A friend forwarded me this article (worth the read) highlighting some of the people and psychology behind the financial crisis in order to prod a response.
The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in Liarâ€™s Poker, returns to his old haunt to figure out what went wrong.
To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capitalâ€”to decide who should get it and who should not. Believe me when I tell you that I hadnâ€™t the first clue.
Sooner rather than later, someone was going to identify me, along with a lot of people more or less like me, as a fraud. Sooner rather than later, there would come a Great Reckoning when Wall Street would wake up and hundreds if not thousands of young people like me, who had no business making huge bets with other peopleâ€™s money, would be expelled from finance.
Here is my response:
- The human element of pushing the risk to the next guy.
- Believing in the system.
- Thinking someone else would ultimately make everything ok.
- Being pigeonholed in one aspect of the system – a cog in the machine.
- Having no imagination.
- Thinking tomorrow would be like yesterday, just because.
- Being afraid to lose your job.
- Not wanting to stick out.
- Fear of sounding stupid.
- Arrogance of thinking you aren’t fallible.
- Believing in the models because they are “sophisticated.”
- Believing in physics dudes because of our worship of complicated jargon.
- Disconnects between the securities and reality.
- Lack of sanity checks.
- The problem of building a tower on shaky foundations.
And then the walls began to rumble…the ceiling showed cracks and dust started falling on our heads. Even as the rubble became chunks and entire floors crashing down on us, we still could not believe what was happening. Our jaws were dropped, some ran screaming, but most quietly walked like zombies who were rudely awoken from a slumber into a light too bright for their untrained eyes. It took months for the fires to stop and for the rubble to clear. The world of Wall Street will literally never look the same.