‘An Anthropologist on Wall Street’
From the Series: Finance
Adapted by Martha Poon
A couple of decades ago it would have been quite hard to find anybody on Wall Street who claimed to be an anthropologist. I have to admit that even I don’t really think of myself that way. These days, I’m a financial journalist who draws upon ethnographic insights to cover the financial sector and other key parts of the economy. I acquired my ethnographic sensibility when I started my career doing field research on Tibetan Buddhism, and later did my dissertation work on marriage rituals in Tajikistan during the Soviet period.
Anthropology can be extremely useful for understanding the contemporary financial world because of all the micro-level communities—or ‘tribes’ to use the cliché term—that are cropping up around the financial system. Let me give you just one example, which I wrote about in my book Fools Gold (2009).
In 2005, I joined the capital markets team at the Financial Times because, after working on the Lexcolumn for several years, I thought that debt and derivatives markets were being under-covered. One of the first things I did was to attend an investment banking conference in the south of France, called the ‘European Securitization Forum Annual Meeting’. The conference was for that subset of bankers who slice and dice debt into new forms of securities so it can be sold to investors. In 2005, what they were slicing and dicing was primarily subprime mortgage debt.
I was very diffident as I arrived in Nice because I really wasn’t sure what I was going to find. It was a great big conference theater, a gorgeous place—banking conferences are always held in gorgeous places—and the first thing I thought was, ‘I'm back in Tajikistan!’ Functionally, what was happening at the conference was so similar to the Tajik marriage ceremonies in which I had previously participated. The event pulled together bankers from all over. They staged formalized rituals with PowerPoint presentations, but also engaged in informal rituals like chitchat in the wings.
As they came together and talked, these bankers were creating a network of ties. But they were also inventing a new language they felt made them distinctive from everyone else. The way they talked about credit was to emphasize the numbers and to quite deliberately exclude any mention of social interaction from the debate and discussion. In the first couple of days I sat there, they almost never mentioned the human borrower who was at the end of that securitization chain. They were also very exclusive. There was a sense that ‘we alone have mastery over this knowledge’.
What is more, the group had a founding mythology they all shared about what had caused this great securitization tribe to spring into being, how it operated, what its goal was, as well as its raison d’être, its justification. Very briefly, the gospel according to the CDO tribe was that back in the dark days bankers made loans and kept them on their books. This ancient practice was considered inefficient because it exposed the banks to lots of credit risk. (In the savings and loans crisis, for example, banks extended loans to property companies and then they all went down when the property market collapsed.)
Part two of the CDO gospel was that bankers had had this sudden inspiration that they should stop concentrating credit risk and find ways to scatter it across the system. There was a common idea that bound them into thinking that what they were doing was not just cutting edge and exciting, but was also good. Just as you don’t put all your eggs in one basket, the idea was that if risk were widely distributed, the system would be much safer at the end of the day. I’m being a bit cynical of course, but in the minds of these people it was a pity that most people outside of the system didn't understand what they were doing.
In retrospect, it turns out that these ideas led to disaster. Not, it should be stressed, because bankers were cooking up some dastardly plot. I actually think what was going on was at the level of semi-consciousness. I know it’s very fashionable to think the bankers were trying to hoodwink the world. And yes, there probably were some bankers being greedy—maybe mad or evil too—but I think the vast majority of bankers were not any of these things. They wanted to get on and do their job and they simply didn't have much incentive to challenge the system.
Looking back there were many elements of securitization that were evidently flawed. The tools bankers were using to disburse risk across the system were themselves very opaque and complex. The very way by which they disbursed risk was actually introducing new risk into the system. That part was being ignored. The even more jarring contradiction was that much of this slicing and dicing was justified in the name of perfect free markets. The idea was that if you could only put a price on everything and make it tradable, you would eventually spread the risk into the hands of those most able to bear it. The buzzword bankers use to describe this is ‘market completion’.
The irony is that the products they created in the name of this perfect market were almost too complicated to trade. By 2005 or 2006, these CDOs were being created and sold, and they were put on someone’s balance sheet. But they just stayed there. The huge crashing irony was that because the instruments didn’t trade, there was no free market pricing. This disrupted the mark-to-market accounting practice used by banks and hedge funds, in which the value of an asset is the price at which it is trading in the market. And as a result, the banks were forced to use models to guess the prices instead.
This is a fundamental contradiction at the very heart of the system that almost nobody spotted. Why not? To put it crudely, because there were too few anthropologists, using basic anthropological techniques, trying to understand what was going on. Having an anthropological perspective is very useful. The very nature of anthropology is to try to connect up the dots. That’s something that most modern bureaucrats, most bankers, and most company executives are not able to do, precisely because they’re so darn busy running around in their silos.
I do think that Wall Street is beginning to notice some of the things that anthropologists have been banging about for years. But the challenge is on both sides. Trying to get anthropologists to engage with finance remains, in many ways, a very difficult task. But speaking from my perch at the Financial Times, I’m personally committed to trying to bridge that gap even if, as I said before, I regard myself more as an amateur anthropologist than anything else.