My heart is full.

Πάτερ ἡμῶν ὁ ἐν τοῖς οὐρανοῖς·
ἁγιασθήτω τὸ ὄνομά σου·
ἐλθέτω ἡ βασιλεία σου·
γενηθήτω τὸ θέλημά σου, ὡς ἐν οὐρανῷ καὶ ἐπὶ τῆς γῆς·
τὸν ἄρτον ἡμῶν τὸν ἐπιούσιον δὸς ἡμῖν σήμερον·
καὶ ἄφες ἡμῖν τὰ ὀφειλήματα ἡμῶν,
ὡς καὶ ἡμεῖς ἀφίεμεν τοῖς ὀφειλέταις ἡμῶν·
καὶ μὴ εἰσενέγκῃς ἡμᾶς εἰς πειρασμόν,
ἀλλὰ ῥῦσαι ἡμᾶς ἀπὸ τοῦ πονηροῦ.
[Ὅτι σοῦ ἐστιν ἡ βασιλεία καὶ ἡ δύναμις καὶ ἡ δόξα εἰς τοὺς αἰῶνας. ἀμήν.]

Pater noster, qui es in caelis:
sanctificetur Nomen Tuum;
adveniat Regnum Tuum;
fiat voluntas Tua,
sicut in caelo, et in terra.
Panem nostrum cotidianum da nobis hodie;
et dimitte nobis debita nostra,
Sicut et nos dimittimus debitoribus nostris;
et ne nos inducas in tentationem;
sed libera nos a Malo.

Three Tips for Becoming an Energizer - ROSABETH MOSS KANTER

Some people become leaders no matter what their chosen path because their positive energy is so uplifting. Even in tough times, they always find a way. They seem to live life on their own terms even when having to comply with someone else's requirements. When they walk into a room, they make it come alive. When they send a message, it feels good to receive it. Their energy makes them magnets attracting other people.

Just plain energy is a neglected dimension of leadership. It is a form of power available to anyone in any circumstances. While inspiration is a long-term proposition, energy is necessary on a daily basis, just to keep going.

Three things characterize the people who are energizers.

1. A relentless focus on the bright side. Energizers find the positive and run with it. A state government official in a state that doesn't like government overcomes that handicap through her strong positive presence. She dispenses compliments along with support for the community served by her agency, making it seem that she works for them rather than for the government. She greets everyone with the joy generally reserved for a close relative returning from war. I can see skeptics' eyebrows starting to rise, but judging from her success, people love meeting with her or getting her exclamation-filled emails. She is invited to everything.

The payoffs from stressing the bright side can be considerable. In my new book, SuperCorp, I tell the story about how Maurice Levy, CEO of the global marketing company Publicis Groupe, tilted the balance in his company's favor when his firm was one of several suitors for Internet pioneer Digitas. At one point in a long courtship, Digitas hit problems, and the stock collapsed. One of Publicis's major competitors sent Digitas's head an email saying, "Now you are at a price which is affordable, so we should start speaking." Levy sent an email the same day saying, "It's so unfair that you are hurt this way because the parameters remain very good." Levy's positive energy won the prized acquisition.

2. Redefining negatives as positives. Energizers are can-do people. They do not like to stay in negative territory, even when there are things that are genuinely depressing. For example, it might seem a stretch for anyone to call unemployment as "a good time for reflection and redirection while between jobs," but some energizers genuinely stress the minor positive notes in a gloomy symphony. A marketing manager laid off by a company hit hard by the recession saw potential in people he met at a career counseling center and convinced them that they could start a service business together. He became the energizing force for shifting their definition of the situation from negative to an opportunity.

"Positive thinking" and "counting blessings" can sound like naïve cliches. But energizers are not fools. They can be shrewd analysts who know their flaws and listen carefully to critics so that they can keep improving. Studies show that optimists are more likely to listen to negative information than pessimists, because they think they can do something about it. To keep moving through storms, energizers cultivate thick skins that shed negativity like a waterproof raincoat sheds drops of water. They are sometimes discouraged, but never victims.

An entrepreneur who has built numerous businesses and incubated others had a strong personal mission to raise national standards in his industry. He began that quest by meeting individually with the heads of major industry organizations, all of whom told him that he would fail. He nodded politely, asked for a small commitment to one action anyway, just as a test, he said, and went on to the next meeting. Eight or nine meetings later, he was well along on a path everyone had tried to discourage him from taking.

3. Fast response time. Energizers don't dawdle. Energizers don't tell you all the reasons something can't be done. They just get to it. They might take time to deliberate, but they keep the action moving. They are very responsive to emails or phone calls, even if the fast response is that they can't respond yet. This helps them get more done. Because they are so responsive, others go to them for information or connections. In the process, energizers get more information and a bigger personal network, which are the assets necessary for success.

The nice thing about this form of energy is that it is potentially abundant, renewable, and free. The only requirements for energizers are that they stay active, positive, responsive, and on mission. Are you an energizer? Any tips you'd like to share?

After Lehman: How Innovation Thrives In a Crisis - Scott Anthony

The economic shocks that reverberated through the economy a year ago could easily have marked the end of the nascent "Innovation Movement." After all, how could companies prioritize developing innovation programs in the face of very real questions of fundamental survival?

A year later, it is clear that innovation has never been more important. And, in a strange way, the scarcity forced on many companies has been a hidden accelerator of efforts to systematize innovation.

Certainly companies like General Motors faced such critical operational issues that innovation efforts had to be de-prioritized, if not shut down. Arguably the struggles of these companies highlighted how very important it is for companies to get ahead of the innovation game by investing in innovation before they need to invest in innovation.

More and more executives have come to terms with the fact that the "new normal" of constant change necessitates developing deep competencies around innovation.

The increasing pace of change is not really new. Long-term research by Innosight Board member Dick Foster shows how the pace of "Creative Destruction" has been accelerating for some time.

One simple way to demonstrate this increase is to look at the turnover in Standard & Poor's index of leading U.S. companies.

The S&P index goes back to 1923. Foster's research found that in the 1920s (when the list contained 90 companies), when a company got on that list, it would stay on for about seventy years. That meant that people who joined an S&P company might be joining the same company their parents worked for and might expect their children to work there as well.

In the 1960s, a company that entered the S&P index could expect to stay on it for about 40 years -- long enough for one career at least.

Today, a company that enters the S&P 500 index will stay on it for less than 20 years. That means if you join an S&P 500 company today, it most likely won't be an S&P 500 company by the end of your career because it will have failed, shrunk, or been acquired.

Increasingly, companies that buck the trend and last 30 or more years will do so only by mastering the ability to perpetually transform themselves. As Foster notes, "It's an entirely different world where the balance between continuity and change has moved to change."

Companies that continued to focus on innovation in the midst of the downturn, such as Amazon.com, IBM, and Procter & Gamble, are very well positioned to create substantial distance between themselves and their competitors. Their success will provide further fuel to arguments that innovation isn't a nicety, it is a necessity.

The good news for companies evaluating their innovation investments is that innovation is one area where less truly is more.

For example, time and again resource-constrained entrepreneurs have won disruptive battles to transform existing markets and create new ones against large companies with hordes of talented employees, great brands, and deep pockets.

The root cause of large corporate struggles, ironically, is abundance. Too much patience. Too much investment. Too many people. Abundance leads companies to lock into bad strategies early. It leads to overly slow decision-making processes.

Strategy can't be scheduled. Making decisions on a quarterly basis when new information comes in daily consigns companies to miss the innovation mark.

Constraints are innovation enablers. Small teams are faster than big teams. Teams with tight budgets make decisions more quickly than teams with loose budgets. Tight milestones force teams to address critical assumptions early, facilitating the re-direction that typifies the entrepreneurial process.

