About the damned banking crisis, again

[nancylebov]

I recently heard a theory from sgsguru that the current mess is the result of cocaine-- that the grandiosity and irresponsibility is typical of of the drug.

Long ago Brad Hicks proposed a similar theory about the S&L crisis.

I'm not sure how you'd tell the difference between the effects of some sort of non-chemically caused moral/institutional collapse and the effects of inappropriate use of stimulants.

As Robin Hanson would put it, drug testing isn't about safety. If it were, wouldn't CEOs be tested? Is there an underlying premise that alertness of bus drivers matters, but the mental state of top administrators doesn't? To be fair, the underlying premise is almost certainly that it's too expensive to not pretend to assume that top administrators are trustworthy.

In the old days, the scenario was an evil banker with twirled mustache who mercilessly ignored the pleas of an impoverished borrower who didn't want to be thrown out of their home. Civilization has advanced to the point where people (some of whom don't even have mortgages) are thrown out of their homes by banks which can't even be bothered to keep track of the records, but which still retain a vague memory that they're supposed to accumulate money. [1]

Better regulation and/or law enforcement would have helped, but the same moral/institutional collapse is hitting the government..... am I the only one who's put off by the failure to deal with mortgages which were sold dishonestly to borrowers and then bundled as investments which were rated dishonestly-- but action is starting to be taken because the proper paperwork wasn't filed on foreclosures? I don't think that last is bad, but where was the attention to what was being done to people?

Not a lot new here-- I'm just worried about what happens to property rights (including the ability of people to sell their houses) when the record-keeping has been this badly bunged up, and what happened to the culture when the people who "did everything right" and trusted that the system wouldn't comprehensively screw them over are this badly treated.

Details of the current situation.

I assume that keeping good records would have been very cheap compared to the amount of money being made.



[1] I suspect this is why zombie fiction has suddenly become popular.

Comments

[thnidu.livejournal.com]

HTML error. Looks like you used "end italics" </i> instead of "end anchor" </a> after "Robin Hanson"

[communicator.livejournal.com]

I absolutely do agree - cocaine messes up people's judgement, and when a profession starts using it, you see a lot of bad judgement. You also see it in the oeuvre of bands - when they take up coke, the work plummets in quality.

[avram]

I've been thinking for a while that vampires make a pretty good metaphor for corporations: immortal people with no morals, vastly more powerful than we are, who rely upon us for sustenance.

[supergee.livejournal.com]

"So this guy told me, 'The great thing about cocaine is that it makes you more like what you are,' and I said, 'But what if you're an asshole?'--Bill Cosby

[chickenfeet2003.livejournal.com]

Just so! With the investment bankers of my acquaintance I can't tell whether they are on cocaine or not.

[nancylebov.livejournal.com]

Thanks-- corrected.

[nancylebov.livejournal.com]

The difference is that vampires have highly focused motivation. They aren't letting bits and pieces fall off themselves because they can't feel what's happening. Is a bank which can't be bothered to keep records more like a vampire or a zombie?

[nancylebov.livejournal.com]

They might be high on sleep deprivation and arrogance?

[chickenfeet2003.livejournal.com]

The latter for sure

[redneckgaijin.livejournal.com]

Cocaine is unnecessary.

All you need for a culture of irresponsibility is a system where irresponsible conduct yields no consequences for the person engaging in that conduct.

Wreck a company, bankrupt your customers, then collect an eight-figure severance package on top of your seven-figure salary, and retire.

[avram]

Well, expecting to be able to repossess people's homes without even bothering to have the paperwork in order to prove ownership seems arrogant to me, which is a classic vampiric trait.

[avram]

The line was "it intensifies your personality." (Check for yourself, starting around 3:50. Or watch the whole thing; it's still pretty funny.)

[chickenfeet2003.livejournal.com]

Wreck a company, bankrupt your customers, then collect an eight-figure severance package on top of your seven-figure salary, and retire.

... or get hired by Larry Ellison or run for senator in California

[subnumine.livejournal.com]

irresponsible conduct yields no consequences for the person engaging in that conduct.

Like the Supreme Court?

[avram]

Supreme Court justices can be impeached. It's only happened once, in 1804-05, and the justice was acquitted, but the mechanism is there.

[nancylebov.livejournal.com]

Either you can have a Supreme Court that's insulated from outside influences, or you can have one that isn't. Both would seem to have drawbacks.

[subnumine.livejournal.com]

Many mechanisms to balance the Court exist; like impeachment, most of them exist, have clear Constitutional authority, and have precedent, but none of them have been exercised in seventy years and more; which of them is now a credible deterrent to a Court majority acting as an unelected and irresponsible legislature?

