barthes, the perfect storm, and business bullshit

Groupies of Barthes principle of mythology, that “false nature”, have been having a field day lately with business news. You’ll remember the lyrics to the famous Nature/Culture divide – of course you do:

The point of departure for this reflection was most often a sentiment of impatience before the “natural’ in which the press, art, common sense ceaselessly array a reality which, even as it is the one in which we live, is nevertheless perfectly historic: in a word, I am pained to see, at every moment, how in the story of our actuality, Nature and History are confounded, and I wanted to tighten my grasp, in the decorative exposition of the “it-goes-without-saying”, [ce-qui-va-de-soi] of the ideological abuse which, in my sense, is found hidden in it.” – Mythologies.

With this in mind, LI has been thinking of the “perfect storm.”

In 1997, Sebastian Junger published his story that, as they say, soared to the top of the best selling lists. Finally, a story for the testosteroned among us – brave men and their ships! It proved especially popular among the yacht set.
But what interests me is not so much 1997, but 1998. Oh, if Barthes had only had google and Factiva! For with these simple tools, one can observe the leaping of the memes. In September of 1998, three things happened – the Russian’s defaulted on their loans, the Asian tiger cubs – Malaysia, Indonesia and South Korea – suddenly started bailing capital, and Long Term Capital Investment, our favorite hedge fund, started by John Meriwether and co-starring too hard right libertarian Nobel prize winning economists, went belly up. It was a model flop – a model for the current age of flops, with Greenspan timidly managing a bail out that presaged the massive bail outs being effected, at this very moment, by the Fed – who, to the vast indifference of the American public, is making the financial sector all happy by loaning out money at below par rates, so those banks can buy U.S. government debt at par rates and rake in the money, and we can pretend that we aren’t giving it to them. This is called capitalism, my friends. In any case, it was in the golden autumn of 1998 that this started happening:

From Business Week
21 September 1998

Why did rocket science backfire? Sure, the models do take into consideration the possibilities of some failures occurring in the market system that upset normal historical relationships. Indeed, that's why these bets usually involve a series of hedges. What occurred, however, was the financial world's equivalent of a ''perfect storm''--everything went wrong at once. Interest rates moved the wrong way, stocks and bond prices that were supposed to converge diverged, and liquidity dried up in some crucial markets. As Long-Term's Meriwether told his shareholders in a Sept. 3 letter: ''We expected that sooner or later...we as a firm would be tested. I did not anticipate, however, how severe the test would be.''

That is one of the first mentions of the perfect storm to explain a financial disaster. Notice the beauty of it. First, the bilocation – on the one hand, who is more “part” of the financial weather system than a hedge fund? And on the other hand, you have the almost peasant like hedge funders, hunkering down as the rain comes pouring upon them – surely no fault of their own! Although we shouldn’t pursue that thought to far – for if the hedge funders aren’t responsible for the “perfect storm”, why should we hold them responsible for the golden sunshine? Why do we say they make those profits? Why pay them those premiums if it is all weather?
But those who ask such questions are obviously losers and dipshits, and have no place sticking their nose into the Fed’s wonderful equity bubble machine.

The perfect storm of “perfect storms” grew all that autumn. Here’s a sample:

“CNN Interview with Jeff Davis, State Street Global Advisors:
25 September 1998
DAVIS: Well, I think there are -- certainly there potentially could be. I mean, it's been a big -- a big couple of years for hedge fund investing. And investors are looking for protection during crises like this. But we call the August fall the perfect storm where there is a combination of crises around the world that were, you know, one of those once-in-a-lifetime events that keep arriving every three years, to quote a friend of mine. And so we really are nervous about where the risks are right now. And it's difficult, again, for the transparency in the marketplace to let us know where those risks are.”

From the Financial Times, 12 December 1998
12 December 1998
“Allen Wheat, chairman and chief executive officer of Credit Suisse First Boston, made no forecasts when he spoke at a gathering of the investment bank's managing directors in Florida in November.

He said A Perfect Storm, the title of a recent best-seller about a catastrophe off the coast of New England, reminded him of this year's market.
The only difference, he said, was that nobody knew whether it could get no worse or whether they were simply enjoying a brief lull while resting in the centre of it.”

The Economist, 5 December 1998

“Academic financial economists, unsurprisingly, still stand up for the science. Rene Stulz, who edits the profession's top research publication, the Journal of Finance, says, in a new book he is writing, that LTCM's only impact will be as "a nice case study". Most academics hint that LTCM's downfall had nothing to do with the financial models of the two Nobel laureates (an argument that rather irks those Wall Street firms persuaded to invest in the hedge fund precisely because it was using their models).

Their consensus view is that, at worst, the two Nobel winners were guilty of hubris. At best, they were the victims of a "perfect storm" in the markets: several extremely unusual events took place at once, with consequences that could not reasonably have been foreseen, and are unlikely ever to be repeated. And if even the cleverest academics lose money, doesn't that prove their point? The deepest insight of financial economics is that markets are fairly "efficient", meaning that you can earn high returns only by taking big risks. There really is no free lunch.

Yet there is no denying that the recent market turmoil confounded existing financial-economic models.”

By the end of the year, “perfect storm” was in like flint. It was the perfect excuse. It sounded manly. It took responsibility out of the hands of the responsible, and turned it over to the weather – and as all we biliously banal Americans know, everybody talks about the weather, but nobody does anything about it. Ha ha! Nature, you see. And as storms interrupt your train of thought – you who think about these things, in the commercial time right before we find out what Celebrity Dancer will win the big prize tonigth! So, too, we don’t throw a thought at what the metaphor implies about paying people to experience weather. Oh, paying them a billion here or there. Because they are geniuses. Rocket scientists. Who just happen to contribute less to the productive life of this society than a puppy with diarrhea.

So, being connoisseurs of biz bull shit, we were delighted with the incredible interview in the NYT with Robert Rubin, Citi’s consiglieri, who has one message for you and me – Citi might have dropped 20 billion lately, but it isn’t his fault! No sir. Guess what happened? Come on, guess. Begins with P. Ends with m. Two words.

“By the time I finished at Treasury, I decided I never wanted operating responsibility again,” Mr. Rubin, 69, said during a two-hour interview in his office. Sitting in a red-cloth chair and propped against a thick book to support a bad back, he made it plain that responsibility for Citigroup’s staggering losses can’t be laid at his feet.
“People know I was concerned about the markets,” he says. “Clearly, there were things wrong. But I don’t know of anyone who foresaw a perfect storm, and that’s what we’ve had here.”
“I don’t feel responsible, in light of the facts as I knew them in my role,” he adds.
But did he make mistakes?
“I’ve thought a lot about that,” he responds. “I honestly don’t know. In hindsight, there are a lot of things we’d do differently. But in the context of the facts as I knew them and my role, I’m inclined to think probably not.”

As we peons know, nowadays, when you go through that ritual in humiliation called a job interview, one of the standard questions is, describe one of your mistakes. The idea is that, as a peon, you are surely just the kind of drooling idiot to smoke around the gas pumps, so lay it out on the table. Give them reasons to pay you less. Luckily, as we get higher and higher, mistakes magically vanish. Weather intervenes. Perfect storms.

Of course, a people who were not utterly servile might rise up in revolt at being served a continuous mixture of the ripest bullshit ever known to man as their pockets were picked.

I can’t wait to meet such a people. I wonder where they live?