Innovation-seeking companies have two choices. One is to "outsource" innovation by developing world-class expertise in investing in and acquiring emerging disruptive businesses. For a long time Cisco has demonstrated the power of developing this expertise.

Of course, following this approach requires sometimes paying substantial acquisition premiums. And it denies companies the important process-based learning that comes from organic innovation efforts. Remember, failed efforts often are the springboard to future success.

The second choice -- and my admittedly biased preference -- is to develop deep competency around organic innovation. This kind of competency comes from treating innovation like a discipline with six, interlocking components;

An innovation strategy that details targets, tactics, and required resources
An innovation process that iteratively spots and shapes new growth businesses
Structures that support the nurturing of innovative ideas, providing a "safe place" for innovation
Supporting processes that helps ensure that companies don't succumb to the "sucking sound" of the core
A common language that helps build corporate alignment
Metrics that help senior leaders appropriately track their innovation efforts
These efforts need not require massive investments. In fact, a far better approach is to treat the creation of an innovation capability like a startup venture. Give a small team a small amount of money to address critical organizational uncertainties. Invest more only as the team learns more, demonstrates success and adapts its strategy based on "in-market" learning. Ensure that senior leaders "lean forward" and role model the importance of innovation.

There are ample tools in the academic literature and in the accumulated experiences of early corporate adopters to accelerate this journey.

As an innovation practitioner, I am grateful for the 2008 crisis. Rather than killing the innovation movement, it forced a scarcity mindset that will do the innovation movement much good. I suspect that history will ultimately judge 2005-2010 as the years where the innovation movement really took an important step from the fringes of the corporate world towards the mainstream.he economic shocks that reverberated through the economy a year ago could easily have marked the end of the nascent "Innovation Movement." After all, how could companies prioritize developing innovation programs in the face of very real questions of fundamental survival?

A year later, it is clear that innovation has never been more important. And, in a strange way, the scarcity forced on many companies has been a hidden accelerator of efforts to systematize innovation.

Certainly companies like General Motors faced such critical operational issues that innovation efforts had to be de-prioritized, if not shut down. Arguably the struggles of these companies highlighted how very important it is for companies to get ahead of the innovation game by investing in innovation before they need to invest in innovation.

More and more executives have come to terms with the fact that the "new normal" of constant change necessitates developing deep competencies around innovation.

The increasing pace of change is not really new. Long-term research by Innosight Board member Dick Foster shows how the pace of "Creative Destruction" has been accelerating for some time.

One simple way to demonstrate this increase is to look at the turnover in Standard & Poor's index of leading U.S. companies.

The S&P index goes back to 1923. Foster's research found that in the 1920s (when the list contained 90 companies), when a company got on that list, it would stay on for about seventy years. That meant that people who joined an S&P company might be joining the same company their parents worked for and might expect their children to work there as well.

In the 1960s, a company that entered the S&P index could expect to stay on it for about 40 years -- long enough for one career at least.

Today, a company that enters the S&P 500 index will stay on it for less than 20 years. That means if you join an S&P 500 company today, it most likely won't be an S&P 500 company by the end of your career because it will have failed, shrunk, or been acquired.

Increasingly, companies that buck the trend and last 30 or more years will do so only by mastering the ability to perpetually transform themselves. As Foster notes, "It's an entirely different world where the balance between continuity and change has moved to change."

Companies that continued to focus on innovation in the midst of the downturn, such as Amazon.com, IBM, and Procter & Gamble, are very well positioned to create substantial distance between themselves and their competitors. Their success will provide further fuel to arguments that innovation isn't a nicety, it is a necessity.

The good news for companies evaluating their innovation investments is that innovation is one area where less truly is more.

For example, time and again resource-constrained entrepreneurs have won disruptive battles to transform existing markets and create new ones against large companies with hordes of talented employees, great brands, and deep pockets.

The root cause of large corporate struggles, ironically, is abundance. Too much patience. Too much investment. Too many people. Abundance leads companies to lock into bad strategies early. It leads to overly slow decision-making processes.

Strategy can't be scheduled. Making decisions on a quarterly basis when new information comes in daily consigns companies to miss the innovation mark.

Constraints are innovation enablers. Small teams are faster than big teams. Teams with tight budgets make decisions more quickly than teams with loose budgets. Tight milestones force teams to address critical assumptions early, facilitating the re-direction that typifies the entrepreneurial process.

Innovation-seeking companies have two choices. One is to "outsource" innovation by developing world-class expertise in investing in and acquiring emerging disruptive businesses. For a long time Cisco has demonstrated the power of developing this expertise.

Of course, following this approach requires sometimes paying substantial acquisition premiums. And it denies companies the important process-based learning that comes from organic innovation efforts. Remember, failed efforts often are the springboard to future success.

The second choice -- and my admittedly biased preference -- is to develop deep competency around organic innovation. This kind of competency comes from treating innovation like a discipline with six, interlocking components;

An innovation strategy that details targets, tactics, and required resources
An innovation process that iteratively spots and shapes new growth businesses
Structures that support the nurturing of innovative ideas, providing a "safe place" for innovation
Supporting processes that helps ensure that companies don't succumb to the "sucking sound" of the core
A common language that helps build corporate alignment
Metrics that help senior leaders appropriately track their innovation efforts
These efforts need not require massive investments. In fact, a far better approach is to treat the creation of an innovation capability like a startup venture. Give a small team a small amount of money to address critical organizational uncertainties. Invest more only as the team learns more, demonstrates success and adapts its strategy based on "in-market" learning. Ensure that senior leaders "lean forward" and role model the importance of innovation.

There are ample tools in the academic literature and in the accumulated experiences of early corporate adopters to accelerate this journey.

As an innovation practitioner, I am grateful for the 2008 crisis. Rather than killing the innovation movement, it forced a scarcity mindset that will do the innovation movement much good. I suspect that history will ultimately judge 2005-2010 as the years where the innovation movement really took an important step from the fringes of the corporate world towards the mainstream.

Information-rich and attention-poor - Peter Nicholson

Council of Canadian Academies president Peter Nicholson writes in his weekend essay that in becoming information-rich, we have also become attention-poor.

"The three technologies that have powered the information revolution – computation, data transmission and data storage – have each increased in capability by about 10 million times since the early 1960s, unleashing a torrential abundance of data and information," Mr. Nicholson writes. "But economics teaches that the counterpart of every new abundance is a new scarcity – in this case, the scarcity of human time and attention."

He argues information technology is driving a correspondingly profound transformation of knowledge production, the main feature of which is a shift of emphasis from depth to speed.

"The challenge is to adapt, and then to evolve, in a world where there continues to be an exponential increase in the supply of information relative to the supply of human attention," he writes.

Mr. Nicholson also argues that as the flow of information speeds up, fewer resources will be invested in the creation of information products and as a result, the "market" for depth is narrowing.

"There is also under way a shift of intellectual authority from producers of depth – the traditional “expert” – to the broader public," he writes, adding that several heads are indeed better than one.

"But while hundreds of thousands of Web-empowered volunteers are able to very efficiently dedicate small slices of their discretionary time, the traditional experts – professors, journalists, authors and filmmakers – need to be compensated for their effort, since expertise is what they have to sell. Unfortunately for them, this has become a much harder sell because the ethic of “free” rules the economics of so much Web content. Moreover, the value of traditional expert authority is itself being diluted by the new incentive structure created by information technology that militates against what is deep and nuanced in favour of what is fast and stripped-down."

"Because I Said So..." - Paul McCulley

Most parents have, at some point or points, responded to the incessant whining of a child asking “Why, why, why, why?” by retorting “Because I said so.” And for those that haven’t, they are either saints or possess DNA unfamiliar to me. It’s not that we don’t feel a duty to explain in as rich detail as we can the logic of our decisions. Most of us do.