Citizens United is procedurally - in addition to the atrocity of its content - the latest expansion of power: the Court acted in a direction not requested by any party to the case.

But this deserves more space than a comment should take: when I write a post on the most contemptible branch of our pseudo-Constitutional government, I will comment again with a link.

[subnumine.livejournal.com]

No, you can't have a Court that's insulated from outside influences, unless you have angels in the form of (http://www.bartleby.com/124/pres16.html) judges come down and write the decisions.

We do not; we never have. Most of our Injustices have been the sort of corporation lawyers who have said so long that their clients' interests are the Constitution that they believe it; most of the rest have been politicians, most of those second-rate hacks. Add a light seasoning of community activists and one legal scholar (in two hundred years) and you have the Court in a nutshell.

What we need is a Court less insulated, and openly answerable for its partisanship, with a public recognition that what it does is politics - and always has been; to let ambition counteract ambition (http://www.constitution.org/fed/federa51.htm). That is the American method of government, not trust (without verification) in the dubious virtue of black-robed perpetuities.

[nancylebov.livejournal.com]

Ok, that was a flip answer that I gave.

However, how are you planning to keep the investigative process reasonably honest?

[redneckgaijin.livejournal.com]

And yet virtually all expansions or defenses of minority rights over majority rule have come solely through the Supreme Court.

There need to be checks on the ability of the majority to enforce its will on the minority. The Supreme Court- occasionally, not consistently, and often not when we want it- is one such check.

[womzilla.livejournal.com]

I had to undergo a urine test when I started work for my current company (in the finance industry), even though I am a software engineer. Such testing is not unique to my company. I don't know how much goes on after hiring for the people who actually handle the money, though.

[(Anonymous)]

If you want to blame cocaine, you ought to make claims about when and where it was popular. It is widely said to have been popular in the 80s, fitting the S&L crisis. Was it more popular in the 00s than the 90s? I don't have an opinion either way.

I'm more concerned about where it was popular. It seems to me much more popular in New York investment banks than in regional S&Ls. My understanding of the S&L crisis is that the S&Ls first became insolvent on their own, and then the investment banks helped them hide this for a few years, like GS recently helped Greece hide its debt. Maybe cocaine use by investment bankers caused the S&L crisis, but it was good for the investment banks, so why would they want drug tests?

The recent story seems similar, with investment bankers, perhaps on cocaine, selling exotic instruments to more staid bankers. This time, though, they believed their hype and bought some for their own companies.

Power and rationality

[hairyfigment.livejournal.com]

Eliezer Yudkowsky claims he has reason to think that business executives have a greater tendency toward intelligent thought than the general population. Now, he could have deceived himself on this point. But let's assume not, and see how we can explain a housing bubble that required no more than high school math to spot. After all, don't most MBA factories require more math than that?

Possibly the CEOs most responsible for this had less capacity for original thought than the ones EY met. This however does not explain why nobody popped the bubble early. To this layman, it seems like people with the ability and theoretical duty to prevent a major crash would listen to sparkling, respected executives in a way that they didn't listen to Dean Baker.

In other contexts we might guess these intelligent CEOs lacked specialized knowledge, as do the polled citizens who didn't volunteer whichever definition of "molecule" the pollsters had in mind, or the scientists who probably couldn't define 'mortgage trust'. But again, that assumption doesn't suffice to explain the bubble. (Though it might help to explain the growing possibility of at least a minor environmental/energy collapse that kills many people.)

Perhaps power made smart people stupid in certain ways. This has a high prior probability, since at least one study IIRC showed 'power' harming the ability to predict the thoughts and reactions of others even when this ability led to the promotion. But EY says his sample "were readier to adopt others' suggestions" than the general public, at least when the group mostly consisted of CEOs. Surely someone in America's corporate leadership thought to check the long-term trend of housing prices v. inflation and noticed the sharp change.

So maybe their interests did not coincide with those of the company, much less the USA. If these business leaders also saw themselves as "more alive" than other people, and had already lost some of their ability to feel what others feel, I think we'd expect them to focus on their own interests to our detriment. This theory finds empirical support in the fact that bankers who appear to have ruined our economy and bankrupted their organizations got performance bonuses for doing so. They gave themselves these bonuses because they could. And they could do it because American employees, starting from less power, have lost most of the union-based and government-based power they had.

Re: Power and rationality

[nancylebov.livejournal.com]

I recommend The Quants, a book about the men (I think it was all men) who used computer programs to fine-tune their investments. The author presents them as driven by greed and arrogance, but not conscious fraud.

IIRC, at least one of them was getting a 40% return for several years in a row, which is the kind of thing which can cause people to not think straight.

Unfortunately, these guys didn't realize that the market can be weirder than their models.

It doesn't matter how much math you know if you don't think to apply it sensibly.