When the autopsy was performed on the corpse that was the 2008 financial crash, most in the political and financial intelligentsia ascribed its cause of death to greed, recklessness, and irresponsibility. The narrative was indeed convincing. For as complex a crisis as this one was, what better way to sell it to the masses than to promote that tried and true American narrative of a bunch of evil genius fat-cat bankers colluding with one another in order to enrich themselves at our expense? With this line of reasoning in hand, little qualification was necessary.
The problem with this narrative, though, was that, although it was partially true – no one can deny that a perverse incentive structure, coupled with a lot of greed and irresponsibility, played a significant role in the untimely demise of our financial system – it’s preponderance over other competing narratives served to obfuscate the more subtle, yet far more significant reasons for the crash: one being the utter stupidity and woeful incompetence of those who ran the large financial institutions that went under or nearly went under.
According to Michael Lewis’s new book, The Big Short, Wall Street largely didn’t know what it was doing, and, not unlike a 16 year old who takes his or her parents’ car out for a spin without having first learned how to drive, they crashed. What is truly unfortunate is voices like Michael Lewis’s have been, for the most part, silenced, whereas the narrative we have all been force-fed is still propounded day after day with near ubiquity in the media and elsewhere. Even on the Left, like Michael Moore’s recent documentary, Capitalism: A Love Story, Moore portrays Wall Street as a highly competent, albeit grossly immoral, industry.
According to Lewis (I’m paraphrasing), the spectrum of the dodo brains on Wall Street ranged from those who totally blew it and burned themselves while burying their firms in the process, to those who almost blew it but *thankfully* realized just in the nick of time to get out while they still could. There really were very few exceptions, bar a few shrewd hedge fund managers and some private investors.
What are we to make of this? For one, it’s shocking how quickly things went back to normal, and I think that has a lot to do with the narrative that took hold after the crash. Especially in New York City, it’s like nothing ever happened. I had the unfortunate experience of talking to some young, hotshot investment banker who works for Morgan Stanley in a bar the other night, and he was bragging to me about how much money he makes and how awesome it was to be him. Now, I have to admit I was a little jealous, but when I got home that night I was thinking to myself: suppose I worked for GM or Chrysler right now – would I be bragging to people about how awesome it was to be me? I would be slightly modest, if not completely apologetic, for being associated with an industry that not only drove the American car business into the ground, but after they were through doing that, came hat in hand to the American taxpayers for socialism.
Have you seen those apology commercials from GM? The one’s that say we’ve paid back all of our bailout money, hired new management, and are making better products! We’re sorry we sucked before, but now we’ve turned over a new leaf, putting one foot in front of the other, and we’re ready to move forward!
Have you seen similar commercials from Bank of America, J.P. Morgan, or Citigroup? The answer is no, you haven’t, because they were neither made nor were they necessary; no one expects an apology from them.
What accounts for the difference in attitude? Both Morgan Stanley and GM got bailed out by the US government for making terrible financial decisions that led to the near dissolution of their houses; what’s going on here? Like I said, I attribute the difference to the narrative that took hold after the crash. As long as Wall Street is still talked about as just being greedy and reckless, then we’re O.K.; the moment we start talking about Wall Street in terms of being stupid and incompetent, then there starts to be a problem — then they start to be associated with bad companies, like GM and Chrysler.
Greed, for lack of a better cliche, is good; stupidity is bad. Wall Street was greedy, which sometimes leads you into trouble but ought not be looked at as a moral or business failing; GM and Chrysler were stupid, in which case they ought to be punished or at minimum looked down upon. That’s the narrative we have bought, and it is one that has contributed to the preservation of a financial system that, two years removed from a near titanic meltdown, still functions exactly the same as it did prior to the crash — if not more reckless and incompetent.