Shug on 28/1/2012 at 03:53

---

This is so unbearably pompous. If you don't want to make any further predictions because you hate it when you're wrong, just go ahead and keep your mouth shut. That'll do better than the equivalent of "I'm not trying!".

Also, arguing that government spending benefits the economy and arguing that government overspending, or overspending in certain areas hurts the economy are not incompatible. The equivalent is saying that having six multivitamin pills can hurt your system, so how can having one or two be beneficial?

Rug Burn Junky on 28/1/2012 at 15:44

---

You're like a pyromaniac in a field of strawmen.

Rug Burn Junky on 28/1/2012 at 17:30

---

Pretty much everyone at Goldman has a base level of intelligence, and because they have so much institutional experience, they tend to do well. And also, because of who GS as a whole is, they really do attract some of the best and the brightest, so the population as a whole is going to average out higher, but the smartest guy at your local pizza shop is still probably smarter than the dumbest guy at Goldman. They are also not infallible, and they are incredibly self-interested which requires a singular focus on winning a deal for their side. They also, as an institution, get the benefit of reputation and leverage - I have to fight this on a regular basis, because my bankers tend to run scared when Goldman tries to bully us on deals, and I often have to provide backbone.

They are also not a true meritocracy, because credentials matter as much, or more than, ability, for the only thing that really determines your success: whether you get your foot in the door. They only recruit from a small selection of target schools, and even then they look for markers and indicators like which tony prep school you went to before that. If you graduated from PS 269 and got a 4.0 from Harvard, you're just not going to get the same interviews as if you went to Dalton Prep and got a 3.6 from Michigan. And once you're in the interview, you need to be able to ape the culture, and that comes from your social peer groups from high school earlier.

Also, among a sea of similar resumes, just having a connection who will say "take a look at this kid's resume, he was my college roommate's son and I've known him since birth" matters. He won't get hired if he doesn't have the credentials, but someone with similar ability credentials may get overlooked just for not having those family connections. That happens all the time (and I myself have been guilty of it on multiple occasions.), and there's some validity to it - hiring someone is based on limited information, and if someone is willing to vouch for you, that is necessarily a positive. But that's "evidence of merit" not "merit" itself.

There are other ways in - if you have a technical PhD (physics, mathematics) from a top school, you can go the quant route, but you're more likely to end up at a hedge fund than as a banker. A little more meritocratic, but still not going to be purely so. Again, all that says is it's evidence of your ability to perform at an elite level. A PhD is more likely to stem from ability over circumstance, but even the gatekeeping functions at an ivy league PhD program suffer from the same markering/credential problems.

So yeah, there are elements of meritocracy on Wall Street, but that will always include things like legacy and soft skills that only come out of having a certain pedigree. Mitt Romney's a prime example of this: dad was a governor, and he was ensconced in prep schools his whole upbringing. It would have been hard for him NOT to end up at a place like Bain, it was virtually a lock from birth. I'll grant that he actually had the skills/intelligence to take advantage of that opportunity, but there are plenty of guys who get the shot, work incompetently for 3-5 years, and have pocketed a million before they get shown the door, and still land at a mid-level position paying 6 figures. Those are the FAILURES.

But that's not really what I find interesting, so much as the area of core competency and how finance guys fit into economic policy discussions. They are elite in the world of finance, but not necessarily economics, as I believe jay mentioned these are two separate things*. Sure, they HAVE world class economic advisors on staff, but those aren't the guys in leadership positions - like Corzine, or Paulson. But that doesn't really warrant the Taibbi/Teatard/OWS hatred of these guys that's directed at them either. Because at the level the decisionmakers are operating within the top 3-10 banks in the world, you do need to understand the macroeconomics, which individual bankers and traders at lower levels often don't (or even leaders at smaller investment management shops and hedge funds - ie. John Paulson or Jim Rogers). Traders views are often shaped by a forest/trees problem, and are unreliable. The bank CEO's usually get the benefit of their economists' advice.

Besides, economics CAN be learned from textbooks and classes - it's theoretical, and abstract. You have to put in the mental effort, but it doesn't require that you have technical experience with small details. Finance is a different beast. You really can't learn it if you're not ensconced in it. You have to know how to structure deals and all of the intricate parts that go into it. I'm 15 years in, and I'm still learning new stuff every day.

When you're making policy decisions, that gives you insight into all of the different ways you could break the finance system. Unfortunately, yeah, there're some forest/trees issues in favoring the financial system, but given its primacy in our economy, there needs to be substantial consideration of it in order to be effective, which isn't the same as bias. I go back often to Chesterton's fence - you need to know why a fence is there before you tear it down, and these are really some of the only guys that do. They're not the ones saying "let the banks fail and it will clean the rot out of the system" like the libertaritards are. Because they know the consequences of those actions - having dealt with LTCM, Lehman, and now MF Global on a practical level.

That kind of experience is usually what's missing in almost every economic and deregulation discussion. Those are the arguments being made by the apparatchiks and ideologues, or the self interested hedge fund managers, but not often by the guys who came up in an institutional system. Nobody on Wall St. is looking to repeal the '33 Act. In fact, if you want to see how "regulation" works, the equities market is the most tightly regulated aspect of the financial system, and it had virtually no involvement in the current down turn, which was all debt-market based.

I think this is why I distrust doctors talking about the ACA. If a low level trader is going to miss out on big picture economic issues, then a doctor is even more likely to. At least traders deal with money, so there's SOME overlap on the economics. So there are specific criticisms that doctors can make (reimbursement rates, types of care likely to be provided), but they don't have any reason to understand the interplay of insurance, government expenditures and the individual mandate - especially if they don't even know what those details are in the actual current act. I guarantee that none of kittie's acquaintances have read - much less understood - Kenneth Arrow's work on Healthcare economics, the definitive piece on the subject. Yes, they can raise concerns on how specific regulations will affect their business, but the ACA isn't really regulating doctors at all, it's regulating insurance, so their opinions, for the most part, are ill founded.

