In one call, [Larry] Summers said, “I have 13 bankers in my office and they say if you go forward with this you will cause the worst financial crisis since World War II.” -- Credit Crisis CassandraThe quote above -- which occurred during a call in which Summers was fighting against regulating derivatives -- is one of the most illuminating of the financial crisis (so illuminating, in fact, it's the title of a new book by James Kwak and Simon Johnson). Viewed in the best light, it represents the extent to which regulators simply deferred to Wall Street for their cues on complex financial issues, while viewed more cynically...well...let's just say it looks a lot worse. At the very least, it's another example of why we should be wary about trusting the so-called "experts".
I highlight this quote today because the talk of naming a new Treasury Secretary had me thinking about one of the arguments made by those in support of retaining Tim Geithner*: who else would you get to replace him? I imagine many of his proponents believe that you need someone else with intimate knowledge of Wall Street in the position, but that anyone with the sort of ties to obtain that knowledge will not be confirmed**.
* And also, in a broader sense, of why we defer to "experts"
**I seem to recall the argument for hiring Geithner and Summers in the first place--despite their involvement in supporting many of the practices that got us into this quagmire--was that they were the "only people" that knew had enough knowledge of these areas to fix it.
The fact that I'm skeptical about this argument will not surprise you. But my reason why might--it relates to the way I analyze sports.
As I allude to in the title of this post, I view the ability of fans to criticize coaches through a prism of tactics vs. strategy. When it comes to tactics--which I consider smaller-scale things, such as how a guard actually blocks or a how a quarterback actually throws--I will openly admit that every coach in the NFL (the "expert") knows way more than I do. But when it comes to strategy--bigger picture things such as play-calling and time management--I don't think that's the case (and I assume most of you would agree the same holds true for you). From awful time management to the refusal to question conventional wisdom, coaches make strategic decisions that are far from optimal all the time.
I think it's useful to consider this analogy when thinking about finance (or any other industry*, really). Certainly, all of the attendees at the Asset Securitization Forum know more than almost all the critics of the financial industry about how to structure a CDO^2 of ABS. But far fewer of these attendees have actually thought much about how the products they create and sell fit into the bigger picture.
*** If you're a television fan, think of it this way: Jeff Zucker knows way more than you do about how to actually produce a show. Still, most of you could have done a way better job than he did of running his network.
The implications of this for picking a new Treasury Secretary (and how he should perform the job once chosen) are clear. Contrary to the belief of those who believe Geithner/Summers/etc. are the "only people that could do their jobs," we don't need to someone that knows a great deal about the tactics of Wall Street. Instead, we should chose someone that has actually analyzed (and is, of course, willing to question) the big-picture strategy. I don't know enough about specific candidates to know who would be interested, by I can't imagine someone like this would be too difficult to find****.
And, on a broader note, it means that none of such feel bad about questioning what the "experts" tell us about finance. Just like our thoughts on a foolishly used time-out in a game last week, it's quite possible we know better.
**** Yes, I realize there a political constraints because this person needs to be confirmable. This suggestion, though, should, in theory, make that task much easier.*****
***** I feel like I owe a h/t to JoePos for once again stealing his technique.