I'm half way through Michael Lewis's The Big Short. It's too soon to give a full review, but I wanted to jot down a couple of quick observations before I forget.
The book is distressing in a couple of ways, none of those ways have anything to do with Lewis. First, Steve and I are just a couple of degrees of separation from some of the main characters in this book. We didn't know the big players, but friends of ours did. Some friends actually had a hand in this mess on Wall Street. Now, these are good people who are kind to their children, are fine members of the community, and don't kick dogs in the street. The system has been set up to insulate individuals from the broader repercussions of their actions. Unless things change, this is going to happen again.
Second, I am just terrible with money stuff. Lewis uses terminology that Steve uses every day when he comes home from work, and I still have no idea what Lewis talking about when he gets into the details of the crash. ISDA and credit default swaps and all that. I should know what those terms mean. Frankly, when Steve talks about that stuff, I just hear "waa waa waa," like the grown ups in a Peanuts cartoon. Unless the public (and me, too) keeps a closer eye on Wall Street, this is going to happen again.
Apt. 11d 
I’m sorry, but I really don’t understand the “good people” bit. History is rife (and I don’t think I need to trot out the usual examples) with terrible people who were “kind to their children.” And I don’t see how people who almost brought down the economy in the act of lining their pockets are “fine members of the community” even if they do keep their lawn mowed. (I’ll give you the dogs part…)
If it seems like I have a hate on for the financial sector, you’re right. The way I see it, they aren’t really a value add to society, but rather have just managed to divert his huge river of money so that it flows through their offices where they can just skim some off for themselves. And then, when this almost brings down the economy, their response is basically “That’s right, and if you don’t let us keep doing it then you haven’t seen anything yet.” And these are “good people?”
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“Now, these are good people who are kind to their children, are fine members of the community, and don’t kick dogs in the street. The system has been set up to insulate individuals from the broader repercussions of their actions. Unless things change, this is going to happen again.”
Oh, I totally get it, the good people stuff. In fact, I believe that a lot of our systemic failures occur because “good people” are incented to behave badly. When we focus on the people as though a different group of people would have behaved differently in those same circumstances, I think we’re having a serious failure of the imagination.
Is the financial industry useless? I honestly don’t know. But I don’t think lawyers are useless. That’s another group that’s often accused of skimming off part of a big flow of money, because people think, oh, everyone would just work everything out, if not for the lawyers. I suspect that the financial folk are also adding value somewhere. With both those professions, I’m sure that there are some people who are skimming without adding value, but I don’t know what percent that is.
Then, we can switch to professions that generally have the aura of “goodness” about them: university professors (though teachers seem on the chopping block recently) and doctors. Those folks do bad things when they have good incentives to do so, too.
I also think it will happen again (and I think it’s happen before). In my mind, the details may be different, but I think the fundamentals of the S&L crisis, Milken & the junk bonds, Enron, stock option scandals, the mortgage swaps . . . . are all the same. They are complex systems where people can exploit everyone’s lack of knowledge (including, sometimes, their own) for enormous enormous gains.
I’ve actually come around to thinking that limiting those gains are the only way to limit the cycle of boom and bust in exploitation of complex systems.
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When we focus on the people as though a different group of people would have behaved differently in those same circumstances, I think we’re having a serious failure of the imagination.
Except that I do think people (at least somewhat) self-select their profession. Or, at least, those of us who are fortunate enough to have the freedom to chose among several options. These people who go to work on Wall Street do it for, as far as I can see, two reasons; to enjoy high status and make a pile of money. It is not a failure of imagination to believe that people who chose not to go down this path might make different choices in other respects.
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“It is not a failure of imagination to believe that people who chose not to go down this path might make different choices in other respects.”
The question for me is whether given the same opportunity for bending morality for enormous gain, they would choose differently. I don’t, for example, believe that if I picked a random prof from a research university, a partner from a law firm, and a trader from Goldman, and a surgeon from a transplant facility and they encountered a moral quandary, that I could predict from their profession how they would behave (except when it relates specifically to the ethics of their own profession).
Say they each encounter a lottery ticket that they know will have 10 M payoff, and they only have a 25% probability of knowing how the rightful owner is? Or, they encounter a lost child?
That’s presumably what Laura means by how the people she knows in the Big Short are “good people” who take care of their kids and don’t kick their dogs.
