wall street

[jfb]

Someone on Forum said (I'm paraphrasing from memory), "You and your guests all advise remaining calm. My financial advisor says the same thing. So who are the people who are panicking?" They cited last week's Wall Street drop as an example. These are supposed to be financial professionals, and smarter than the rest of us. Why are they the ones flopping around like a fish on the dock?

As time goes by and I read more insider accounts, I increasingly believe that people in the financial industry are not any smarter or better with money than the rest of us. They are only more macho.

According to this theory, Wall Street pros act more aggressively than any sensible person would. When the economy is doing well - or seems to do well, all the while floating on an ever-growing ocean of debt - this aggression pays off at a higher ROI than sanity, and they look smart. It's just when reality rears its head that they freak out and demand thousands of dollars from everyone in America to support their testosterone habit.

I'm no expert. Prove me wrong.

Comments

[chrismwage.livejournal.com]

A friend of mine referred to the crisis as being the fault of "a bunch of panicky idiots" -- and I commented that, well, in a crude fashion "a bunch of panicky idiots" is a pretty good description of how economics works in general.

It's all a confidence game.

[oh6.livejournal.com]

Your hypothesis doesn't clash with what little experience I have. At Algorithmics, the financial software company I worked at, "trader" was shorthand for amoral, berserk aggression. I recall a coworker saying "He's not a trader" to indicate that someone was basically OK. Another coworker described currency traders as having the motto "No fear."

My later reading of Nassim Nicholas Taleb's Fooled by Randomness pretty much confirmed this, with the added point that traders who go bust in a big way do not merely ignore risk, they don't believe there is any risk. Also, such traders usually don't stay in business for more than one market cycle. Those who do, don't fit the stereotype, and Taleb presents them as being rare.