Tuesday, July 31, 2012

If business needs misfits, does ending the financial crisis need misfits too?

The Economist magazine carried an interesting article on how business needs people with disorders like Asperger's syndrome.

IN 1956 William Whyte argued in his bestseller, “The Organisation Man”, that companies were so in love with “well-rounded” executives that they fought a “fight against genius”. 
Today many suffer from the opposite prejudice. Software firms gobble up anti-social geeks. Hedge funds hoover up equally oddball quants. Hollywood bends over backwards to accommodate the whims of creatives. And policymakers look to rule-breaking entrepreneurs to create jobs. 
Unlike the school playground, the marketplace is kind to misfits.
It turns out that individuals with these disorders tend to be creative and look for better ways to do things.


Because people with Asperger's/autism/non-verbal learning disabilities tend to have
an obsessive interest in narrow subjects; a passion for numbers, patterns and machines; an addiction to repetitive tasks; and a lack of sensitivity to social cues
Some joke that the internet was invented by and for people who are “on the spectrum”, as they put it in the Valley. Online, you can communicate without the ordeal of meeting people. 
Wired magazine once called it “the Geek Syndrome”. Speaking of internet firms founded in the past decade, Peter Thiel, an early Facebook investor, told the New Yorker that: “The people who run them are sort of autistic.”...
These autistic people are exactly the type that are absent from the discussion of the policies to address the bank solvency led financial crisis.

Think about it?

Could an individual who lacked sensitivity to social cues be appointed as a senior financial regulator?  No.

Could an individual who lacked sensitivity to social cues become a politician?  No.

Could an individual who lacked sensitivity to social cues become a central banker?  No.

The result of the absence of these autistic people in policy discussions is that the creativity they bring to solving a problem is absent.  This can clearly be seen by the fact that the EU, UK and US are trying all the failed policies that Japan has trotted out over the last 2+ decades.

To an autistic person, trying policies what has never worked is a dumb idea.

To an autistic person, the idea of adopting policies to directly or indirectly (think ZIRP) bail out banks makes no sense.  An autistic person is likely to observe that virtually no one knows how much book capital their bank had at the end of last quarter as they are looking to an explicit and implicit government guarantee that they will get their money back.  An autistic person is also likely to observe that bankers are paid to make loans, so as long as there is loan demand, they will do what they are paid for doing.

To an autistic person, pursuing zero interest rate policies after the man who wrote the book on central banking  (Walter Bagehot and Lombard Street) said in the 1870s not to lower rates below 2% makes no sense.

An autistic person can understand how a computer can suggests that low rates will have a positive effect on spurring economic growth, but Mr. Bagehot observed that investors couldn't stand lower rates.  Perhaps Mr. Bagehot was influenced by Mark Twain's observation that he was more concerned with the return of his money than on his money.

An autistic person would simply observe that as rates stay at zero, investors have elected not to chase yield but instead opt to protect their principal.

To an autistic person, actually analyzing the financial crisis to distinguish what caused the crisis from what was a symptom of the crisis makes sense.
  • For example, once per month reporting of the performance of the underlying sub-prime mortgages made it impossible to value these structured finance securities (see BNP Paribas August 9, 2007 press release saying it couldn't value these securities).
  • For example, the interbank lending market freezing in 2008/2009 because lack of disclosure by banks meant that banks could not tell who was solvent and who was not (see Financial Crisis Inquiry Commission report).
To an autistic person, a pattern emerges of where there is opacity in the financial system that prevents market participants from independently assessing the risk of and valuing a security, the financial system broke down.

To an autistic person, or at least your humble blogger who has a non-verbal learning disability, it makes sense to restore valuation transparency across the financial system and see if this doesn't fix the problem.

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