But at some juncture in the dialogue with the child, we run into one or both of two problems:

The child simply refuses to acknowledge our well-articulated logic; and/or
We admit to ourselves that our logic may not be all that tight and that the decision at hand is a function of our fuzzy instincts, rather than our un-fuzzy brains.
I’ve been there and done that, and I have only one, 20-year old Jonnie. For my colleagues and friends with larger families, I’m sure the urge to say, “Because I said so” surfaces even more often.

Such is the case with central bankers, too, and they have many children:

Their political overseers, who may be also their enablers;
The financial markets, given to wanting instantaneous results when that is impossible and certainty of intent when uncertainty abounds;
Ivory tower academics who know all about how the financial world is supposed to work, but with few having actually worked in it;
International players, who lack familiarity of what is economically desirable relative to what is politically feasible in foreign environs; and perhaps most important,
The general public, who instinctively understand microeconomics (what is in it for me?) better than macroeconomics (what is in it for us?).
Accordingly, central banks have a long history of wrapping what they do in varying degrees of opaqueness, if not secrecy, on the proposition that some things are simply just too complicated, or delicate, for all their “children” to understand.

Glasnost Is Only As Good As The Reaction Function
Fortunately, the last couple of decades have been a period of evolving central bank glasnost. The Fed did not lead the charge, but rather foreign central banks, starting with the Reserve Bank of New Zealand, where legislation was passed in 1989 requiring the central bank to adopt an official inflation target, including regular reporting on performance. Many other central banks followed. The Fed didn’t, in part because it has a legal dual-mandate of both low inflation and low unemployment, while many other central banks have a sole legal mandate to pursue low inflation.

Nonetheless, the Fed has made remarkable strides over the last couple decades in both announcing and explaining the rationale for its actions. Former Fed Chairman Greenspan got the Fed on the glasnost train, even if begrudgingly at times, while current Fed Chairman Bernanke has always had a reserved seat in the formal dining car. In academia, he was a vocal proponent of the Fed announcing an official inflation target, and since becoming a Fed Governor in 2002, and especially since becoming Fed Chairman in 2006, has successfully pushed for ever more transparency in both the logic and the actions of the central bank.

The reasons have been straight forward. Philosophically, accountability in a democracy demands that the secrets of the monetary temple be revealed. And practically, the more transparent is a central bank as to the ways and means of what it does, the more efficient will be the markets’ transmission of the central bank’s actions to the real economy. Thus, central bank transparency is not just a virtue in its own right, but also a virtue in enhancing the efficacy of central bank policy.

Or so the logic goes. I certainly philosophically buy it. But clearly, increased transparency did not prevent the worst financial crisis (in the developed world) since the 1930s. Thus, we ineluctably must conclude that good monetary policy, or more appropriately, good monetary and financial policy, is not just about central banks revealing their objectives and reaction functions, but more fundamentally about designing the correct objectives and reaction functions.

Or returning to my analogy at the outset, good parenting is not just about explaining the logic of reaction functions to children, but starting with fundamentally–sound reaction functions. Logically explaining a decision derived from a poorly-founded reaction function may satisfy a child for a time, but it is unlikely to serve the long-term well being of the child. Or the parent.

Taylor-like Rules Can’t See Systemic Risks
Such is the case with the Fed’s reaction function over the last decade: flexible, implicit inflation targeting, using a Taylor-like rule as a reference guide grounded on the proposition that the Fed could and should fine tune aggregate demand to exploit the economy’s Phillips curve – the cyclical trade-off between the inflation rate and resource utilization rates, notably labor market utilization rates.

To be sure, there has long been a raging debate in the economics community – in academia, in policy circles and in the markets – as to the “best” specification of Taylor-like rules. Indeed, former Fed Governor Larry Meyer and John Taylor himself are presently debating in public the “right” co-efficients in a Taylor-like rule.1 But where there has been little debate at all is what should go into a Taylor Rule, so as to compute the “appropriate” nominal policy rate:

A constant, which is assumed to be the “neutral” real rate, which would hold if the inflation and unemployment were both at “target”.
The inflation rate itself.
The gap between the actual inflation rate and the target inflation rate.
The gap between the actual unemployment rate and the full-employment unemployment rate, commonly known as the NAIRU (non-accelerating inflation rate of unemployment), which can also be viewed as the “target” rate.
Nowhere in such Taylor-like rules is there a term for the state of financial conditions, or more specifically, asset prices. The argument for not including such a term – made famously by Fed Chairman Bernanke and Professor Gertler in their 1999 paper2 presented at Jackson Hole – has been that changes in financial conditions and asset prices are indirectly “picked” up when implementing a Taylor-like rule, because they influence aggregate demand relative to aggregate supply potential and thus, the unemployment gap, which cyclically drives inflation.

More to the point, ebullient financial conditions stimulate aggregate demand, arguing for a smaller output gap and thus a higher policy rate while depressed financial conditions do just the opposite. Thus, so the argument goes, there is no need to include financial conditions in a Taylor-like rule, because to the extent that financial conditions influence aggregate demand, the rule will point to changes in the policy rate in the “right direction”.

To be sure, this intellectual edifice has not been religiously followed. Indeed, a favorite analytical means that is used to show this is the pattern of deviations in the actual policy rate from that prescribed by Taylor-like rules. And when using Professor Taylor’s own specification of his rule, computing such deviations is actually very easy, because Taylor used historical data for the independent variables, rather than forecasts of those variables. Such deviations of the actual policy rate from the “Taylor-prescribed” policy rate are viewed as the central bank being both forward looking and engaged in risk management, tilting policy relative to the rule in a judgmental fashion (hence, one of the reasons the paradigm is called “flexible” inflation targeting).

As a factual matter, the sum of the deviations – as shown in the graph alongside – over the last decade has been for an actual policy rate meaningfully below the Taylor-prescribed level, because the dominant “fat tail” in the Fed’s forecasts has been unacceptably low inflation rather than unacceptably high inflation. Professor Taylor takes great umbrage with the Fed for having systematically tilted policy to a more accommodative stance than prescribed by his rule, arguing that such a tilt in the middle years of this decade was a dominant – if not the dominant – cause of the housing and housing finance bubbles that formed during that period.

Intuitively, there must be some validity to Professor Taylor’s argument because by definition, running policy in risk management mode, biased to cutting off the fat tail of excessively low inflation, if not deflation, means an easier monetary policy that would be “appropriate” if the Fed looked only at the central tendency of the probability distribution of its forecasts. Many economists – myself included – would argue that this was the right thing to do, given the imperative of avoiding a Japanese-style liquidity trap. Did this low interest-rate deviation from Taylor’s specification of the Taylor rule really cause the asset bubble?

On this point, I think John Taylor takes his argument further than the evidence. To be sure, there is a correlation between low interest rates and rising home prices, but that correlation is not equivalent to causation. In my view, the evidence is much more persuasive that the primary villain in the bubble was ever-more lax underwriting standards for mortgage creation, facilitated by the unholy trinity of the originate-to-distribute business model, explosive growth in the shadow banking system, and complicit rating agencies. Had it not been for these enabling factors, the bubble would not have inflated – or subsequently deflated – as violently as it did.

But at the same time, bubbles are also endemic to human nature and behavior of markets. Old fashioned animal spirits, with optimism that housing prices could never fall propelling momentum-driven buying that drove up prices, re-enforced and turbo-charged the momentum from financial innovation and poor underwriting standards. Such is the nature of bubbles.

And conventional Fed wisdom for well over a decade has been that the central bank should not be directly concerned with such bubbles, because (1) they are devilishly difficult to preemptively identify and because (2) following a forward-looking Taylor-like rule “automatically” leads to a policy of leaning against bubbles. Rather than trying to pop putative bubbles, which would only definitively prove their existence by blowing up, conventional wisdom favored a “mop up strategy” – if and when bubbles did blow up.

