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.
How about a study of how a real map leads a group of people down from the mountaintop? Then you are proposing a positive model of how the accurate map or plan makes a real difference. They looked at the map, and gee, it was a map of the actual mountains they were in! In fact, the recent corrections made to the map saved them from falling into a ravine.
ReplyDeleteOr you could study how a catastrophic failure resulted from the wrong plan. Have you looked at Richard Feynman's work on the Challenger disaster? If you could implicate any old balance sheet thinking directly into a failure, that would be a smoking gun, if you'll forgive the mixed metaphors.
Well, that's sort of the problem. The right story here is just boring: if you have a good map you're more likely to get home safely. The appeal of Weick's work (which has been described as "allegoric breaching") is precisely that is suggests counterintuitive outcomes. Everyone loves stories like that, and they just can't listen to somehow who says, "Hey, that's sounds weird. Are you sure it's true." It sort of poops the party.
ReplyDeleteIt's very similar to those mortgage bonds: no risk, high yield. Sounds too good to be true, right? Well, yeah, it is too good to be true.
The Challenger disaster (and others, like Tenerife, Mann Gulch, Bhopal) are all Weick's turf already. He's made it his business always to identify some "situated" failure as the problem, some momentary lapse of sense, or failure to improvise, rather than larger system, decision-making, strategic, or policy failures. He is always trying to show that no amount of planning or policy could have helped us. What was needed, he'll tell, is more "wisdom" or, more recently, "mindfulness", in the moment.
My work is an attempt to bring us back to those fundamentals: policy, strategy, decisions. (Again, very similar to he problems in Wall Street. And I do have something like a smoking gun, which I'm trying to build a book around. It's going to take a lot of work though.)
One smoking gun you have is the Alps / Pyrenees story itself. Do you have others as well?
ReplyDeleteAlso, who benefits by this kind of thinking in management studies? It must be in someone's real or perceived interest to have a theory so flexible that you can't even be wrong as long as you have a framing narrative.
ReplyDeleteYes, what I'm looking for is a plausible cui bono. I have some ideas, but it's too soon to start pointing fingers.
ReplyDeleteMalcolm Cowley (somewhat rightly) ridiculed Ezra Pound for always looking for "the lowdown, the inside story and the simple reason why" (Exiles Return, p. 120). But I have to admit that my thoughts that way tend these days.
"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."
ReplyDeleteI like everything about those two sentences except the way you've framed them ("it seems to me" and "we might say"). A powerful and beautiful contrast is stripped of its efficacy by a bit of hedging!
I've got to work on my prosody!
ReplyDeleteThe first comment on this post led me to quote you:
ReplyDeletehttp://andrewjshields.blogspot.com/2011/09/what-is-monster.html