“We’ve Got to Find the Middle Ground”

In his new book, Too Big to Save?, Robert Pozen proposes fixes for the biggest financial crisis of our lifetimes.

Often, when ominous noises emanate from this country’s complex financial machinery, Robert Pozen is called on for a diagnosis. The chairman of mutual-fund company MFS Investment Management and a lecturer at Harvard Business School, Pozen has a knack for delving into the nuts and bolts of tortuous policy issues and seeking the most practical solutions, even if, as he says, “they’re not perfect.”

Most recently, he presided over the Securities and Exchange Commission’s blue-ribbon Committee to Improve Financial Reporting — a year-long effort that resulted, in August 2008, in a series of recommendations widely called the “Pozen Committee Report.” In 2001 and 2002, he also served on President Bush’s Commission to Strengthen Social Security.

As the financial crisis unfolded, says Pozen, he was asked by everyone from his Harvard students to members of his own book club to “explain what was happening and how were we going to get out of this mess.” He began to pen an analysis of the crisis — and, true to form, propose a series of fixes. The resulting book, Too Big to Save?, was released Monday, with each passage on a proposed policy marked in bold type. Pozen spoke about the book with CFO last week. An edited version of that discussion follows.

What prompted you to write this book?

It was clear that there was this tremendous appetite for people to both understand what had happened [to cause the financial crisis] and also to evaluate what the government was doing. A number of books were coming out, but they focused on a particular aspect of the crisis, like Lehman Brothers or credit default swaps or the Fed. They were also very backward looking. Many of them were quite good at financial journalism, but they were essentially a narrative of what had happened in the past. They didn’t really [address] what we should do in the future. And I have a lot of ideas about what we should do in the future.

Bob_Pozen“Securitizations are the key to loan volume. And if we force banks and corporates to put [them] on their balance sheets and to treat them as if none of the risk has been laid off, well, I don’t think you’re going to have much in the way of securitization.” — MFS chairman Robert Pozen, author of Too Big to Save?

The first three chapters of your book deal with the mortgage securitization issues at the heart of the crisis. Compared with mortgage or even credit-card securitizations, corporate securitizations are a tiny slice of the pie. Yet you argue that the policy issues you address in the book are highly relevant to corporate readers. Why is that?
Like it or not, CFOs are caught up in the wave of reform and reaction to what some people viewed as the misuse of off-balance-sheet entities and the misuse of financial derivatives. I think we’d all have to agree that there surely were a lot of misuses. So the question is whether in responding to that the regulators and Congress will go so far as to make life very difficult for corporate treasurers and corporate CFOs, even though they were not culpable in the least bit. And I think unfortunately that’s what’s happened.

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