To be sure, this conventional wisdom was not shared in all circles. Most notably, the Bank for International Settlements, the BIS, consistently warned that central bankers could and should identify nascent bubbles and could and should lean against them by more than what would be implied via their impact on aggregate demand, viewed through a Taylor-like rule. The BIS’s Bill White – and guest lecturer at PIMCO’s 2009 Secular Forum – led this great research and advocacy work.3 He was essentially ignored.

But no longer, following the greatest economic and financial downturn of the post World War II period. The analytical community – again in academic, policy and market circles – has no choice but to embrace that something went wrong, very wrong. And it is only natural that some of the re-examination take place with respect to the flexible inflation-targeting regime, implemented via a Taylor-like rule. That’s not to suggest that there was nothing right about that regime; it did indeed provide an analytical foundation for fine-tuning the economy to both low inflation and low unemployment, summarized in the motto, the Great Moderation.

But that regime left no room for the insights of Hyman Minsky, drawn from John Maynard Keynes, that financial capitalism is inherently given to endogenous boom and bust cycles, what Minsky called his Financial Instability Hypothesis. The tumult of the last two years ensures that the analytical community, in forming a new consensus around a new central bank reaction function, will incorporate Minsky’s insights, as suggested by San Francisco’s Fed President Janet Yellen.4 This process is still in its infant stages, but in my view, the doctrine of hands-off as to bubbles on the way up, to be followed by mopping up, is in ineluctable retreat.

None of the Fed’s five constituents – or children – presented at the outset will accept continuation of a regime that culminated in the drama of the last two years. Asset prices do matter. And policy makers will have no choice but to include them in their reaction function. Indeed, where the debate is most fertile is to whether asset prices, or financial conditions more generally, should (1) be added as an additional independent variable in Taylor-like rules, and/or (2) incorporated in a new regulatory reaction function, commonly called Macro-Prudential Regulation. The latter refers to a comprehensive revision of the regulatory framework to strengthen capital requirements; remove the pro-cyclicality of capital requirements that encourages banks to lend ever-more into booms and cut back ever-more in busts; and to modify compensation schemes to remove incentives for short-term gains at the price of long-term losses.

Bottom Line
Consensus opinion at Jackson Hole, as best as I can glean from the formal papers and informal write-ups of participants, is for the need to develop a robust, internationally harmonized framework of Macro-Prudential Regulation. Such a framework will have many objectives and features, but, in my view, the core objectives must be (1) counter-cyclical capital/margin arrangements, replacing the pro-cyclical paradigm that has been in place, which has turbo-charged the inherent boom-bust pathologies of financial capitalism that Minsky so richly identified; and (2) a robust resolution regime, outside the disorderly bankruptcy process, for all systematically important financial institutions.

There are many, many steps to go before consensus – both analytical and political – will form as to the details of a Macro-Prudential Regulatory regime. And as Charles Bean, Deputy Governor of the Bank of England, noted in a powerful speech last week in Barcelona,5 in the absence of such a regime, central bankers will have to consider seriously the “second best” option of incorporating asset prices more explicitly into their Taylor-like rules, being willing to accept somewhat larger deviations from “target” for both inflation and unemployment, if that is necessary to enhance prospects for systemic stability.

What we can say with high confidence is that central bank transparency of its reaction function is not a holy grail in its own right. Getting the reaction function right, including having different reaction functions for different problems, is the Holy Grail. And in my view, central bankers need not wait until a new consensus is fully formed, fully buffed with academic logic and empiricism, before pursuing new paths.

Yes, that will sometimes mean taking action that is not fully anticipated, based on old rules of the game. But just like parents, central banks must exercise judgment, and sometimes, good judgment does involve making decisions on the basis of where the gut says the brain is going. Yes, sometimes, “because I said so” is the right answer to a child’s question.

Should Work Make Us Happy? - GILL CORKINDALE

In these times of economic uncertainty and job insecurity, the question of whether work should make us happy seems an unnecessary self-indulgence. Many of us are just happy to have a job and be surviving the downturn. And yet happiness has been getting a lot of air-time lately — from the Guardian, the Atlantic, and Slate, just to name a few. It's also a question that still occupies many of the leaders I coach, from fresh MBA graduates to senior executives at the top of their organisations. Why is this?

According to Swiss philosopher Alain de Botton, we are living in a unique era, when we are encouraged to seek happiness through work. The idea of work as a source of fulfillment has been around much longer (championed by Benjamin Franklin in the 18th century), as has work as a source of meaning (articulated by Victor Frankl in the 1940s). Yet work as a source of happiness is something else. De Botton believes that while work has been important in all societies, it is now so closely tied up with our identity that the first question we ask new acquaintances is not where they come from, but what they do.

In his new book, The Pleasures and Sorrows of Work, de Botton interviews a range of workers, from rocket scientists to biscuit manufacturers to accountants to artists to find out what makes jobs fulfilling — or soul-destroying. One of the most disturbing discoveries he makes is that most of us are still working at jobs chosen for us by our sixteen-year-old selves.

As an independently wealthy intellectual himself, de Botton is a world away from another great writer on the varieties of work experience, Studs Terkel. Terkel, who called work "a Monday-to-Friday sort of dying," brilliantly chronicled the lives of ordinary 20th-century working Americans in his book Working. The account of the young woman advertising executive who recounts her ways of dealing with a patronizing male boss sound remarkably contemporary. Throughout these accounts, workers describe their satisfaction in doing a job well, but rarely refer to work as a source of happiness per se.

Personally, I am looking forward to the publication of The Joy of Work? — note the question mark — in October. Peter Warr, a professor of work psychology and Guy Clapperton, a business journalist, believe that since we spend an average of 25 percent of our lives at work, we should make the best of it. Very practically, they offer strategies to get more enjoyment from work and steps to improve your job without changing it.

The point about accepting your work and making the best of it is an important one. I have seen many cases among my clients of executives who have expected — or been promised — too much from their jobs. As reality dawns, they experience such crushing disappointment and unhappiness that they feel compelled to walk out of their jobs or even change careers. Of course, there are times when this is the only option, but more often it is their attitudes and approach to work that cause the misery. Herminia Ibarra, a Professor at INSEAD, urges executives to think carefully before they make dramatic career changes in pursuit of greater fulfilment and happiness. As she indicates, far less is written about career changes that go wrong than vice-versa.

Uncharacteristically, the British Government has decided that happiness is of great importance to the nation and has appointed economist Richard Layard our first "Happiness Tsar." His mission is to build some positive thinking into the workforce from childhood, so children will develop into more resilient adults. In his book, Happiness: Lessons from a New Science, he writes: "There is a creative spark in each of us, and if it finds no outlet, we feel half dead. This can literally be true: among British civil servants, those who do the most routine work experience the most rapid clogging of arteries."

So what do you think? Can you find happiness through work or is this an unrealistic expectation? Do you have any experiences or thoughts you could share? What are your recommendations for a happy, fulfilling life at work or in your wider life?

The Most Powerless Powerful Man on Wall Street - Joe Hagan

For a few seconds, the question hangs in the air.

“Would you just raise your hand?”

The congresswoman from California peers down through her spectacles at the eight men in front of her, their faces as dour as war criminals at a tribunal. It’s the congressional Finance Committee hearing in February, and Maxine Waters has demanded to know who among America’s investment-bank CEOs had the gall to take billions in federal bailout money and then raise credit-card rates on the very taxpayers who’d helped prop up their sorry companies.

Heads crane to look. Then the long, thin arm of Vikram Pandit, the chief executive of global banking conglomerate Citigroup, goes up in the air like a flag of surrender. When it drops back down again, Pandit’s shoulders slump, a weak smile of acquiescence on his face. Behind him, the Reverend Jesse Jackson glowers with righteous anger.

“Thank you,” Waters says curtly.

