Make It So

MagicianWhen you go to psychic school, you will receive instruction in “mockups.” Visualizing something you would like, it is said, helps to tease it out from that ether where everything is possible, nudge it into the realm of “reality.” Conversely, allowing one’s mind to become an Eeyore-like gallery of “bad pictures” can act like a magnet, attracting negativity.

Is this stuff “true”? Who knows? Joseph Kern says: “Deciding what is true and what isn’t now seems to me a lack of modesty.”

I go with you, jefe.

It is certainly true that Important People have believed such things to be true. What John Lennon was getting at when he said “war is over if you want it.” John Wesley, founder of the Methodist variant of Christianity, counseled his acolytes: “Preach faith till you have it; and then, because you have it, you will preach faith.” People struggling in Alcoholics Anonymous, and in its various offshoots, are instructed: “Act as if ye have faith, and faith shall be given to you.” No doubt because boatloads of creative artists have run aground on the shoals of addiction, this gentle admonition has slowly seeped into the popular culture, where it is now generally believed to be moored in scripture. David Mamet, for instance, in his script for The Verdict, allows his bibulous barrister Frank Galvin to present it as an article of the Roman Catholic faith. And so, today, many people are convinced it originally emanated from The Most High himself. And, in the circularity of such things, perhaps it did. ; ) 

Wall Street is a faith-based enterprise. In that very institutionalized form of high-stakes gambling, more money is bet based on what people wish to believe, on “mockups,” than on what actually is, on “reality.” That is why “insider trading” is prohibited: because it is gambling based on what is known. The only permissible form of Wall Street gambling is that based on what is not known. On pictures.

Malcolm Gladwell touches upon this in a recent piece in the New Yorker.

Investment banks are able to borrow billions of dollars and make huge trades because, at the end of the day, their counterparties believe they are capable of making good on their promises. Wall Street is a confidence game, in the strictest sense of that phrase.

Gladwell goes on to cite to Bill Bamber’s recent memoir Bear Trap. Bamber was a former senior managing director of Bear Stearns, the venerable investment-banking firm that stumbled, collapsed, and died in the spring of 2008. As Bamber tells it, Bear Stearns’ demise was primarily due to the sudden, widespread, and persistent formation of “bad pictures” among the firm’s fellow denizens of Wall Street.

Gladwell writes:

Until very close to the end, the firm had a capital cushion of more than seventeen billion dollars. The problem was that when, in early 2008, [Bear Stearns CEO Jimmy] Cayne and his colleagues stood up and said that Bear was a great place to be, the rest of Wall Street no longer believed them. Clients withdrew their money, and lenders withheld funding. As the run on Bear Stearns worsened, J. P. Morgan and the Fed threw the bank a lifeline—a multibillion-dollar line of credit. But confidence matters so much on Wall Street that the lifeline had the opposite of its intended effect.

Bamber finishes the story:

This line-of-credit, the stop-gap measure that was supposed to solve the problem that hadn’t really existed in the first place, had done nothing but worsen it. When we started the week, we had no liquidity issues. But because people had said that we did have problems with our capital, it became true, even though it wasn’t true when people started saying it . . . . So we were forced to find capital to offset the losses we’d sustained because somebody decided we didn’t have capital when we really did. So when we finally got more capital to replace the capital we’d lost, people took that as a bad sign and pointed to the fact that we’d had no capital and had to get a loan to cover it, even when we did have the capital they said we didn’t have.

Bear Stearns, then, died of bad pictures. Also known, in the clip below, as “negative waves.”


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When I Worked

August 2009
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