“What caused that? Firms ceasing to be partnerships is the beginning of it. A Wall Street firm that is investing its own money, the people inside it, it’s their money that’s at stake, are going to behave very differently from people who are a public corporation who are using shareholders’ money.”
“No partnership would have ever allowed itself to own billions of dollars of AAA-rated CDOs backed by subprime. It just wouldn’t have happened, because they would have scrutinized it in a different way. Nobody will say that on Wall Street or say that’s true. They’ll say, “We’ve behaved just as we would as if it was our own money.” But they don’t. Nor would you expect them to. It’s amazing how powerful incentives are.”
“Two, the business got intellectualized in the 1980s. The proximate cause of the intellectualization was the Black-Scholes option pricing model. But just generally, it got more complicated. And so as it got more complicated, it got harder and harder for normal people to understand it, and easier and easier for smart people to persuade dumb people to do things they shouldn’t do, and easier and easier for smart traders to disguise what they were doing from their bosses because it’s so complicated.”
Michael Lewis Interview, BusinessWeek
Bigger isn’t always better. Smarter isn’t always better. More complex isn’t always better. I like math and equations except when they’re not needed. Now if only we were all as smart as Einstein when he said: “Make everything as simple as possible, but not simpler.”
I totally agree, and love that you followed up with a quote from a big sexy brain. Assumptions that complicated must be better let persons on wall street sucker enough people to steal from us all. The old adage holds here: if it seems to good to be true, chances are it is.
I can’t believe some people still fall for these too good to be true situations like at a casino or the lottery. On an unrelated note, it’s roll up the rim time at timmies, you’re totally missing out!
Haha, buy me 10 cups of coffee, stat! I’ll pay you back from my winnings! As for lotteries in general, though, the 1st ticket does increase your chances of winning a 1000infinite%. So depending on how you look at it, it’s a good buy. Just don’t look at ROI.