It’s a moment of withering humiliation for Pandit, but it’s only the latest disgrace: In the preceding months, he has barely clung to his job, as Citigroup’s board considered replacing him with a former media CEO and offered the government his head in exchange for the billions in bailout money. President Obama himself publicly rebuked him for ordering a new $50 million jet. Forced to break up Citigroup against his own strategic aims, he’s taken so much government aid that one i-banker jokes that Citi has become “the Wall Street version of the DMV.” The rank and file at Citi, their net worth destroyed, accuse him of cronyism and absentee leadership. He’s become a virtual corporate eunuch, his options narrowed to nil, making a $1 salary as a public display of humility.

Pandit is trying to keep his chin up. “Look, I don’t want to leave until the job is done,” he tells me late last week. “I don’t want to lose the opportunity to put this company in the right place, because I believe I can do it.” Not everyone agrees, of course, and the consensus is that he might already have been replaced at Citi if the government could find anyone willing to take the thankless job. (“The funniest blog was e-mailed to me by a friend,” he jokes wanly. “ ‘Pandit Gets to Keep His Crappy Job.’ ”)

It wasn’t supposed to be this way. When he arrived at Citi in late 2007, Vikram Pandit was the definition of the fabled “smartest guy in the room,” the kind of brainy financial engineer Wall Street invented—and rewarded richly—over the past twenty years, as complex instruments like derivatives fueled wealth creation. He saw hidden folds in complicated problems that others didn’t see, and when he spoke, which was not often and always quietly, people listened. But for all his brains, he never quite seemed to be in control of his own destiny. Fourteen months later, Pandit is the latest to be blamed for everything that is wrong with Wall Street, the smartest guy in a room full of idiots.

In the 1976 Columbia University yearbook, Vikram Pandit appears with the Institute of Electrical and Electronics Engineers: He’s a slight young man with huge black-framed glasses perched over a thin, aquiline nose and a sparse mustache, his thin neck poking out of a too-big plaid lumberjack shirt. He looks cheerful among the academic elite. Pandit had moved to Queens from a town in central India when he was 16, the son of a middle-class pharmaceutical executive. His family was of the Maharashtrian Brahmin caste, traditionally known as priests and scholars (Pandit, in fact, means “priest” or “learned person”), who frequently enter the business class in Indian society. When Pandit was born, an astrologer told his family that “whatever this boy touches will turn to gold.”

A spectacular student, Pandit studied summers and earned an undergraduate degree in electrical engineering in only three years. He then turned to finance and earned a doctorate after publishing a dissertation involving a crushingly complex financial puzzle. After teaching economics at Columbia, he moved to Bloomington to take a job as a professor of finance at Indiana University. This was a time when lowly professors at midwestern schools were suddenly being offered entry into the world of high finance. Wall Street needed so-called quants who could understand sophisticated investment structures like derivatives. Pandit saw an opportunity. He started as an associate at Morgan Stanley in 1983, among the first Indians to be employed at the firm.

Almost immediately, his colleagues recognized his sharp mind. “Whenever we had a tough problem, whatever the complex structuring was, we’d send Vikram to do that job,” recalls Anson Beard, an advisory director at Morgan Stanley and a veteran of the company’s seventies vanguard.

“There were probably only five or six people who really understood the balance sheets and the trading positions,” says Barton Biggs, a former colleague at Morgan who now runs Traxis Partners. “And none of those people were members of the executive committee. Vikram did understand it and could explain it.”

He was consistently prescient on sophisticated trends in financial theory. “He was talking about fat-tailed risks fifteen years ago,” says a former colleague from Morgan, referring to the concept eventually popularized in Chris Anderson’s 2007 book, The Long Tail. Others described Pandit’s uncanny ability to “see around corners,” predicting, for instance, the rise of hedge funds in the late nineties.

Pandit may have been Morgan Stanley’s resident genius, but he was nobody’s idea of a natural-born leader. He lacked charisma, detested glad-handing, avoided confrontation, and generally struck people as awkward and uncomfortable. The guy who seemed to have everything he didn’t, Pandit couldn’t have helped but notice, was John Havens.

Born to wealth and married to an heiress of the Doubleday book-publishing fortune, Havens hunted birds, played golf, smoked cigars, and knew his way around private clubs and charity dinners. His unusual looks—he was hairless owing to the rare skin disease alopecia universalis—were offset by his flashy ties, suspenders, and meticulous tailoring, “a walking advertisement for a bespoke clothing store,” according to one of his former colleagues at Morgan. His status among the elite members of the firm, old-line executives like Anson Beard and Parker Gilbert, was high. He played the part to the hilt, carrying himself with a martial bearing and once standing on a desk in the trading floor and exulting: “I bleed Morgan Stanley blue!”

Havens and Pandit had an unlikely but natural affinity. As a sales trader in the equity division, Havens sold clients the complex securities Pandit crafted. When Pandit came up with a new investment instrument, Havens wasn’t afraid to say “this is a shitty product you’re coming up with,” says a mutual colleague of the men. “[Pandit] came to appreciate Havens’s abilities not only to sell things but to help with the creation of the product.”

But Havens wasn’t just a business partner; he was also a kind of social prosthetic for Pandit. In exchange, Havens found Pandit’s brainpower useful in attaining higher corporate ground. By the late nineties, they had risen through the ranks of the equity division. When Neal Garonzik, the head of equities, left in 1997, both were up for the job. “There are two kinds of generals,” says Beard. “Some generals who can fire up the troops and take any hill, and some generals who sit in a tent and figure out which hill. Vikram is a terrific strategist. John is a leader.” In this instance, the strategist won out. Pandit was named Garonzik’s replacement, and Havens became Pandit’s No. 2. “I know John was disappointed, but he never let it affect his relationship,” says a colleague of the two men. “In fact, it grew stronger.”

His closest friends describe Pandit as quietly backing into power, too meek to grab for it directly, never ambitious in the pejorative sense of the word. To them, Wall Street was a meritocracy and the best and brightest mind, however passive and un-Gekkolike, had simply risen to the top in an orderly and natural fashion. After all, for every hard-charging trader who broke phones and kicked in doors, you needed a Vikram Pandit who could hedge against overzealousness. “Many people wanted to see him get his chance in the sun,” says Paul Kimball, a former Morgan colleague.

But with his newfound power came critics and rivals who saw Pandit’s dry, quiet ways as hubris and political cunning rather than shyness and humility. When he became president of investment banking at Morgan Stanley in 2000, “that’s when he said, ‘I am a king,’ ” says a former Morgan executive who is critical of Pandit.

Pandit was exceedingly cautious in his leadership role, always looking for ways to make money with a minimum of risk. When hedge funds came along, his idea was not to invest directly but to sell brokerage services to them. He would often avoid acting on a problem until he felt he’d perceived every possible risk involved—and the delays would frustrate his subordinates (“analysis paralysis,” they called it). He rarely expressed strong opinions in meetings, instead chiming in with a single Socratic question. “A lot of people were a little afraid of him,” recounts one former colleague. “He was so smart, and they didn’t want to look dumb.”

While Pandit observed and listened, Havens would execute Pandit’s strategies while another close aide, an outgoing and socially connected marketing man named Don Callahan, would sound out underlings and keep tabs on political machinations. To critics, it seemed that Pandit was merely trying to avoid risk to his career. “His attitude was all about, ‘I am not going to do anything, decide anything, that’s going to get in the way of an upwardly mobile career trajectory,’ ” says one of his Morgan Stanley antagonists. But his critics couldn’t deny the power of his intellect, and his superiors were beguiled by it.

