Lost, trapped and
at risk of a serious crash.
That could very
well describe the participants in the financial markets turmoil of the last two
years. Instead it was my experience last Saturday afternoon – as an anxious and
helpless rear-seat passenger during a frustrating hour fighting the exit
traffic after a major college football game.
Autumn weekends in
America are given over to exotic rituals. Cult-like herd behavior, irrational
devotion to long-odds causes, microscopic analysis of esoteric game plans,
prayerful invocations of last-minute rescues, and the frequently-literal
intoxication of victory and defeat -- all the ways that bankers and investors
behave during the routine work-week are migrated on Saturdays to tail-gate
barbeques and stadium hoopla.
Among a hundred
thousand fans choking the bottle-necks of the parking lot, our driver was hopelessly
conflicted. We were trying in futility to drive against the overwhelming flow
toward the tollway. Normal daily street patterns were closed against us, and
stern patrol officers blocked our turnings and waved off our intentions.
Trying at the same
time to cope with the double distractions of his co-pilot working a cell phone
and the urgently artificial voice of the dashboard GPS that insisted we should
be taking forbidden routings, he also faced the threatening reality of
aggressive crossing traffic at each frustrating intersection.
The recent banking
and credit markets crisis was perfectly reflected in our dilemma: ordinary
daily transaction flow was overwhelmed by an exceptional one-time event – an
unruly horde in single-minded escape mode had nowhere to go – and an on-board
warning system could not comprehend the disruptive effects of events beyond its
programming.
The disconnection
for the driver between the seductive directions of the GPS, to plunge into the
systemic dysfunctionality of the streets, would perhaps have resembled the state
of market unreality, going back to Jimmy Cayne’s dislocation as the
presumptively risk-managed real estate funds of Bears Stearns spun into
collapse.
Think of a
traffic-guidance system as a risk management tool, in other words: it can start
as an aide – but becomes a dependence -- and then an addiction. However
luxurious the vehicle, it is a dangerous instrumentality when the driver’s
ability to reckon direction has atrophied under commitment to a model that
seizes up under stress.
In short – as the
data loaded in a GPS cannot imagine or replicate a post-game traffic jam,
neither can a triple-A rating or a quantitative calculation of daily
ValueAtRisk hope to capture the no-exit entrapment of an interlinked portfolio
of subprime mortgage-based securities.
There are three further
comparisons – one being the common and universal nature of the predicament.
Equally pinned in the single-lane mess were the limousines of the VIP alumni,
the high-end sports vans of the tail-gaters, and the boisterous bus-loads of drunken
end-zone fans – all were as captive as Citi’s Chuck Prince and the feckless vision
he imposed on the entire industry in July 2007, to keep dancing “as long the
music is playing.”
Also, with every
state trooper and traffic monitor devoted to prodding the crowd on its way out
of town, the overload on law enforcement was evident. Marauding gangs could
have been looting the Food King or emptying the town’s ATM’s – while the
over-stressed constables echoed the SEC’s paralysis during the banks’
disintegrations or its curbside blinking at the predations of Bernie Madoff.
And finally: dispersion
of the congestion was inevitable, and we eventually broke free. Accelerator
down at last, our driver was excited: “Full speed at last,” he crowed.
“Yes,” said the still-befuddled
navigator from behind his map. “Unfortunately, we have no idea which way we’re
going.”
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