If only Jon Corzine had read Moby-Dick.....
Like Captain Ahab, Corzine sacrificed his ship, MF Global, on an all-or-nothing bet. Ahab searched the globe in his "monomaniac" drive to revenge himself on the Great White Whale who'd "dismasted" him of a leg. Corzine, in chasing Goldman Sachs where he'd once been a senior executive, hedged all on European sovereign debt, betting that the European Union would not allow any member state to fail.
It went catastrophically for both: Ahab lost everything -- his crew, his ship, his own life, with one crewman surviving -- when Moby Dick smashed not only the Pequod's whaling boats but the Pequod itself, reducing it to mere "chips" swirling in "a vortex." Corzine lost everything too -- more chips, more vortex -- when Greece faltered under its crushing debt load and the E.U. faltered in coming to its aid (see here and here).
Because risk is still not understood in its full lethality -- either by Wall Street or the media -- the visionary American author Herman Melville, with his vivid language and cautionary tale, can still instruct.
Such instruction is vital because, unlike in Moby-Dick where the destruction is confined to one ship absorbed in one wide, wide ocean, further lethal risk-taking on Wall Street, whose "too-big-to-fail" institutions even after a government bailout and a blizzard of reform are even bigger and possibly now too big to save, could take down -- destroy -- not only the Street but the nation itself and its economy.
Melville speaks in language to calculate by. In assessing risk in the whaling trade, he memorably describes miscalculation as "fatal to the last degree of fatality." Whaling, he claims, is more dangerous than combat. As to exposure, whalers are the most exposed of vessels, "hence, the spare boats, spare spars, and spare lines and harpoons, and spare everythings [sic], almost, but a spare Captain and duplicate ship." When the narrator, a newcomer, comprehends why oarsmen "pull back-foremost into death's jaws," he thinks, "I might as well go below and make a rough draft of my will."
Pursuit of Moby Dick, largest of the leviathans, entails the stark risk of being "torn into a quick eternity" -- "I tell you, the Sperm Whale will stand no nonsense." The White Whale comes with his own mythology: Melville relates instances when, "swimming before his exulting pursuers," Moby Dick would turn round suddenly and "either stave their boats to splinters" or drive them back to their ship "in consternation." Talk about foretelling.
All this fatality Melville puts in its broadest context, the unforgiving sea: "However baby man may brag of his science and skill... yet for ever and for ever, to the crack of doom, the sea will insult and murder him, and pulverize the stateliest, stiffest frigate he can make."
By contrast, scan the current risk statements of the major Wall Street firms -- bearing in mind they reflect a post-crash stance -- and you will find nothing but calm seas, no sense of fatality, with perhaps only a passing reference to "volatility" in the market (and no mention of the role the firm may have played in causing that volatility).
Management of such fatal risk, continues Melville, must therefore be "very heedful." Humility is required: First mate Starbuck, in selecting his oarsmen, says, "I will have no man in my boat... who is not afraid of a whale." Cooperation is paramount -- a "community of interest prevailing among a company," depending upon "their common luck, together with their common vigilance, intrepidity, and hard work."
Individual agency in this collective enterprise is severely impinged, something the narrator realizes when tied to a crewman over the side standing atop a dead whale: "I seemed distinctly to perceive that my own individuality was now merged in a joint stock company of two; that my free will had received a mortal wound; and that another's mistake or misfortune might plunge innocent me into unmerited disaster and death."
In other words, we're all in the same boat together. It's at this juncture that Melville writes, as if speaking directly to us post-crash: "If your banker breaks, you snap."
Everything depends, then, on command judgment. Here the novelist trumps the journalist, for Melville can examine the "springs and motives" of character. For as Ahab knows, "with little external to constrain us, the innermost necessities of our being, these still drive us."
Driven by "innermost necessity" for revenge, Ahab knows "my means are sane, my motive and my object mad." Thus he dissembles both to the crew, blandishing them with gold ("Cash -- aye, cash") and to the ship's owners, though once at sea he's dismissive ("Let the owners stand on Nantucket beach and outyell the Typhoons. What cares Ahab?"). Ahab knows he can be cited for "usurpation": the crew could refuse to obey and "even violently wrest from him the command." Yet he persists: The first question he shouts at passing ships is, "Hast seen the White Whale?"
The one counter to Ahab is Starbuck. But while the first mate opposes Ahab's motive ("I came here to hunt whales, not my commander's vengeance") and constantly challenges him ("Beware of thyself, old man!") he always retreats, never organizing a rebellion: He can't abide the idea of Ahab sailing home "a caged tiger." From first retreat Ahab knows "Starbuck is mine; cannot oppose me now, without rebellion."
Thus the die is cast: With Starbuck hoist on his "soft humanity," the mad Ahab carries all past prudent risk management and onto Fate's "handspike" -- to calamity.
In connecting Melville's epic to our perilous financial state today, this is not to say that the titans of Wall Street, or Jon Corzine, are mad or evil, as Ahab clearly is. But it is to say, emphatically: The "monomaniac" pursuit of profit, taken to "demoniac" extremes (two words Melville uses repeatedly) is a killing pursuit that can take every last thing -- even the ship itself (read: the nation) -- down. (Corzine, a former U.S. Senator and state governor, notionally knew the impact on the public sphere of his demoniac risk-taking.)
On this point, many on Main Street worry that the hidden derivatives market, now valued at $600 trillion, could turn round, like Moby Dick did on his "exulting pursuers," and smash them, Wall Street's exulting traders -- and the rest of us and our $14 trillion economy -- reducing all to chips in the vortex. Call us anxious, very anxious.
