I keep telling people about this one passage in The Big Short (which is totally awesome and very worth reading if you want to have a better understanding of why we’re in the financial state we’re in). Anyway, it’s actually a footnote to the following quote from John Mack from Morgan Stanley (in response to an analyst asking how in the world they let one desk lose $8 billion):
Bill, look, let’s be clear. One, this trade was recognized and entered into our accounts. Two, it was entered into our risk management system. It’s very simple. when these got, it’s simple, it’s very painful, so I’m not being glib. When these guys stress loss the scenario on putting on this position, they did not envision…we could have this degree of default, right. It is fair to say that our risk management division did not stress those losses as well. It’s just simple as that. Those are big fat tail risks that caught us hard, right. That’s what happened.
The quote is nothing special. It’s confusing and obtuse, but otherwise unremarkable. Which is exactly the point Michael Lewis makes in his footnote: “It’s too much to expect the people who run big Wall Street firms to speak plain English, since so much of their livelihood depends on people believing that what they do cannot be translated into plain English.”
Since reading that I’ve been thinking about a bunch of different industries that fit that bill. Law seems like an obvious one: If we all believed we should be able to read and understand legal documents there would be a lot less money spent on lawyers. Not sure what I have a bigger point than that, but seemed worth sharing.