If correctly read,
the thermometer on the temperature of the body politic suggests that the public
fever of the last weeks on the SEC’s charges against Goldman Sachs has broken.
A reader expressed
her cooled reaction to Goldman’s design of an exotic, tradable mortgage-based
product on which the shorts and longs were symmetrically affected: “Why not –
after all, that’s what they do!”
It’s not just
Warren Buffett's avuncular cheerleading at the Berkshire Hathaway shareholders’
meeting in Omaha, however directly interested, or the related embrace of the
mainstream media (for both, see the NYT’s Andrew Ross Sorkin on May 3, here).
More, the brevity
of public attention proves again Samuel Johnson’s 18th century observation
that “nothing focuses the mind like a hanging” – whether the present dependent
subject is the British Parliament, BP’s oil containment efforts or the Greek
noose around the neck of the Euro.
As it moves
off-screen, Goldman’s future does not depend on the usually attenuated
inter-connections between Main Street and Wall Street. It will lie, rather, in
the hands of law enforcement officers, whose reputation enhancement will
incline them to nick off a pound of flesh or two and move on to resolution; legislators
ready to take up other posturings; and, especially, clients and trading
partners whose self-interest will be well served by Goldman’s robust survival.
Which, the more I
ponder, is as it must be.
Populist outrage at
the business model behind Goldman’s esoteric designs always lack emotional
coherence – the unease of those uninformed and unfamiliar with the operation of
complex financial products showing again that a little information can be worse
than none at all.
As the behavioral
academics say, it’s very much to do with how the issues are framed.
For one
example: conventional reaction would likely be negative in response to an
opinion poll, “Would you support wagering on the length of a human life?”
Yet that is the
entire basis for the life insurance industry, which – no less than Goldman’s
Abacus product – is in the long run (costs, time value and enterprise profits
included) a zero-sum proposition. Large pools of underwriters’ capital wager on
the uncertain but ultimate timing of the inevitable mortality of those on whom
the bets are made.
And a broad range
of legitimately insurable interests are required – it only being frowned upon
to allow, for example, the sole care-giver of a fragile elder to take a large
policy for his own benefit.
Likewise, while the
disconnect between aspirations and responsibilities played no small part in the
foundational irrationality of the credit crisis, ownership of a family home has
been widely promoted as a virtue. Meanwhile, despite the faint odor of
disrepute not unlike that sometimes attached emotionally to short sellers in
the equities markets, a niche market for reverse mortgages develops, by which
the home equity of aged owners is bought out under pricing based on lifetime
occupancy and actuarial expectancy tables.
Even at the
personal level, the comparison has always been striking between motorcycle
riders in America – who dutifully keep to their lanes although exercising a
libertarian right to ride bare-headed – and those in France, for whom helmet
compliance is inviolate but so is the chance to careen around traffic and down
the dividers.
All of which shows
that variations in risk appetites are pervasive, ranging from the ubiquity of
casinos and lotteries to the cultural variations in personal safety judgments
to the stream of innovations in mitigation techniques – whether product safety
devices or hedging derivatives.
So while the
particulars of Goldman’s innovations would, and will, outstrip the
comprehension of its outsiders – beyond the atavistic spasms of short-term
insult at the sheer amounts of money involved – its fundamental instincts are
no different from those broadly inherent in the animating principles of human
society in general.
In other words,
they are part of us.
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