It takes a lot of knowledge to really fail

Special knowledge

Only we fully understand

Greenspan: Only we fully understand
There always have been harbingers of higher wisdom. Like those initiated in the Eleusinian Mysteries, a long time ago. Former Federal Reserve Chief Alan Greenspan talks about things that "only we fully understand".
The implicit and often explicit assumption of higher knowledge underlies much of the pretensions of the bankers. Anybody can claim special knowledge, few had so ample a chance to prove they have it not. If, like Greenspan, you were surprised by the crisis, you clearly did not understand what was going on; he, like so many others, learned nothing from the Savings and Loan crisis.

SIGTARP can't understand brilliant Wall Street
Knowledge can be an excuse for avoiding scrutiny. Through the Troubled Asset Relief Program (TARP), the Treasury got hundreds of billions of federal money to spread among needy banks. To prevent fraud, the Office of the Special Inspector General for TARP (SIGTARP) was established and the Treasury hated it. When an amendment was suggested, forcing the Treasury to consult with SIGTARP before issuing new regulations, the Treasury protested. They claimed that high finance was so complex that only the brilliant heads at Wall Street could understand; without success they had tried to explain things to SIGTARP. Sounds like somebody thought Wall Street's (lack of) success indicated brilliant heads.
There was one main bone of contention between the Treasury and SIGTARP: should SIGTARP be permitted to check out what happened with those TARP billions the Treasury was doling out? So probably what was so difficult to explain was why SIGTARP should not be permitted to do their job. One thing Treasury found too difficult to explain, was that the banks would never risk their reputation by trying to rip off the government. SIGTARP was only to have an advisory role; had the Treasury been right and SIGTARP wrong, it had just been for the Treasury to publish. To let everybody see how little SIGTARP understood.

Jamie Dimon understanding or not understanding
Jamie Dimon, CEO of JPMorgan and in 2011 CEO of the year, claimed that those who want to regulate banks do not understand capital markets. Very possibly he is right. The problem is that neither those who do not want to regulate do understand.
Maybe it economics is too difficult for mere mortals to understand; it is definitely too difficult for Wall Street. I do not know what Dimon knows, let's hope there is some substance behind that I'm-knowledgier-than-thou attitude. If he does have some special knowledge I wish he would spread it. To the public, to regulators, to Wall Street. Sometimes he sure can teach us about what Wall Street knows and not knows. Like when he said "we just missed, you know, that home prices don't go up forever and that it's not sufficient to have stated income".
Dimon is right about others not understanding. Jefferson County did not understand what happened when they had to pay $3.14 billion to Dimon's JPMorgan for a loan planned to cost $250 million. Should they want regulation, it is understandable. It's just as understandable that JPMorgan does not want regulation.
Dimon does not say if the present crisis, with Wall Street executives getting compensations totaling many billions for destroying the economy, is a result of Wall Street understanding capital markets. Did they know what they were doing and deliberately crash the system? Or did they not know what they were doing? I don't know what alternative is most scary. If it was deliberate or through incompetence, in neither case they deserve their remunerations. No matter if it is a question of incompetence or of deliberate looting, Wall Street is the reason we need regulation.

Wall Street Gurus

Gurus
Some people inspire reverence and unquestioning faith. The belief in the genius of the guru Rajneesh made his followers give him 93 Rolls-Royce cars. Maybe his words gave his followers such inner satisfaction that they thought it was worth the expense. At least it was their money.
Within and around high finance, you can find much of the same unquestioning faith and reverence. From at least Charles Keating of the Savings and Loan crisis to today, the wisdom of the Wall Street gurus have inspired and do still inspire many; the government, the Congress, the Feds, they all insist on showering the gurus with gifts. The underperformance of the gurus does not matter, the faith of the believers remains unbroken.

The wisdom of Wall Street
When reading about the subprime crisis, I have searched for some wisdom in the words of Wall Street. This is what I found:
Greater risk requires greater reward With big finance getting rich by failing abysmally, I find it difficult to understand the talk of risk.
For good performance, the pay has to be good. As the subprime crisis demonstrates, the opposite is often the case.
The invisible hand doctrine interpreted as Greed is good for the society. It is so simple, I can't understand that they can't understand. Greed makes you try harder. If good products pay best, you try harder to better your products; if looting pays best, you try harder to loot.
The important thing is to maximize shareholder value is a variant, mostly used to motivate short-term alternatives. Deliberately disregarding the effect on society, it is also an argument for profitable drug dealing.
Reputation is important for the banks. Can only be seriously asserted by those who never heard about the subprime crisis.
They are worth their pay. Can only be seriously asserted by those who never heard about the subprime crisis.
Government has no incentive to perform. Neither have government backed private companies. If they know they don't have to perform, they don't.
The Efficient Market Hypothesis An excuse for overvaluing things. The belief that price always reflects all relevant information. Like Marx, it assumes an underlying value, "real" or "fair". But while Marx's "real" value is unknown and unknowable, the EMH's "fair" value is the same as the price. It can only have a meaning if it is meaningless, if it is seen as a tautology.
So far, Wall Street has clearly demonstrated that they do not understand economics if they think their wisdom is good for anybody but themselves.

Sowell: Explaining things
Prolific pro-finance writer Thomas Sowell is pro-wisdom. According to him, many intellectuals find it a weighty consideration that they do not understand how corporative executives can be worth their high salaries. Sowell is right. That you don't understand does not prove that you are right. On the other hand, that Sowell can't explain something in an understandable way does not prove that he is right.
Whether a brain surgeon or a carpenter, to make a good job you have to make decisions that take schooling and experience. To those not versed, the complexities of the trades can make explaining next to impossible.
Unfortunately, I cannot find the Wall Street gurus trying to explain things to those more versed either. Fortunately, we have Sowell's wisdom helping us to make things clear:
The fatal attraction of government is that it allows busybodies to impose decisions on others without paying any price themselves.
Politics is the art of making your selfish desires seem like the national interest.
How long do politicians have to keep on promising heaven and delivering hell before people catch on and stop getting swept away by rhetoric?
Our tax system penalizes those who are producing wealth in order to subsidize those who are only consuming it.
In politics, few talents are as richly rewarded as the ability to convince parasites that they are victims.
I can't see much need for comments. All too well, his words describe what's wrong with the governmental policy, past and present. Absolving themselves and Wall Street from all responsibility, pretending that parasites are victims, pretentiously pretending that their own interest is in the interest of the nation.

© Anders Floderus