Pandit made gestures toward the trappings of Wall Street success, buying a house in Greenwich, Connecticut, next to former Lehman Brothers CEO Dick Fuld and sending his children, Maya and Rahul, to Trinity School on West 91st Street (Pandit eventually joined its board of trustees). In most ways, however, Pandit remained a cultural outsider: While he paid dues to the exclusive Country Club of Purchase, part of Morgan Stanley’s unofficial social agenda for managing directors, a friend says Pandit never actually saw the inside of the club. His parents lived with him for part of the year in his Manhattan apartment, and Pandit drove the extended family around in a minivan. A fellow executive who once saw him at a movie theater was shocked to see Pandit out of his usual C-suite suit and tie, wearing an oversize anorak, stonewashed jeans, and white sneakers. He looked like “a nerd in the computer faculty,” says the onlooker.

Pandit was of two worlds, and the subtle cultural bias at Morgan Stanley didn’t make it easy to fit in. His wife, Swati, was frequently invited to Morgan Stanley events in which wives were expected to appear, but she never did. “Nobody has seen her at one work function,” says a former colleague at Morgan Stanley. Her absence didn’t help with the perception among some at Morgan that Pandit had a bias against women. A female executive who once worked for Pandit says he was uncomfortable having women in anything other than supporting roles. In 1998, one of Pandit’s female underlings filed a legal complaint against Morgan Stanley that resulted in a $54 million sex-discrimination settlement.

Pandit also took heat over his alliance with an Indian equities trader named Guru Ramakrishnan. Pandit and Ramakrishnan had come from the same Brahmin caste in India and had both gone to Columbia before seeking their fortunes on Wall Street. But that’s where the similarities ended. Ramakrishnan was outwardly confident and even arrogant—he once bragged that an astrologer told him he was going to be the head of sales and trading at Lehman Brothers. Many at Morgan considered him unpleasant and prickly. When he lost money, he had a habit of insisting “why he was right and the market was wrong,” says a person who worked with him. Some suspect that Pandit abided Ramakrishnan because he was a useful henchman for the conflict-averse president. “When Vikram wanted to browbeat somebody, he didn’t want to do it himself. He’d send Guru to do it,” says another former Morgan Stanley executive. It also didn’t hurt that Ramakrishnan was worshipful of Pandit: He once cried when he thought he would be unable to fulfill an order Pandit gave him. “Guru was very well protected by Vikram,” says a former colleague. Non-Indians at the company privately referred to Pandit and Ramakrishnan, along with two other Indian executives, as the “Indian Mafia.”

In 2001, John Mack, Morgan Stanley’s charismatic CEO, was edged out by Phil Purcell, the Dean Witter CEO who had merged his company with Morgan. Pandit was not bothered by the change at the top. Former colleagues say he told a group of people that it wasn’t a big loss because Mack wasn’t that smart. (Pandit denies saying this.)

In principle, Pandit and Purcell were aligned on the crucial subject of how much risk to take—neither was entirely comfortable with excessive leverage. By contrast, Zoe Cruz, the president of the fixed-income division, felt the credit markets were ripe for bigger bets and more leverage—and she was bringing in more money than Pandit. Pandit and Cruz jousted for influence with the CEO.

Meanwhile, in 2005, eight veteran former Morgan Stanley executives, known as the Group of Eight, made a run at Purcell’s power, co-opting disgruntled senior executives—including Pandit’s No. 2, Havens—to plot against him. To recruit Pandit, the G8 dangled before him the CEO job at Morgan Stanley—if Purcell was driven out, Pandit would eventually take over. It was a risky move: There was no guarantee that the coup would work. But when Purcell asked Pandit for his loyalty, Pandit refused, betting his chips on Havens and the G8. “He does not like conflict and does everything to avoid it,” says a person involved in the Morgan Stanley battle. “But this was an irreconcilable conflict and he acceded to Havens as he almost always does.”

Given Pandit’s coy style, Purcell was shocked when he learned Pandit had turned against him. “I don’t understand. Vikram was my guy,” he told a friend. “I saved his job three times.” When he learned of the betrayal, Purcell promoted Cruz, ousting Havens and Pandit.

On his way out, Havens walked through the trading floor to standing ovations, but Pandit left the building alone, taking only his raincoat into a cold March drizzle. “It was the most upsetting thing that ever happened to him,” says a friend and former colleague. Morgan Stanley, says another, “was his soul, his identity—home.”

The year that followed was difficult for Pandit. He was out of a job. And his mother, Shailaja, died of breast cancer, a blow that cracked his otherwise cool façade. He nearly broke down while telling a fellow executive the details, pausing to collect himself before he could speak again. In her memory, Pandit started the Maina Foundation for Raising Breast Cancer Awareness.

That same year, 2006, Pandit regrouped by forming a boutique hedge fund called Old Lane Partners with John Havens, Guru Ramakrishnan, and several other Morgan Stanley refugees. The name gave it the air of a Waspy clubhouse, but during a charity roast for Pandit in 2007, an Indian colleague joked that it should be called “Brown Brothers and Havens” because of all the Indians working there. Ramakrishnan, the only one with hedge-fund experience, was named CEO. He spearheaded $500 million in infrastructure projects in India.

Early on, Pandit and Havens went looking for investors and arrived at the door of Citigroup. Pandit had a friend in Robert Rubin, the company’s director. Rubin first saw Pandit at a private panel discussion in 1999 that was hosted by former SEC chairman Arthur Levitt. He was so impressed by Pandit’s intellect he asked to meet him. The two men struck many as kindred spirits. Like Pandit, Rubin favored intelligence over less quantifiable assets like charisma. In their views, such retail-business talents were secondary to cool analysis. “Vikram,” says Barton Biggs, “is an Indian version of Bob Rubin.”

Citi executives vetting Old Lane refused to stake client money on the investment, feeling Pandit’s team didn’t have enough experience. If they wanted Citi to invest, then Citi’s top executive, chairman and CEO Chuck Prince, would have to personally approve the deal. And Prince did: Citi invested $100 million in Old Lane.

Old Lane was performing poorly, earning only a net 3 percent return in 2007, worse than a money-market account. It was clear to everyone who knew him that Pandit was unhappy managing a hedge fund. He was restless and dissatisfied. “He wanted his shot at running something really big,” says Biggs.

Rubin and Citigroup were eyeing Old Lane as an acquisition—not for high-yield returns, but for Pandit, a potential candidate to one day run Citi. In April 2007, Pandit sold Old Lane to Citi for $800 million, a price tag that boggled the minds of Wall Street observers. Pandit personally reaped a huge bounty, what amounted to $165 million in cash. With his windfall, he bought a ten-room, $17.9 million co-op apartment on Central Park West, the former home of the late actor Tony Randall. Rubin made little pretense about why Citi had spent so much money: He publicly called Pandit “a genius.”

Pandit was made chief executive of Citi Alternative Investments (CAI), the hedge-fund arm of the company under which Old Lane now resided. At a company town-hall meeting, Rubin stood by him beaming, as Pandit announced that he would double the company’s hedge-fund business over the next few years. Havens, Pandit’s de facto No. 2, explained to their new underlings at CAI that “we need good DNA in here”—which meant, says one former Citi staffer, purging their colleagues and bringing in “a bunch of rejected Morgan Stanley guys.” Citi executives bristled at what they considered Havens’s swaggering leadership style. “He made it very clear he thought they were all morons,” says the former Citi executive. Pandit rarely showed up at CAI, instead spending time in Citi’s corporate suite near the top brass on Park Avenue. The hedge-fund wing was just a place to park until the real opportunity presented itself.

Six months later, Pandit was asked to investigate the bank’s books and discovered what would turn out to be billions in subprime losses—leading Chuck Prince to step down as CEO. Rubin immediately lobbied to have Pandit replace him, but there was unexpected resistance from a number of board members, including Alain Belda, chairman of Alcoa, and C. Michael Armstrong, the former AT&T CEO, who did not believe Pandit was ready to lead and thought Citi had overpaid to get him in the first place. Meanwhile, Citigroup founder Sandy Weill was advocating for Tim Geithner, a former protégé of Rubin’s then working for the New York Federal Reserve (and now, of course, Treasury secretary). Rubin began telling board members that Pandit might leave if they didn’t give it to him, making a mockery of the $800 million they’d paid for his hedge fund—a claim that detractors took as explicit arm-bending.