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I’m with Jay on this one. Don’t kick dogs, nice to their kids, etc. are still compatible with massive crooks and border-line sociopaths in other areas. A colleague of mine spent some time interviewing a vicious war criminal from the Congo region- a real monster. The thing he was struck with was how he was a caring and devoted father. Our question ought to be, “what did they do?”, and many of these people did pretty horrible things, even if they are a rough part of your social set.
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he question for me is whether given the same opportunity for bending morality for enormous gain, they would choose differently.
I could almost buy this if it wasn’t for their after the fact behavior. Instead of displaying a little contrition they went down the “It’s our money and we aim to keep it” road. Forgive me if I take people at face value when I judge them.
don’t, for example, believe that if I picked a random prof from a research university, a partner from a law firm, and a trader from Goldman, and a surgeon from a transplant facility and they encountered a moral quandary, that I could predict from their profession how they would behave
I agree with you that it is impossible to evaluate one data point. I am not so sure, however, that if you took 100 law partners, 100 academics, etc, that you couldn’t make fairly accurate predictions of which group would have more people “fdoing the right thing.”
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Wall Street doesn’t have the corner on evil. I see it all the time in all sectors of the world. I see it in the grandmotherly case worker at our school, who lies to my face in order to save the school district some money for services for Ian. I’ve seen it all over academia as senior professors get their grad students to ghost write articles for them. There’s cronyism and idea-theft every where. Frankly, I don’t know how these people sleep at night.
So how do ordinary people end up doing bad things? I want to see what Michael Lewis has to say, but the definitive book on the subject is Hannah Arendt’s The Banality of Evil. Eichmann ended up shipping the Jews off the concentration camp not because he was an evil anti-semite, but because he put his blinders on. He was just doing his job. That’s what happened on Wall Street.
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Eichmann ended up shipping the Jews off the concentration camp not because he was an evil anti-semite, but because he put his blinders on. He was just doing his job. That’s what happened on Wall Street.
Even I find comparisons between the ibanksters and the Nazis a bit over the top. But the fact that such a comparison can even be made hardly reflects well on Wall Street.
Not that I buy into the whole revisionist “The Germans were basically misunderstood decent people” argument, either. And the “I was only following orders” line was basically disqualified as an affirmative defense at Nuremburg. But they, at least, had the excuse that they could expect some dire consequences for going against the flow. The banksters were only looking at, in the worst case, having to try their luck in a slightly less renumerative profession. Hardly a reasonable comparison.
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I have to rush off, but I have to plug Gotz Aly’s “Hitler’s Beneficiaries: Plunder, Racial War, and the Nazi Welfare State.” Aly casts the Nazi project as largely a campaign for plunder. The anti-Semitism and the German nationalism fueled the looting, and the looting in turn fueled the anti-Semitism and German nationalism. Once the Germans had confiscated and consumed Jewish property, it became very important to make sure that the former owners didn’t survive to return and demand their belongings. As long as the Germans were winning and looting new countries, they lived extremely comfortably.
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An interesting point on Eichmann: he wasn’t just doing his job — he was doing it to get ahead in the Nazi bureaucracy. According to Arendt, he was a dumb, insecure man, trying to impress his superiors. There were no blinders on; he was anticipating the desires of the Fuhrer and hoping to impress. (The “doing what I was told” argument was the defense used at Nuremberg. Eichmann’s trial was much later, in Jerusalem.) At least, this is Arendt’s central argument (one also taken up and expanded by Michael Mann, incidentally.) Of course, folks have targeted Arendt’s banality argument. It’s not the last word.
And, to the extent that Eichmann sought to forced emigration for the German Jewish population, he classified himself as a Zionist and a protector of the German Jewry (I say this with irony and not approval). There is some interesting empiricism here, where the proportional death toll of the Jewish population is low compared to the very high death toll for the Polish Jewry (the highest among the countries occupied by the Germans: 90%). There is some sense that the Nazis had a hierarchy of death that sought to relax the punishment meted out to the German Jewish population as opposed to others (relatively, of course): most extermination camps were in Poland, not Germany (as opposed to the work camps).
But I think that there is an odd comparison being drawn here regarding evil, Hitler and genocide, Wall Street bankers who profited from credit default swaps, professors who use graduate student ghost writers, incompetent elementary administrators and people who kick dogs.
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sorry, rushing around here, only time for a quick comment… I want to see what Lewis says about the dishonest brokers, but from what I saw, people got caught up in the game of Wall Street and lost sight of the fact that real lives were involved in the numbers that moved across the screen.