*I also find it interesting because of my own experience, my "expertise" is really only in structured finance, because it's the only highly technical area in which I've had direct experience. Finance in general, I'm experienced, but will defer to those who know more (as an attorney in this field, I constantly discuss these matters with clients, so after questioning hundreds over the years, you do get a good sense of who knows their stuff and who doesn't). My economics experience is less rigorous. After watching the crash in '07-'08, I wanted to understand my role in it, also important because my last job involved writing about a lot of those issues, so I needed the framework. They offered tons of in-house classes, taught by experts. I voraciously took every class I could. So, though I have no doubt I have a better understanding of economics then most, I am not an "expert." But here's the rub, because of the very peculiar way I learned it - from outside the practice of finance, while shaped by the influence, and while explicitly exploring the roles that government/wall st. played in a crash in which I took part - I have a pretty keen sense of the fallacies that arise from relying on either financial industry or ideological frameworks when making economic arguments. It's why I often don't truck with either, and I'm especially sensitive to it because really, even with just little snippets, I can recognize the provenance and direction of these arguments.


kitties gets credit for relenting upon receipt of details, he's not stubbornly determined to remain ignorant. But so long as individual responses contain a mix of hubris AND misinformation, I will always reply with the opprobrium I feel it deserves.

demagogue on 28/1/2012 at 21:12

---

Just a footnote to RBJ's last post, I've been reading up on legal realism lately (Karl Llewellyn, Brian Leiter, Cass Sunstein), and the main punchline is you always need the guys practicing in the area that a regulation is about in the room when you're talking about reform because they're the ones that will actually know what happens on the ground when you start toying around with the regulations ... and (the main point) all that a regulation is about is "what happens on the ground", not the ideological window dressing ... so talking about the window-dressing is beside the point; all that matters is talking about what happens on the ground. So that right there tells you the kinds of people you want to be talking to.

(Of course you want other people around the table keeping an eye on them, too, because they can exploit that same position. But when they explain why X is going to happen if you do Y, you should seriously look into it.)

I didn't realize how much this position has permeated into our system. Llewellyn was the chief drafter of the original Uniform Commercial Code and now we see "under the norms of the industry" and "in good faith" all over the place thanks largely to him. But that whole way of thinking has been under attack lately, and that's a problem.

Anyway the punchline is, this is what I distrust most about groups like the Tea Party or libertarians or the old-party-line far left ... how anxious they are to toss out exactly the practical experience on the ground that regulations are built around and govern based just on abstract principles, like in a resonance chamber. They actually glorify knowing as little about the topic of regulation as possible, as somehow being "tainted" by "elitism" or whatever (or on the far left, tainted by being irredeemably exploitative by definition I guess).

RBJ said it all. But I think it's something anybody that's done anything in regulatory law has that way of thinking burned into them. The first thing you do is read reams of legislative history & testimony explaining why every line of a regulation is how it is, and you can't read all that without appreciating how symbiotic a regulation & its area of practice becomes. The usual critical issue ends up being that circumstances have changed and you're trying to recover or reconstruct what the original regulation was going for but isn't working as intended today, rather than tossing out the original intention as "tainted" or, just as bad, re-inventing the intention from scratch as if you just thought of it now, but only half-baked without reading how the industry actually works. Every time I read people blithely attacking some regulation, I want to post a tsktsk.jpg and refer them to the legislative history to read up before saying a word.

It's just ironic that it's the pro-industry Right that's taking such a closeminded line, though not surprising; it raises the idea that that line is being exploited by grubbers that actually leach off their own industries to the detriment of the industry itself (definitely from the Enron era; SOX is the bizarre offspring of that, looked at with so much skepticism by businesses even though the whole point is to protect the business; it's *because* it's trying to protect the business that it's so mistrusted; my internal auditor friend always tells me about all the daily paradoxes embedded in that situation.)

I've been a lot more impressed by the reform ideas of the Dems, since they go to such effort to integrate them into existing practice and how industries & markets actually work -- I'm mostly speaking about how they're branded; I'd have to research more to see the extent to which they actually are integrated, but other people in-the-know give them credit for that too. Maybe it's because Dems have this chip on their shoulder; they want to be taken seriously so they work extra hard to work reforms into how industries work, like the health care bill trying to respond to how insurance markets work. (I defer to people that know about it more, though. But e.g., in the way a number of ideas were originally conservative proposals from 20 years ago, market-approaches, when Reps still cared about that sort of thing; my mentor BTW was one of the godfathers of that era.) Or an easier explanation, they're just more natural realists than Reps. And Reps today assume because they're perceived as the "pro-business" ones ("drill baby drill"), they can blithely cut regulations with the narrative that the industry will work itself out best based on abstract principles, without any chip on their shoulder to ground their reforms with what happens on the ground, because there isn't that scrutiny on them like there is with Dems. It's a really bizarre inversion, at least on the rhetoric front.

CCCToad on 3/2/2012 at 07:01

---

Absolutely true, but I'd say that it extends to any patriarchal institution and not just "elite" ones. The most successful organizations are usually ones that are able to control groupthink and place visionaries into leadership positions. A couple examples that come to mind are UPS and Apple in their early days, as well as most of the big-name internet sites.

Even within the service its apparent. Most services use a date and (http://www.johntreed.com/tournament.html) corrupt promotion system(the link is extremely hyperbolic, but somewhat correct). The sole exception is the Marine corps, which counters the instinct to paternalistic groupthink by incorporating both peer and subordinate evaluations into the promotion process.