Rubin sold Pandit as the consummate problem-solver and a man who could see around corners—the sorts of descriptors that were often applied to him. Pandit’s pedantic style and reputation for risk-aversion dovetailed with the going mood, a balm for the go-go era of high risk that was battering the investment banks. After all, hadn’t Pandit resisted the leveraged risk favored by Mack and Cruz at Morgan Stanley?

Rubin ultimately prevailed, and the board of directors at Citi agreed to make Pandit CEO in December 2007. A confidant warned Pandit that he should think twice about taking the job. Citigroup was an unwieldy monster: A so-called financial supermarket built by Sandy Weill out of the merger of Travelers Group and Citicorp in 1998, Citi had a global reach that, in theory, was supposed to give it extraordinary leverage. But with the credit markets collapsing, the bad parts could start bringing the good parts down with them. The conversation over whether the business model was still relevant was reaching a fever pitch.

“Vikram, this is impossible,” the confidant said. Pandit replied, “No, this is a terrific opportunity.”

Pandit would be the leader of the biggest bank in the world, what amounted to a small country, population 350,000, and he would have at his disposal four airplanes, a helicopter, cars and drivers, chefs, dozens of aides, and the ear of the White House. Better still, running Citi would be his chance for redemption after missing his shot at Morgan Stanley. Once the deal was done, Rubin personally went from division to division praising Pandit to staffers.

Pandit laid out an ambitious three-year plan for Citigroup’s future: centralizing management, restructuring, selling billions in assets, and raising capital as a buffer against further credit collapse. (Rubin personally cruised a golf course with Prince Alwaleed bin Talal in Abu Dhabi to procure a $7.5 billion investment.) Pandit studiously read books on Citibank history, hoping to divine a common thread running from the company’s roots as City Bank of New York in 1812 to its present incarnation and perhaps gain an inkling of the pride he’d felt for Morgan Stanley. He brought in long-retired Citi executives to talk about the old days and reanimated the company’s seventies ad campaign, Citi Never Sleeps, to try to recapture its past glory.

“The funniest blog was e-mailed to me by a friend,” jokes the Citi CEO. “ ‘Pandit Gets to Keep His Crappy Job.’ ”
The main issue on the table was whether the “supermarket” model could be maintained. One trusted associate advised Pandit that he had to break up the company to make it work. Consultants from McKinsey & Co. offered the same suggestion in a report. Pandit rebuffed those suggestions. Some say that breaking up Citigroup was never truly an option. A senior executive at the company suggests Pandit had an implicit directive from the board of directors, especially Rubin, to keep Citigroup together, thereby preserving the legacies of founder Sandy Weill and Rubin himself. Rubin and Weill had been friends since the late nineties, when Rubin served in the Clinton administration. It was Rubin who helped push through the Gramm-Leach-Bliley Act that effectively allowed the merger of Travelers and Citicorp. A year later, Weill made Rubin a board member at the company he helped create, paying him a salary of $17 million a year.

Pandit chose to embrace the challenge of Citi in the only way he knew how: He elevated his Old Lane team to positions of power, bringing in Don Callahan, who had been working in marketing at Credit Suisse, to be his chief administrative officer and promoting Havens to head of investment banking. (Ramakrishnan opted to remain in the offices of Old Lane.) Perhaps the most powerful member of Pandit’s circle of lieutenants—which became known as the “Gang of Five”—however, wasn’t a Morgan Stanley alum but Lewis Kaden, a loyal Rubin associate. Kaden, a lawyer who’d worked for the powerful DC firm Davis Polk & Wardwell, had been friends with Rubin since the eighties, when Rubin was head of Goldman Sachs. Now he was involved in everything from the $400 million Citi Field naming project to negotiating with government officials, in addition to penning Rubin’s correspondence. A common internal joke at Citi was, “If Bob Rubin turns a corner too fast, Kaden breaks his nose.”

Pandit often stayed in his corner office on Park Avenue for hours, Kaden and Callahan serving as his links to the outside world. When one senior executive finally met with Pandit, both Kaden and Callahan afterward gave opposing takes on what Pandit had meant. At a time of duress, Pandit appeared disconnected from his staff. On Pandit’s trip to Baltimore last year with the head of Citi’s investor relations, there was a third passenger onboard the company helicopter to whom Pandit didn’t say a word. When the investor-relations man finally asked which division of Citi he worked in, they learned that he was a stranger who had accidentally boarded the wrong helicopter.

To Pandit’s mind, traditional morale-building leadership had always been an ephemeral concern. He knew he was no inspirational leader, instead seeing his mission as keeping the troops at bay while he spent his time making sense of what was happening to the banking industry. Messy human affairs were best outsourced to his trusted soldiers. But the perception that Pandit was hunkering down with select lieutenants gave way to accusations of cronyism by people who felt he was not taking advice from longtime Citi executives, including Michael Klein, Citi’s vice-chairman, and Sallie Krawcheck, the head of wealth management.

Pandit’s problems with Krawcheck—onetime CEO candidate and, incidentally, the top female executive at Citigroup—came to a head over how to handle Smith Barney, the brokerage arm of the company. There was a major fire to put out. Clients were suffering extraordinary losses on Citi’s alternative investments and so-called auction-rate securities, causing brokers to exit Citi in big numbers. E-mails from Smith Barney staffers poured in expressing dismay that Pandit wouldn’t reimburse clients who had lost money under Citi’s management. By this time, Krawcheck was already considered a thorn in Pandit’s side for continually arguing that the risk to clients had been higher than advertised and giving back a portion of the proceeds would protect the franchise. She was met with resistance from Pandit’s team: Havens was against reimbursing and yelled about it in a telephone conference. But the board sided with Krawcheck, asking that Citi take action with clients.

By September, Havens told Krawcheck that two major components of her division, research and the private bank, would now be under Havens’s management in the banking division, ostensibly part of overall restructuring. Krawcheck felt they were stripping her of power and essentially forcing her out. She announced her departure in September, leaving the company without an exit package.

During all this, Sandy Weill, who had originally hired Krawcheck, was breathing down Pandit’s neck. Concerned about the company’s stock price, Weill personally asked Pandit to buy back shares along with him, in a show of public confidence. Pandit agreed, according to a person close to Weill. But when Weill started buying back stock and Pandit didn’t do it right away, Weill complained loudly to friends. Pandit stopped returning Weill’s calls altogether, referring him to Callahan. (According to two people close to the situation, Pandit and Weill have spoken exactly twice since Pandit took over Citigroup; Pandit has since bought $8.4 million in Citi shares, although at a lower price than Weill did.)

Even within the ranks of his own lieutenants, there was infighting. Old Lane Partners was on the skids, and Ramakrishnan rushed to Pandit to secure a large capital infusion to keep it from going under. Pandit promised him $2 billion. When Havens found out about Pandit’s promise, he was furious, demanding to know how Pandit could have done such a thing without consulting him. Caught between two old friends, Pandit listened to Havens, as he usually did in the end. The Wall Street Journal published a story about the end of Old Lane, featuring Pandit’s stippled headshot and calling the event a “blow to CEO.” Feeling betrayed, Ramakrishnan threatened to sue Pandit for a better exit deal. The men reportedly no longer speak. “I think Vikram is more upset about it than Guru,” says a mutual acquaintance. “He’s disappointed in Guru.”

