pilot is not going to survive,” Perella said.
Pilots make sure the plane is safe before they get into the cockpit to fly it. They scrutinize the work of their crew chiefs and manually check, for themselves, that the plane is prepared to take off safely.
“The pilot is probably the number one safety officer in the airline industry,” Perella said.
Paul R. Brown, dean of Lehigh’s College of Business and Economics, emceed the forum. Lehigh will host its next lecture about the economic environment on Feb. 24 in Lamberton Hall’s Great Room. The topic for discussion is, “Navigating Economic and Corporate Distress: An Investor Perspective.”
--Tom Yencho
Becky Straw also contributed to this report.
Photos by Theo Anderson
Posted on:
Wednesday, February 04, 2009
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