TED argues that bankers are “men of action” and that they could care less about the causes of the financial crisis:
Men of thought like Mr. Krugman analyze, dissect, and theorize about such conundra as the causes of the financial crisis and the proper size of banks in the economy. Investment bankers take such things as given, and then try to make the most of them. Investment bankers are men of action.
… Investment bankers have well-justified confidence in their ability to turn new regulations to their advantage. It’s just that, being in an industry that is constantly creating, reinventing, and destroying itself, investment bankers have a very healthy respect for change. You might even say we fear it.
So yes, Mr. Krugman, you are basically right. Don’t look to investment bankers for answers on how we got here. We don’t know and we don’t care. We take the world as we find it and try to make money.
This unfortunately is, at least when we’re discussing the Goldman Sachs and JP Morgans of the world, extremely well written nonsense.
TED is likely right that investment bankers don’t spend much time thinking about the optimal structure of the financial world, but they have a very long history of talking about the optimal structure of the financial world — especially when there’s a Congressman listening. In fact, I seem to remember investment bankers testifying in 1999 in support of changes to existing law: If Congress would just remove the regulation of derivatives from the jurisdiction of the CTFC and from exposure to state gambling laws, risk would be optimally allocated using derivatives and the economy would be able to perform even better than it had in the 90s.
Hmm, I wonder how that turned out.
Synthetic Assets 