The Financial Meltdown in One Sentence
November 26, 2008 4 Comments
People with an incentive to re-define risk for short-term gain will deceive themselves and others, distort the marketplace, and destroy value.
(this includes politicians who force institutions to make risky loans through market-distorting policies like CRA; institutions and individuals who willingly ignore long-term risk for the sake of short-term fees; and individuals who make commitments they cannot realistically expect to fulfill)
About Steve Woodruff
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Hi Steve, I think the flip side of that is true as well. We deceive ourselves if we think bailouts or government intervention will quickly and magically repair the damage. It’s going to take time to work our way out of this mess.
Good formulation, Steve!
he editor in me (it’s a curse, I tell you!) might want to add “in the aggregate” — either at the beginning of the sentence to describe people-in-general (b/c there were individuals, e.g. Warren Buffett, who avoided this behavior despite incentives), or after “value,” since the BIG problem of the current meltdown, to my mind, is how people created value for themselves while destroying value overall.
The editor in ME would make one more change:
“In the aggregate, people with the incentive AND THE MEANS to re-define risk for short-term gain will deceive themselves and others, distort the marketplace, and destroy value.”
That hits at a different node of the beast – the people with the incentive to distribute their risks have the means to do so without our consent.
Like Time’s Man of the Year, for instance…