'Risk-Sterilization' of 'Pin-Striped' '"Market" Careers' & Its Consequences
The current Economic mess is greatly contributed by a hopeless attempt to conjure about a career that pays top dollars and is only apparently rooted in the risk-reward equation that drives Entrepreneurship. It was abetted by our inherent weakness for holding prestigious education with entitled rewards in high esteem, perhaps aspiring to it for our children. by Ohm
(centrist)
Tuesday, March 10, 2009
Formal Education is an interesting animal. It gives us predigested knowledge about our surroundings, and also a ~ framework to analyze our options to survive and grow in the same. It is also expected that education makes us capable of appropriate action when the surrounding circumstances change.
I'm not sure if the current education system measures up to All of the above expectations. It, however, spins forth some additional 'features' that were not part of its intended design but we have been accepting of them so far. Some of these are as below:
1. Formal Education, especially when received at a leading University via an esteemed degree program with low rates of acceptance, creates a sense of Entitlement. "If I was good enough to be accepted at this program in this University, I am the Best. It is now society's obligation to absorb and keep me at a Top income job."
2. 'Top' Formal Education typically churns out a population that is looking for good income and prestige, combined with security and stability.
3. Formal Education can impart to its recipient many absolutist theories even when they are just conjectures most widely accepted by the academia at the time. For example, History gets 'taught' as a gospel, instead of being presented as interpretation of a sequence of events by one or more historians, where some of these events themselves might have been interpreted from indirect references, and not all of the data points might be known or considered by the most popular writers.
4. The focus is on 'Knowledge' and not on 'Thinking'. Even where thinking is (apparently) stressed, the analysis and thought has to be within the latest accepted realms of thought, not beyond. Even 'Thinking' becomes but a nuance on 'Knowledge'.
Well, so far, who cares - none of the above 'features' appear in any way harmful for others. But let's go further.
A derivative of these four characteristics is a bigaversion to risk and uncertainty. You want Surety, Stability AND Big Fortune; You are looking for Laws and Computer Simulations that "will remove" uncertainty from your life and career. The problem arises when the creatures prepared with the 4-fold-feature-set above begin to enter into "Market Careers" in a big way.
The big money in 'market careers' attracts hardworking men and women of reasonable intelligence, who work their way through the most prestigious education that has the tacit promise of stable careers and high income. The financial institutions gain a lot of respect and glamour by hiring these high prestige professionals. But their programming begins to work on "removing" risk taking and guessing in their work, and stifling all uncertainty in their "performance-linked" Bonuses.
An Equity 'Analyst' works with set formulae to apply on Company financial statements, advance guidance from companies on what their profits are likely to be (with severe penalty by wholesale dumping of the stock if the guidance numbers turn out to be inaccurate), simulation software to run charting algorithms, and what have you, to work out his/her position on a stock.
Investment Bankers want rising property prices all the time, never mind it's a Property "Market" and not fiat-pricing. Otherwise, how will they create certain profits for their firm to justify bonus for their "talent" and sound "judgment" every quarter. To further increase surety, defaults swaps are entered into. Statistical models are grabbed, whether they apply in the business or not, to have additional blame-dogs ready if bets go wrong.
Half-truths are created such as "Property and Stocks Always Show the Health of the Economy" - so if the "market" blobs down, the Govt has to go on the defensive, not the financial gurus; so the Govt gets compelled to do 'something for the "markets"' to take them higher - reduce interest rates, manufacture inflation by quantitative easing, withdraw "mark-to-market", buy out their worthless paper, go to war, whatever it may take. Self-serving conclusions are snapped such as "Real Estate goes up at 8% a year", never mind if it's based on just 3 or 4 years' data - if the "Law" derived sounds right (read: 'gainful') then it is right. There is, anyway, the Government cornered to make it True by all means fair or foul in order to save its own face! Putting Govt in spot seems to be the best 'hedge' against self-malperformance. On top, recruit a media contrained by "no bull frenzy, no eyeballs" paradigm, and it will faithfully keep the pressure on for public policy support to your financial bubbles; and you've completed a 'foolproof' chinese wall against risk to yourself from your "judgment" calls.
If nothing else works, this "bright" 'talent' is entitled to the full compensation package anyways (both the fixed and the floating!) - Otherwise why would they work in this career and not some other? If they brought ruin not profit for the company, so what? The Bonus still has to be paid, after all it was the total reward held out that brought them into this employment. Imagine any other business paying dividend that it worked for even when it made losses instead of the projected gains.
I don't know how much the Education system can change in a timely way, but we should definitely stop squandering on manipulating the market to artificially keep these folks looking bright, and enabling their Bonuses. They should have to EARN this money by calling and timing the markets correctly - if they are not smart and/or lucky enough for it, they ought to move out into regular careers, where there is more certainty in producing positive results with hard work, though the payouts are relatively modest yet good.
And there's little point turning to the Professors of these kids for advice on correcting the economic system. Their inherent interest is in ensuring that their Proteges keep the semblance of "success" and "brilliance" and the (effectively) assured-big-money careers stay put. Else, how will their school attract and recruit its next batch of students that'll shell out 100-200 grand on gainful 'Education'? It is amusing to see some of the enlightened Profs talking about fiscal prudence in reference to the socio-economic investments (that will also create socially useful jobs), while canvassing for bigger bailout fund for the Big Banks just two days later!
Huge public money is now having to be spent because the pin-striped financial pseudo-genius roped in too many common folks into its flawed (even fraudulent, prefer many) projections. People now want affordable mortgage payments after their property valuations have fallen, and are losing sleep at their 401K balances that have corrected with an implosive bang. It is feared that allowing these Banking Institutions to now fail could wipe out many pension funds that have parked their aged clients' money in instruments that are supposed to be low risk-low return safe harbors. It's a mess created by the murder of risk in "market" careers.
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EPILOGUE:
"...We have to reassess our approaches to managing risk. In the past cycle, banks have relied too much on computer modeling, and not enough on our instinct and knowledge ... We have to nurture a culture that welcomes contrarian thinking .... (Going forward) The entire financial services industry would be smaller and, one would hope, humbler."
The views expressed
in this article are those of Ohm only and
do not represent the views of Nolan Chart, LLC or its affiliates.
Ohm is solely responsible for the contents
of this article and is not an employee or otherwise affiliated
with Nolan Chart, LLC in his/her role as a columnist.
Posted By: Jahfre Fire Eater
Date: 2009-03-11 11:16:43
Hi Ohm,
Good article.
Funny how societies tend to embrace beliefs that are necessary at the time. The culture you have described believes that a machine has been created that can always provide growth. It is an absurd thought but it underlies the rationale that has allowed those involved to continue behaving as if consequences were figments of dinosaur's imaginations. They have willfully deceived themselves. As Bill Bonner at the daily reckoning dot com says, the greater the deception, the greater the correction. I believe this applies equally to markets and to minds.
Until consumers of education services begin demanding better service, they will continue to be treated as recipients of blessings. Those blessings are valued according to the salary of the professor rather than by the applicability to future value the student might provide in exchange for income. It is accepted that since the education is a blessing, the students are responsible for ensuring that others who received the blessing, prosper from it, despite it's questionable value in any real market. The detachment of value from price is deeply engrained and perpetuated by those who understand the importance of maintaining this illusion that they are one and the same.
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