Last Sunday (12/7/08) Nicholas Taleb and Pablo Triana wrote an interesting column for the Financial Times (http://www.ft.com/cms/s/0/4f86d422-c48f-11dd-8124-000077b07658.html ). They used the Kitty Genovese murder in New York City in 1964 as a metaphor for the behavior of people in the current financial crisis. The attack on Ms. Genovese was particularly brutal; her assailant came back three times over the course of a half an hour and her screams and pleas for help had to have been heard by nearly 40 of her neighbors. Messrs. Taleb and Triana document the development of a psychological theory  that resulted from the event called the “bystander effect” which makes the claim that the larger the number of  observing bystanders the greater the apathy in responding to the plight of a victim.

 

The authors go on to exhort us all to object to the continued use of quantitative analytical models that have clearly failed to analyze much of any thing. They point out that business school curriculum has not changed in the face of the failure of these approaches and those that continue to teach them are not challenged. They make a case for urgent and strident actions to dispute the continued prevalence of the delusion system of sophisticated and complex financial products.

 

As someone who has been in the risk management business for fifteen years and who has repeatedly come up against the wall of mathematical certainty their argument is both appealing and validating. The sense of being right in the end however is somewhat tempered by the suffering that we are all experiencing and likely to experience for some time to come. Nevertheless, it’s nice to read thought pieces by experts of the reputation of Taleb and Triana that repudiate the single-minded reliance on mathematical models and their false underlying assumptions.

 

But there is something troubling about their use of one of New York’s most infamous murders as an analogy. They suggest that the bystanders, in this case the risk managers and regulators suffered from apathy. I would suggest that apathy is not a state of just not caring; it is actually active decision making that just feels like not caring because it is devoid of human compassion. We seem to have convinced ourselves that our financial world is somehow disconnected from our ethical responsibilities. We are learning that nothing could be farther from the truth.

 

The authors also suggest that the victims in our economic crisis are “the helpless retirees, taxpayers funding losses and perhaps capitalism and free society”. I would suggest that the helpless retirees were just like I was when looking at my 401K statement; I wanted it to increase in value as rapidly as possible and I was not concerned or focused on how it happened. As a taxpayer I may have become increasingly uncomfortable about two wars that didn’t seem to demand any sacrifice and credit cards that kept miraculously being showered on me, but again, not enough to change my behavior until the more recent past. As for capitalism, somehow we have allowed the definition of this economic system to shift from being an environment where the entrepreneurial spirit could thrive to a defensive casino where the game was about keeping what you had and getting more. As to our free society we choose to look the other way and be a little disturbed that a legal challenge has reached the Supreme Court that addresses the issue of whether or not the President has the right to hold a citizen in jail without charge

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Somehow, I’m not seeing a lot of victims here. Certainly there are those who have lost a good deal but perhaps we would be better off looking at our participation in the problem rather than seeing ourselves as being betrayed by those who gladly took advantage of our sloppy attitudes.

 

But there is a more fundamental reason not to see ourselves as wounded by others. Victims make lousy change agents. “Scratch a victim and you’ll find a bully” my mother always used to say. There is a broad streak of self-righteousness in those who would cast themselves on the loosing end of the greed paradigm. Certainly there are those who never had the means to participate in the credit orgy who have been and continue to be the victims of a system that only values a certain segment of the population. But as to the rest of us, give me someone who understands that they have behaved badly and vows to change; I’ll saddle up with them any day.

 

Many years ago when I was beginning my first career in the mental health field and taking as many courses in special education and psychology as I could manage, I began to consider the definition of insanity. It seemed to me that the line between those considered sane and those considered not moved back and forth quite a bit through history. I recall reading Arthur Miller’s The Crucible in which he used the Salem witch trials and the approved murder of people determined to be evil as an analogy for the mass hysteria of the McCarthy era. I saw one of the first stage adaptations of Kesey’s One Flew Over the Cuckoo’s Nest in which insanity seemed to be defined as both rebelling and conforming with the only sane option being observing and creating one’s own reality. Some time later, in the middle of a heated argument in which I was arguing against the drastic increase in kidney damaging psychotropic drugs for one of my patients I was told by the Deputy Director of the hospital that the Department of Mental Hygiene was an agency of social control and if I didn’t like it I should get out. And so I did.

In 1987 I joined a relatively small cadre of mid-career hires at JP Morgan. I and my new colleagues were needed because we had experience in putting up large high tech buildings and Morgan had just begun their headquarters project at 60 Wall Street. In those days the employees of the bank numbered between 12-14,000 and virtually all of them had come up through the internal training program. Understanding how the firm worked for a new arrival in those days was difficult. There seemed to be interminable rites of passage until you were deemed trustworthy. Once that happened, things became more fluid.

 

In the early 90’s there was a massive culture shock. Meetings were held and everyone was informed that they no longer had “a job for life”. We would remain employed only if there was a fit between the needs of the organization and the skills we had to offer. Lunch was no longer free – literally, although it still remained cheaper than going outside to the local deli. We all understood, many for the first time, that we were employed at will.

The Huffington Post had a story on Tuesday about the briefing on the Treasury Secretary’s financial bailout plan that White House aides gave to Congressional aides prior to his speech yesterday. It was met with laughter. Bipartisan laughter.