Distributed ignorance and the End of Wall Street (yes, again)
November 23, 2008
Just when you think you’d had enough with hearing about the end of Wall Street and financial markets as we know them, there comes a story by Michael Lewis. It’s a very nice piece and well worth the read. But there are some points that call for clarification. One of them is the wrong impression that people may have about retail finance. Large part of the complex network of activities, technologies and institutions that is known collectively as Well Street is retail. That is, people and companies who sell financial products. In fact, for most of the public, this is the only side of Wall Street with which they ever get in direct touch. Now, when someone buys a car or TV, they know that the salesperson selling them the product has little knowledge about the intricacies of the technology driving the TV or the car. The same type of realisation about the division of labour does not seem to hold when it comes to financial products. The products there, having very little visible material, technological, footprint (at least to customer), somehow give off the impression that they are ‘made’ by the people who sell them, or, at the most, by a one level up the hierarchy of the retail finance company. The truth, as anyone now knows, is that Wall Street retailers did not know more about their products than your average cars or electronics sales people know about cameras or washing machines they sell. As one of Lewis’ interviewees tells him: “What I learned from that experience was that Wall Street didn’t give a shit what it sold”. Sure, they were some who knew more, but that’s typically because they had more background than necessary to do their job. Of course, “Old” Wall Street encouraged the establishment of indifference, and frequently let immoral and even deceptive practices to take root, but it would be incorrect to single out and demonize retail finance. It is not any better or any worse than any other retail business: it is based on distributed ignorance about the products sold.