I'm reading Michael Lewis's The Big Short these days and enjoying it immensely. It is about the Wall Street outsiders and oddballs who "shorted" (i.e., bet against) the subprime mortgage market and made a killing when it finally collapsed. One interesting thing I'm learning is that, after they had decided that the market was going to collapse, it was not, actually, a straightforward matter to bet against it. Had they thought that a company was going to go bust, there'd be standard way of making money on that belief: they could borrow stock in the company, sell it, and then wait for its shareprice to crash. At that point, they buy back the shares (cheap) and pay off their debt. But, as Lewis points out, things were very different with mortgage bonds:
To sell a stock or bond short you need to borrow it, and [the bonds they were interested in] were tiny and impossible to find. You could buy them or not buy them but you couldn't bet explicitly against them; the market for subprime mortages simply had no place for people in it who took a dim view of them. You might know with certainty that the entire mortgage bond market was doomed, but you could do nothing about it. (p. 29)
I had a shock of recognition when I read that. I've been trying to "bet against" a number of stories that have been told in the organization studies literature for years now, and the thing I'm learning is that there's no place in the literature for people who take a dim view of them. There isn't really a genre (in the area of management studies) of papers that only points out errors in other people's work. You have to make a "contribution" too. In a sense, you can buy the stories people are telling you or not buy them but you can't criticize them.
This got me thinking about the difference between faith and knowledge. Knowledge, it seems to me, is a belief held in a critical environment. Faith, we might say, is a belief held in an "evangelical" environment. The mortgage bond market was an evangelical environment in which to hold beliefs about housing prices, default rates, and credit ratings on CDOs. There was no simple way to critique the "good news". So it took some dedicated outsiders to see what was really going on. These were people who insisted on looking at the basis of the mortgage bonds that were being pooled and traded on Wall Street in increasingly exotic ways.
One of these guys was Steve Eisman, who was a notoriously cantankerous personality. He recalls meeting Ken Lewis, the CEO of Bank of America. "[The CEO's on Wall Street] didn't know their own balance sheet ... I was sitting there listening to [Ken Lewis]. I had an epiphany. I said to myself, 'Oh my God, he's dumb!' A lightbulb went off. The guy running one of the biggest banks in the world is dumb" (TBS, p. 174). Yes, or perhaps he was just working an in an envangelical rather than critical environment. Here, "any old balance sheet" will do ... as long as you think it's bringing good news.
I think, sadly, the same thing can be said about various corners of organization studies that pursue what is called "storytelling". We've been talking about my favourite example recently. (See also this post of Jonathan's, and the comments.) I've been trying for some time, and with great difficulty, to publish straightforward critiques of some very influential stories that circulate in the literature. Given that these people are quite influential in today's business school, it's not surprising that an uncritical mindset pervades Wall Street.