Exuberant Bulls, Rueful Bears, and Rational Frogs

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6 Responses

  1. Belle Lettre says:

    This is a wonderful post.

  2. not a broker says:

    I guess I don’t understand. This just sounds like a lot of inappropriate whining from people who should know better.

    Bear Stearns made a big financial bet and lost, so they’re being purchased. If anyone should be expected to understand risk and reward and the harsh realities of business, you’d think it would be a bunch of Wall Street brokers.

    “What will you do to make us whole?”

    “galling… to call this a ‘merger'”?

    “victim of violence”?

    I could understand these sorts of remarks from simpler people or from people who don’t work in the finance world, but coming from brokers, this is more than a little rich. I’d say that this is lovely schadenfreude material, but they’re probably all still quite well off. I’m left with a foul taste in my mouth and more than a little hope that the whiny ones suffer further.

    Am I missing something?

  3. A.J. Sutter says:

    Not a broker: if you’re missing something, you’ve got company. I think the point of this post is a bit too pointillistically expressed; for me the colors are not merging.

    Starting from the last point first, I don’t think it’s too controversial that “corporate law matters.” Nonetheless, it will wind up being no more than a very general framework, whatever its configuration. Nor will it govern all the stakeholder relationships that are relevant in situations like the one we’re in now. Corporate law doesn’t deal with the issues between predatory lenders and desperate borrowers, for example, or even between management and employees. In any case, one shouldn’t expect any body of law to address all the moral concerns raised in Jeff’s footnote. It’s still up to each individual whether he or she is going to be a mensch or not.

    As for all the highfalutin’ talk about hindsight bias, I’m reminded of all the dinner panel post-mortems of the dot-com boom with titles like “What Happened?”. It was obvious while they were being done that most of the deals were crappy, and based on ridiculous assumptions. Similarly, that the sub-prime implosion was written on the wall was obvious even in 2003 to a commercial bank branch manager of my acquaintance. She successfully persuaded her institution to stay away from these loans.

    Are we meant to believe the MBAs and financial whizzes at Bear couldn’t see it coming because their rational faculties were slaves of their desire for happiness? I’m not sure what is the point of the rational frog story in this context. But I don’t buy the psychological excuses. I think this is more simple Sophocles than Kahneman & Tversky or Kant: your head gets too big, you get knocked down. The reported speech of the folks at Bear tends to make me feel all the more that they’re getting what they deserve.

    So Jeff, please connect the dots — what is it that you are you so delicately suggesting?

  4. Jeff Lipshaw says:

    Andy, I said it would be kind of random. My guess is that there were a lot of Bear executives who had no control over this – and out of the blue a tsunami hits them. The closest equivalent in my experience would be – you are working for a service business in a large conglomerate, and the stock tanks because of a huge liability in the chemical business. It ought not to happen to you, but it does. But you go down with the ship just like everybody else.

    The question for me arose because of the emotive language. I think people are trying to reason their way to an explanation of something that may be the economic equivalent of saying “why did a bridge happen to fall on me?” There’s only so much we control.

    I don’t mind being pointillistic occasionally.

  5. A.J. Sutter says:

    Thanks for the reply. And I appreciate your stylistic virtuosity, unless it’s simply a glitch in the blog engine that’s caused you to shift unwittingly into the repetitive groove of Sol LeWitt and Philip Glass.

    I can understand your conglomerate analogy. But I think most of us in that situation would find it pretty obvious why the bridge fell: because of the morons in the chemical division. The analogy doesn’t explain Dimon’s remark that no one at Bear had done anything wrong, nor the Bear exec’s demand that JPMC make them whole, nor the shameless victim discourse of Schwartz. I suggest that rather than reasoning his way to an explanation, each of these guys was just being self-serving in his own way. No doubt there are some at Bear who merit your philosophical musings, but probably they’re in the support staff and about to get laid off for their bosses’ sins. None of the people you quote is exactly a poster boy for sympathetic pondering.

    But perhaps the point of your original post was those who experience such calamities should regard their predicament with an air of detachment, viz., que Seurat Seurat?

  6. Jeff Lipshaw says:

    I’m migrating from an old Dell to a new MacBook, so I have had some glitches. I have access to delete comments, but like the guy in Annie Hall, I forgot my password mantra, and it took awhile to straighten it out.

    You may be attributing to me more sympathy for the Bear execs than I feel. My point, even in the conglomerate example, is that bad things happening aren’t always the result of somebody’s fault. Shit happens. That was one of the myths of GE and AlliedSignal culture – a great leader could stand in the way of, and push back, a market tsunami. Or in other words, if a business didn’t perform, somebody was at fault. Sometimes that’s true; sometimes it’s not.

    So I’m not big on either fault-finding or whining, both of which are attempts to deal with the gap between the “ought” and the “is.” The ought for which fault-finding is the response is “people shouldn’t screw up,” and the ought for which whining is the response is “the natural or economic world ought not to impose disaster on us exogenously.” I still don’t know enough about the Bear Stearns implosion to know how those two causes of disaster contributed, although there are people in the world (see Ben Stein’s column in the NYT Sunday Business section today) who think that Bear collapsed because of a whisper and gossip campaign begun by hedge funds with substantial short positions.

    Finally, not an air of detachment, no. When you are fighting a natural disaster, like a tornado, you are committed and resolute and not detached. Somewhere north of detached and somewhere south of “oh God why hast thou forsaken me?”, I would think.