Like many of you, I’ve been following the current financial crisis and the discussions of the $700 billion to $1 trillion bailout proposed by the Bush administration. I don’t claim to be an expert in the matters of finance and Wall Street, and I hope those who are knowledgeable on these issues will be able to keep Great Depression 2.0 from occurring.
I am, however, a bit of an expert on negotiation, and it’s interesting to see the proposed legislation surrounding the bailout as a public negotiation going on in real time. While there is not much public information about what’s going on at this point, I expect the information will be trickling out as the week progresses. As we learn more throughout the week, look at things through a negotiation lens. My assignment to you: what negotiation fundamentals do you see? Think along these lines: bargaining style, leverage, interests and positions, separating people from the problem (which people and which problem?), objective criteria, BATNA, cognitive biases, and preparation.
I look forward to seeing what we can come up with because using real world concepts to help us teach negotiation is critical. They vividly and easily illustrate the concepts we are trying to describe and they give us legitimacy – especially in the eyes of skeptics.
Thanks for those great thoughts Sean, you clearly put some time into it. Also, any mention of the Onion (America’s Finest News Source) makes me smile.
One interest I had in mind when writing the post was related to the separation of powers. You mentioned it some, but let me put it in a different context. The legislature may push back against the executive simply as a method acting as a check and balance. Seeing the executive branch continue to grab power over the last several decades has rankled many in the Congress and many Constitutional scholars.
Another negotiation point to address is the $700 billion number. It appears the administration has had some difficulty translating its interest in averting the crisis into numbers as they’ve had a hard time explaining where the $700 billion figure came from* This difficulty manifests itself in many negotiations and underscores the need of negotiation preparation – anticipating what questions the other negotiator may ask and coming up w/ justifications for numbers.
* Forbes.com reported that they just wanted a really big number, so they picked $700b. http://www.forbes.com/home/2008/09/23/bailout-paulson-congress-biz-beltway-cx_jz_bw_0923bailout.html.
(Part 2)
The bargaining zone in this is a multidimensional maze. Negotiations must resolve differences over the amount of money committed to the rescue, standards for evaluating properties and recipients; issues of oversight of the process and of the rescued companies, and other interests such as limits on executive compensation in rescued companies and the process of eventual allocation of blame (if ever).
Also affecting the process are concerns about overconfidence (on the ability to borrow the needed funds, the rational value of the real-estate, and the response of the market). Given that overconfidence is the prime cause of this crisis, the natural tendency is toward underconfidence, that the mortgages the government will take over will be largely worthless and that foreign investors will hesitate to lend the enormous sums needed. Just to put $700 billion in perspective: 700 billion seconds is about 22,000 years. A stack of 700 billion dollar bills would reach nearly to the Moon.
Behind all these issues is a fundamental problem: Congress by and large does not trust the Administration. Having been rushed into bad decisions before, many in Congress (especially in the Senate) are experiencing a sense of déjà-vu. This barrier to an agreement is exacerbated by the unlucky coincidence that this is an election year.
At the end of 2007, the Onion (“America’s Finest News Source”) published an annual retrospective of the year’s news. Instead of a banal “Year in Review” they titled the piece something like “What Just Happened?” (I cleaned that up.) I look forward to seeing how they respond to THIS year.
(Part 1)
Watching the process underway as Congress and the Bush Administration work-out a response to our Financial crisis is a fascinating exercise in negotiation.
Who are the parties to this negotiation? Congress is a body of 535 free-agents; each free to engage in their own negotiation tactics. The consensus so far is more toward cooperation, but the occasional isolated bad-behavior must be expected. The Administration as a party will likely act with greater cohesion; but even they are likely to experience out-bursts of mendacity. The parties such as they are will need thick skins and great focus on the matters at hand.
Add to the parties the wonks, bloggers, lobbyists, interest groups, consultants, experts, and the assorted denizens of “inside the belt-way” and it is indeed daunting to figure out who’s doing what.
The crisis atmosphere in which this very complex negotiation must take place is stunning. The sense is that there is little time to hammer out an agreement on an agreement few understand well. What information is available is alarming or much disputed.
It seems the only thing the parties agree on is that everyone’s BATNA is somewhere on a range from awful to catastrophic. In fact, given the general nature of this calamity, it may be that everyone has the same BATNA: the economic equivalent of sticking their heads between their knees and kissing their assets good-bye. This shared sense of doom may be beneficial in this case; nothing focuses the mind quite like the prospect of hanging or bankruptcy.
Looking at the method of principled bargaining laid out by Fisher, Ury and Patton, one is not optimistic. Contemporary politics violates each of the four principles constantly.
The first principle; separating the people from the problem is anathema to politics as usual in which personal attacks are ubiquitous. Fortunately this crisis is not ordinary, and so far the focus has not been so much on blaming as would be typical. Keep your fingers crossed.
The second principle; focus on interests instead of positions also goes by the board normally. Whether the Administration’s proposal is a position to which they have fixed themselves or only an opening offer is not yet unclear. The bi-partisan response I hope makes clear that the proposal should be regarded as malleable and amendable.
The third principle; inventing options for mutual gain has been pursued by some parties to a great extent; as long as we remember that in this situation, “mutual gain” is merely painful instead of debilitating.
The final principle; use of objective criteria as it applies to fairness appears to be the central sticking point in this negotiation: what is it fair to ask tax payers to shoulder, and how should we allocate the poorly understood solution? How do we evaluate the costs of a program to buy up property and resell it eventually when we don’t know the value of the property?
The Framing of this “solution” is interesting: is this a “bailout” or an “investment in undervalued property”? If the property is only “undervalued” why doesn’t the marketplace rescue itself? Is this an emergency response, or a historic betrayal of American free-market ideals? Are tax payers going to spend $700 billion or are they just giving the government a line of credit?
(end of part 1)