It’s Not A Bug, It’s A Feature

16 Nov

Michael Lewis is mostly famous these days for his Moneyball, one of the few sports books taught in business schools. In it, he describes how the Billy Beane built the Oakland A’s into a perennial contender1 on a relatively small budget by challenging the conventional thinking on what statistical categories truly measure a player’s contributions. Before Moneyball, though, Lewis’ best known work was his debut Liar’s Poker, an account of his years at Salomon Brothers after graduating from Princeton. His depiction of the win-at-all-costs culture of Wall Street was intended to be a wake-up-call to a country that was already getting an object lesson in what happens when Wall Street greed goes unchecked. Instead, the book found a ready audience among those who would use it as an instruction manual.2

Lewis’s piece in Portfolio (apparently it will be among his last for them, as Vanity Fair’s scooped him away) on the current economic meltdown feels like an appropriate bookend. Among his arguments in it is that the Eighties never really ended. Hairstyles changed, one party drug replaced the next, and periodically, the worst offenders in the financial services industry saw a show trial, but none of the underlying causes of the crash of 1987 and the recession of the early 1990s got addressed. When Salomon went public (and its contemporaries followed suit), investment banks no longer bore the ultimate brunt of their mistakes; they could always ultimately stick the shareholders with the losses. The increased (and irresponsible) use of exponentially increased the scale of each error in judgement.

Ultimately, though, the biggest mistake was to believe that each scandal and each crisis was brought about by a rogue trader or a pocket of corruption. The problem was not that one trader or rater was individually corrupt or incompetent, or even that most of them were. It was that they were doing exactly what the system was designed to have them do. Actors who gamed the system weren’t the problem. The system itself was the problem.

1 Though Beane also issued the infamous caveat that “that shit don’t work in the playoffs.”
2 Not to mention Ben Mezrich, who’s made a career out of aping Lewis.

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