Tuesday, June 02, 2009

Disrespect for simplicity, worship of complexity, and juggling too many chainsaws

I am a big fan of simplicity and hate complexity. That leaves me out in the cold relative to Wall Street and high finance. On Wall Street, simplicity it sneered at or laughed at if not ignored completely. Simplicity gets no respect. Complexity, on the other hand, rules on Wall Street. Complexity is the God of All Gods on Wall Street. It is not money that Wall Street worships, but complexity itself. Money is just a way to keep score in the pursuit of complexity.

When thinking about how Wall Street has evolved in recent decades and into the current financial crisis, the image of juggling comes to mind. Juggling is a handmaiden of complexity. If you can only make a product complex to a certain degree, then you can always make more products and then start juggling them. As much as Wall Street "professionals" love a complex product, they are enthralled with anyone who can juggle multiple complex products. And each of these complex products is not simple a little ball, a toy, something easy to understand, but something very dangerous, as dangerous as a chainsaw. Managers on Wall Street are essentially juggling a bunch of chainsaws! As scary as that visual metaphor is, it is still tame relative to what has really been going on on Wall Street in the past decade.

And the real problem was not that Wall Street managers attempted to juggle chainsaws, but that once they had succeeded, they then kept adding new complex financial "chainsaws" to their juggling act, but the real danger was that they somehow began to think that they were in fact gods and true masters of the universe and that their prior success predetermined that they could juggle any number of financial chainsaws, and in fact that they could juggle an unlimited number of financial chainsaws.

In the old days it was called hubris.

So, there they were, all juggling, say 72, financial chainsaws (visualize that!) and doing it with big grins on their faces and imaging that they could by definition toss another one or two or more into the mix with no problem. At least that was their theory.

But, as much as they worshiped complexity, they did not fear complexity.

They did not respect the limits of their own ability to handle complexity.

True, hard-core hubris.

So, they added the proverbial straw that broke the camel's back and then were completely mystified as to why their house of cards began to crumble.

What we need now on Wall Street are more people who respect rather than worship complexity. In fact, we need true professionals who worship simplicity.

In any case, we do not need any more juggling of chainsaws on Wall Street.

That, in a nutshell, is how I conceptualize the recent crisis.

-- Jack Krupansky

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