The reason the economy is where it is today – me

Last week I got to be a guinea pig. Abbott’s continuing education people wanted to test the value of a new financial modeling class they were considering rolling out to the company. Before they did so, however, they wanted to offer a pilot course for approved individuals to attend for free – as long as the participants offered feedback at the end. My team was one of the ones approached, and being the junior-most member I was dutifully offered up as sacrifice. When I read the description for this class I was quite skeptical. Pshaw! I thought. I have an MBA from the University of Chicago, and I eat P&L statements for breakfast in my current role. What could I possibly learn from this experience?

But I showed up dutifully at the start of this two-day class anyway. The morning of the first day, I learned that we would be breaking up into teams of three to four individuals, and would be running a company for the remainder of the class. The company would be a manufacturing concern, where we would have to make decisions such as how much raw material to buy, how much to produce, what price to set for our goods, what loans to take, and how to manage our expenses. We would get to observe our company for the course of a “year” – at the end of each “month” we would see what happened in the market the instructors created, and have the opportunity to adjust each of the variables above. The emphasis throughout the course would be on managing the financials of the company by monitoring cash flow, the balance sheet, and the income statement, with the goal of learning what made a company financially sound. Pshaw! I thought (again). I got this.

Except that I didn’t. My team, egged on by yours truly, made a couple of bad decisions, caught a few unlucky breaks, and ended up as a marginal takeover target by the end of the game. We did so poorly that we barely had anything of value left at the end, but I took solace in the fact that we weren’t alone. Inevitably, those teams that had individuals with financial backgrounds performed poorly. Instead, the team that won consisted of one person from Abbott’s foodservices division (the people in charge of stocking Abbott’s employee cafeterias), someone from Abbott’s library, and someone from Abbott’s technology arm (the IT folks).

While I spent the game acting out my investment banker fantasy (“Guys, let’s borrow up to our eyeballs and get all the loans we can. This is called ‘leveraging’ in the financial world. What good is it to own a building when it doesn’t do anything for you? Better to sell it, then rent it back, and use the cash from the sale instead.”), and while a fellow financial wizard at a neighboring table urged his team to price their product absurdly low (“Let’s capture market share and crowd out the competition – those suckers won’t be able to compete at these low prices and will go out of business”), the winning team was employing a slightly different strategy. For them, it didn’t make sense to take out large loans, or sell their buildings and land. Instead they borrowed only what they could comfortably repay. Neither did they horse around with pricing too much – they set a decent price that earned them an honest profit, and they reinvested that profit back into the company.

Around halfway through the game it became clear that my team wouldn’t be able to make its debt payments. On the other side of the room it struck the other financial geniuses that they had priced their products so low that they were selling at a loss so bad that they weren’t even covering their expenses. Meanwhile, the librarian, foodservice manager, and tech lady kept chugging along. The humiliation was complete by the end of the game, when each team got to walk around the room and see how the other teams had played the simulation. “Why would you take a loan that you couldn’t repay?” someone would ask. “Why would you sell all your assets?” I had no answer for either question.

I left that two-day seminar happy that I had learned more about financial statements than I could have imagined. Abstract numbers on a sheet weren’t so abstract anymore, and the interconnectedness of the various statements that measured the health of a business became a little less arcane for me, the snooty MBA graduate. But as I packed my things and left class to go home that last day, a depressing thought came to me. I realized, in a flash of distressing brilliance, that it was because of idiots like me that we found ourselves in the economic mess we see now. Some overly clever bankers got together and thought they could game the system, except that the system bit back hard. But as soon as I had this epiphany, I also understood the way we could make sure that this would never happen again: when the dust settles on this economic scandal, and all guilty financial whiz-kids have been identified, they should be stripped naked one by one, taken out back, and slapped silly by librarians, foodservice managers, and tech ladies.