Jay and others were talking about the evil of wall street and, i think, they aren’t any more evil than some of the jerks that I see quite often. I don’t think that the wall street types were any more jerky than people in other lines of work. They just had more room to screw up.
i wasn’t equating wall street types with nazis. I only brought up Eichmann, because i think that he also got lost in the bureaucracy and promotion incentives and all that.
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hah, laura. It’s a fair enough point about bureaucrats. You gave me a nice opportunity to spout my Eichmann knowledge though. (Hitler was a vegetarian, btw.)
What is interesting to me about Wall Street, and after reading the Michael Lewis book and talking to a friend of a friend who works on Wall Street as a broker, is how much the financial world is based on doing what everyone else is doing, without the critical thinking skills to examine the long-term consequences. (I remember the friend decrying this year by saying: “No one knows what to do. No one is doing anything. It’s easier if people are clearly buying or selling, because then the path is clear.”)
Lewis makes the argument that the actual smart, critically thinking people were the ones betting against most of the banks with the credit default swaps, since they had the critical thinking skills to see that the mortgage market was going to tank. In fact, Lewis points out that they saw themselves as righteous people who were calling out the market on its idiocy. And they were the ones that bankrupted places like AIG, which had insured the mortgage-backed securities so foolishly.
So who here is evil or mindlessly bureucratic?: banks who created the securities, the ratings agencies that gave them the high ratings, AIG, which insured them, or the folks buying the credit default swaps, that stood to bank billions if the securities failed (and were smart enough to call out the system)?
If the folks buying the credit default swaps, note that these are not bureaucratic lemmings, nor are they the ones offering pathetic excuses for the bailout.
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“I don’t think that the wall street types were any more jerky than people in other lines of work. They just had more room to screw up. ”
Yes. Their screw-ups, double-dealing, morality bending ended up bringing down our economy, instead of “just” the career of a lowly grad student or the needs of a child with disabilities.
And, no, I don’t think that scaling my take a lawyer, a banker, and a professor experiment up would vastly change the results. Someone must have done that experiment, no?
I do think that there will be differences in the ethical behavior of the groups, but that it’ll be dependent on the central ethics of their own professions. Stealing ideas is evil in academia, since ideas are the currency of the work place. Breaking client confidentiality is evil in the law. Moving numbers around might be evil in banking (but professors think not much of it at all, when they have to fill out paper-pushing budgets for granting agencies).
But, the intrinsic morality — I really don’t think there are huge professional differences. A soldier might be more likely to kill, for example, but I also think (and have seen examples) that they’re also more likely to try to grab a knife out of the hands of assailant attacking an innocent victim, than, say, a professor.
We’re deluding ourselves if we think that some people are good and some people are bad, and that good people won’t do bad things, and that bad things are only done by bad people. I hope that morality serves as the guide for not killing your neighbor, but I don’t think it’s going to serve as the guide for not making that super-terrific trade that’s going to net you 10M, but, perhaps, collapse the economy of Indonesia.
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I don’t think that the wall street types were any more jerky than people in other lines of work. They just had more room to screw up.
Sure, maybe. But when you cause bigger harm, you should have more come back on you. That’s how much of the world works, and I don’t see why it should be different for these guys. Their crying is pathetic, and they wouldn’t stand for it if it was a poor person who had, say, messed up their car or something. They had more potential up-side, and they shouldn’t be let off of the down-side.
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Their crying is pathetic, and they wouldn’t stand for it if it was a poor person who had, say, messed up their car or something.
The fact that bankruptcy reform really inspired the lenders to go for balls-out stupid, is kind of inspiring as a monument to both over-generalized models and not paying attention to history.
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“We’re deluding ourselves if we think that some people are good and some people are bad, and that good people won’t do bad things, and that bad things are only done by bad people.”
I know Crash is a much-maligned movie, but I thought that it made this point pretty skillfully.
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people got caught up in the game of Wall Street and lost sight of the fact that real lives were involved in the numbers that moved across the screen…I don’t think that the wall street types were any more jerky than people in other lines of work. They just had more room to screw up.
That can explain what they did the first time around. It doesn’t excuse their desire to continue pillaging the economy even if they bring it down again.
I know these are your friends, but really. In a just world there would be real consequences to what they did. Some of them would be in jail and the rest would be trying their luck in some other type of work. Instead they get to go merrily along doing what they did before and don’t even have the self-awareness to understand why people think the way they do business should change.
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