So, Wall Street: Hear ye Melville's fatal lessons for "baby man" -- of prudence, humility, cooperation. Of the need for the Ahabs to expand their frame of reference from the firm only to nation and the world. Of the need for the Starbucks of the Street to muscle up their "soft humanity" and, knowing the "springs and motives" of their captain, get in his/her face if necessary ("Beware!"). Of the need for external constraints (regulation) on "innermost necessities." Of the need for Wall Street to understand that if it breaks, we on Main Street snap -- which explains in part the emergence of the Occupy Wall Street protest: We've been snapped enough.
Hast seen this new wisdom on Wall Street.....?
Carla Seaquist is author of "Manufacturing Hope: Post-9/11 Notes on Politics, Culture, Torture, and the American Character." Also a playwright, she is author of "Who Cares?: The Washington-Sarajevo Talks," included in the forthcoming volume "Two Plays of Life and Death," and is working on a play titled "Prodigal." This post is based on an essay, "Risk Management, According to 'Moby-Dick," which was posted originally at The Daily Kos (www.carlaseaquist.com).
Robert Kuttner: Why Corzine Won't Do Time
Jordon Froese: The Next Phase of Occupied Economies
No, this was not a typo, unless the New York Times and the European Commission made the same typo. Almost completely unregulated, we have a six-hundred-trillion dollar industry that produces...
Nothing. No product. No service. Nothing of tangible value whatsoever.
That fact alone should be enough to have even the most conservative true believer in unfettered and unregulated capitalism screaming for the regulators to get involved. What in the world is going on here? This is apparently little more than a carnival magic act, but instead of rabbits, they're pulling money out of their hats.
The world economy is seriously compromised, unemployment is high, companies that actually make things and do things are having difficulties and yet there is this huge, unwatched, unregulated industry that appears to require a degree in economics just to understand what it does.
It produces nothing, and yet is worth 40 times the entire annual Gross National Product of the United States of America. Words escape me.
I love this essay! As a former banker (almost 20 years at JPMorgan, left in 2001 before the "Ahabs" truly lost their minds), I can tell you that you have nailed it. You rightly said that Corzine is not "mad", but we should not presume madness - in the form of psychopaths and sociopaths - does not attract to the culture on Wall Street. See "Margin Call" at a theater near you. Madoff being the extreme example risks creating complacency.
Peter Hellman
If anything, the failure of MF Global and the quest for profit are excellent examples of why free markets should be left to function on their won without additional government intervention. The market is punishing MF global for its monomaniacal focus on profit over risk aversion.
We need more risk-reward in our system, combined with risk-punishment. Bring it!
Great to see capitalism doing what governments cannot, enforcing discipline and punishing those that do not have it.
More free-market forces, more profit motive, more deregulation of market-distorting legislation, more failure and more success! We need more…
Kai
Because nothing is never enough.
Kai
Some people allow theory to blind them to facts, and yet others so misunderstand the theory, they lack the frame of reference to comprehend facts. Your comments fall into the latter category.
In 1776, Adam Smith noted the need for the Invisible Hand as essential to a free market. Your deregulation philosophy destroys Adam Smith's Invisible Hand and hence destroys capitalism.
The Invisible Hand is the Price Structure (aka Price System) which sends accurate information about the cost of everything. Billions of individual decisions across the globe set the cost of everything and all businessmen need accurate data about price changes as soon as possible.
When people have reliable data on the cost of everything, then they can make the most informed decision. When crooks are allowed to fraudulently distort the costs, businessmen and consumers do not know the true value of anything. The Invisible Hand is the Slayer of Risk. As long as de-regulation allows crooks to lurk beneath the surface of the economy, everyone else makes poor decisions -- their risk of loss increases. Thus, federal regulation needs to stop crooks from distorting prices.
Kai, you do not understand the first thing about capitalism -- the need for federal regulations to protect the Price Structure from distortion.
I appreciate your response.
Though it is true that it has been about 15 years since I graduated with my Masters in Economics (Developmental), where I specialized mostly in the study of poverty and poverty reduction, much of my scholarship since then has been Austrian and, as such, praxeological in nature, as opposed to Keynesians and Chicago School Moneterists who tend to deal in aggregates. It goes without saying that I am acutely aware of Adam Smith’s ‘an Invisible hand’ to describe free-market forces, as determined by all the participants of a market acting in their own interest, to ‘self regulate the market’. And in fact it was the Austrians, notably Menger, Mises, & Hayek, that first put the idea forward that the price system provided the coordination signals that regulated the market. So I am kinda with you on the price system as an evolved ‘invisible hand’, however you then go on to conflate regulatory capture and fraud as natural byproducts of the invisible hand (price structure), that’s is simply not the case. These negative externalities exist DESPITE capitalism not because of them, and free market forces under capitalism are the best way to regulate these externalities.
Here you go, a primer on Austrian Economics off the AdamSmith.org Website. Enjoy!
http://adamsmith.org/files/austrian-primer-text_2.pdf
Also, view the wiki article on ‘invisible hand’, the first sentence says it all:
http://en.wikipedia.org/wiki/Invisible_hand
Finally, I encourage you to continue your education at Mises.org:
http://mises.org/
a good article on the subject at Mises:
http://mises.org/daily/4924
Best of luck on your continued education,
Kai
come in handy. Lahde identified problems rightly before the last crash and then
made profits with short sales. He then closed his fund.
His letter is intentionally provocative, funny, and has lost none of edge.
http://dealbook.nytimes.com/2008/10/17/good-bye-from-a-hedge-fund-manager/
And here, also supporting the article in general, a flashback video showing financial
experts forecasting and advising before the last crash. The viewer can instantly how
things worked soon afterward. Not surprisingly, this video has more than 2 million
viewers, a lot for such a video.
http://www.youtube.com/watch?v=2I0QN-FYkpw
I didn't think so, either?