In September, the markets plunged along with the collapsing credit markets, and the foundation of Citigroup began to crumble. While Pandit had managed to accrue $60 billion in capital to shore up finances, it wasn’t near enough. Pandit was smart enough to know what needed to be done: He had to secure more access to cash, lots of it. As banks began to fail, he bid $1 a share for the commercial bank Wachovia, which the government was hoping to quickly marry off and save from dissolution. It was a cheap way to get access to cash deposits that could shore up Citi’s credit problems. As a deal drew near a close, Pandit appeared confident that he had achieved a much-needed victory.

Perhaps a little too confident. Pandit and Citi had relied on what amounted to the legal version of a handshake to secure the deal with Wachovia. And they dragged out the process while trying to separate Wachovia’s wealth-management division from the rest of the company, feeling it had too much overlap with Smith Barney. (Lew Kaden told a private group, “We’ve got 15,000 complainers, we don’t need 15,000 more.”) Pandit left just enough room for Wells Fargo to swoop in with a bid for $7 a share and snatch the bank out from under Citi.

Pandit was beyond infuriated. After learning of the coup during a middle-of-the night phone call, he angrily demanded to senior executives at Citi that they pull Wells Fargo’s credit lines. “Pull their fucking lines!” he screamed. “Pull their fucking lines!” A senior executive in the room calmly explained that Citigroup had no business with Wells Fargo. There was nothing they could do. Ultimately, Citi filed a lawsuit against Wells Fargo for breaching what Citi considered an exclusive deal.

What no one had realized at the time was that this was effectively Pandit’s last stand before the markets would lay all previously made plans to waste. The failed bid for Wachovia was a major blow to investor confidence, and Citi’s stock tumbled as the markets buckled and Lehman Brothers folded. Within a week, Pandit was lined up with the other banking CEOs to meet with then–Treasury Secretary Hank Paulson. With the government fearing massive bank failures and a wider financial meltdown, Citi accepted $25 billion in federal bailout money in exchange for issues of preferred Citi stock.

Increasingly, Pandit was acting out of character, barking profanities in the hallways. One former Citi executive says that the head of human resources expressed concern about Pandit’s expletive-laced outbursts he’d had in the C-suite. (Pandit denies any such outbursts.) The Wachovia incident, says one longtime friend, “was the first time I have ever seen him go nuts.”

Citi’s stock declined week after week. During a town-hall webcast meant to quell concern on November 17, Pandit forecast massive layoffs and felt the need to explain in his usual academic fashion what exactly a bank did (“A bank takes deposits and puts them to work”), which baffled the closed-circuit audience of veteran bankers. As Pandit flailed, the stock declined nearly 50 percent in four days, dipping below $5 a share, the trigger price at which pension funds would sell en masse and the bank would collapse completely. When Pandit took over, the stock had been at $52.

That Friday, November 21, reports surfaced that Pandit’s job was in the balance. According to a person familiar with the discussions, the name of former Time Warner chief Dick Parsons, a Citi board member and onetime head of Dime Savings Bank, was floated as a possible replacement. News of Pandit’s possible ouster furthered the stock’s fall. A team of Citi executives led by Ned Kelly, a seasoned negotiator who had been friends with Havens for many years, began talks with then–New York Federal Reserve chairman Tim Geithner’s team to ask for more money. Kelly’s first question to Geithner’s people was whether they wanted Pandit out. Federal officials reportedly concluded that the number of candidates willing and able to replace him was now next to zero.

Instead, federal officials encouraged Citi to start off-loading more properties and consider breaking up the company—even as the separate pieces were clearly worth less than they had been a year ago. The following Monday, Citi announced that it was receiving another bailout, this time $20 billion. (A month and a half later, Citi would merge Smith Barney with Morgan Stanley, giving Morgan a majority stake.)

Meanwhile, colleagues told Pandit he had a problem with morale at Citi, but he insisted his problems were bigger than that. “Pandit said, ‘I can give all the internal motivational speeches to the troops; it won’t matter if I don’t deliver,’ ” recounts the friend. “Rightly or wrongly, he was very dismissive of his traditional leader role, the ‘Hey, you’re a statesman’ role. The problem is much more serious, and fixing the problem will change everybody’s mind both inside and outside.”

How had Citigroup come to this? Blame began to circulate, with Rubin targeted as the alleged architect of the company’s high-risk investments. Before the spotlight could find him, Pandit, under pressure to defend Citigroup and give investors confidence that he was running the company, finally agreed to come out of hiding and appear on Charlie Rose. The performance was a slightly uncomfortable tap dance. The message: No one could have predicted this, no one is to blame, and there would be no further need for government bailouts. “We moved really fast,” Pandit told Rose. “What this market tells you is one should have moved even faster. And I keep thinking about it, is there something else I could have done sooner than what I did … But the most important thing, Charlie, is that it’s very, very important to look forward from where we are … We need to do a lot of hard work to figure out how to get from here to there.”

“And you are confident that we can get there?” asked Rose.

Pandit tried on his best inspirational-leader voice: “We, as a country, have no choice. We, at Citi, will get there.”

Last week, Citi was back before the government with its hat in its hands. After $45 billion in federal aid, the company was desperate for more. The negotiations went on for over a week—although the word negotiation might be overstating it. “You don’t negotiate with the government,” says a Citi executive involved in the talks. “It’s not like there’s a give and take.”

In the end, the Treasury Department agreed to convert up to $25 billion in preferred shares to common stock, shoring up Citi’s capital base. The deal is expected to give the government up to a 40 percent stake in the company—and influence within the board of directors. Pandit’s position, according to an internal memo to Citi staffers, is that this is “not a nationalization by any definition.” But while the Citi deal may not be nationalization in the strictest sense, it is a stunning turn of events for the U.S. government to own nearly half of one of the world’s largest banks. What that means in terms of the operations of Citi is anyone’s guess at this point. Federal officials seem reluctant to issue directives to Pandit, hoping to avoid the appearance of a true government takeover of the company. On the other hand, the consensus among Citi’s newest shareholders is that the “supermarket” model is untenable and the company needs to be broken up into smaller, more manageable entities. It’s a move Pandit has resisted from the beginning.

But Pandit isn’t calling the shots anymore. The Wall Street Journal, which has been particularly harsh in its depiction of the CEO, had him literally begging the government for his job last week: “Don’t give up on us,” he reportedly pleaded. “Give us a chance to execute.”

“He’s playing defense all the time,” says a longtime friend from his Morgan Stanley days. “This is just grinding these people down to nothing.” Another friend calls him “tragic,” a government “charity case.” Says another, “Would I have advised him to take the job? Yeah. Would I feel bad in retrospect? Yeah.”

Pandit has very little time to use whatever power he has left to try to turn things around at Citi—news of the Treasury deal sent the stock plunging to a historic low. A friend jokes that the CEO is the “MacGyver of the private sector banking system,” out to “save Citi before the timing device runs to zero.” But Pandit has never seen himself as the hero type. He looks at the problem with the eyes of an engineer: “My job is to figure out which pipes go where and which pipes have to be cut off, which pipes have to be unclogged,” he told a close associate. “It’s going to take me a year and a half to two years and then the water will flow, and when the water will flow, the stock price goes up. The stock price goes up, everybody will come around.”

The night before the government deal is sealed, Pandit finally comes to the phone, after weeks of resisting an interview, to put rumors of his demise to rest. He seems amused, slightly giddy. He has survived, for now.

He brushes off Journal reports that depicted him as powerless, running Citi under the heel of his “federal masters.” “We all have a master,” he says. “It’s not about that … It’s a tough time. There is adversity out there. If I don’t step up and do what I’m doing, take what is thrown at me and get this company going, I would have been the wrong choice of CEO.”

In conversation, he comes across as assertive, even a little cocky—bold in a way his critics don’t believe he can be. “I have complete confidence in my plan,” he says. “That’s what gets me here every morning.” Then again, what choice does he have?