Risky Business

Risk made people very, very rich. Now, risk is taking back most of those riches. After all, were the numbers ever real to begin with?

I have worked with several people who have been directly involved in the high-risk, high-reward, Wall Street casino.

Most of them understood how the system was working; most of them know it was hanging by a thread; and most of them assumed that they were smart enough to get out before Armageddon.

Why did so many people accept such high levels of unsustainable risk? Why try to hit the jackpot when you can comfortably make money the old fashioned way, as the now-dated ad said, by earning it.

The problem, as I see it, was an absence of civic virtue. With the support of the therapy culture and the self-esteem gurus, loyalty to the firm was replaced by looking out for No. 1.

And no one was really thinking about systemic risk. Loyalty to the system, to the nation, was for chumps. Patriotism was not a serious emotion in the New York social whirl.

Thinking people were citizens of the world. They did not really belong to a nation; they were not moved by patriotic yearnings; they were in it for themselves.

We have been told that the system lacked oversight, and that the regulators failed to regulate. Undoubtedly, this is true. But Alan Greenspan admitted that he thought the pursuit of self-interest would automatically regulate the system.

Here he was clearly wrong. The financial system will regulate itself only if it is run by people whose first loyalty is to the system, and who feel that they are its stewards.

Civic virtue would have regulated the financial system. Self-interest has been a bust.

As I have mentioned, hard work should be on the list of civic virtues.

Risky bets offer the promise of inordinate profits without inordinate effort. In a world that values leisure over work, too many people have been seduced by the notion that they need to cash out as soon as possible, the better to kick back and do nothing.

As though doing nothing was the meaning of life.

From my consultations I have observed that for many high-level risk-takers, risk is a tonic, a medicine. It provides a rush and a thrill. If you think that Prozac is a miracle cure, try the rush of high risk gambling, when hundreds of millions of dollars are involved in your trades, leveraged at 30 to 1.

Risk was something like a solution to a real problem. That problem was a pervasive social anomie, a feeling of not really belonging, of not being part of the group, of not sharing its traditions and its successes.

Anomie is a natural state in a highly diverse corporate culture. It becomes institutionalized when weak corporate cultures fail to integrate people from diverse backgrounds.

Risk gives you a rush because it makes you a player. It puts you in the game. It makes you a participant, not a spectator. You could have grown up on a potato farm in Idaho; you did not know the difference between Broadway and the Bowery; you were clueless about the New York dating scene.

When you became a trader you found a place. You knew the rules; you made a fortune; and you gained status from your wealth.

That was the only status you knew. If you wanted to advance you merely had to assume greater risk. Then you would glean greater rewards and enhanced status.

You would hope against hope that you could exit the game before the system crashed around you. Because, after all, your loyalty was to yourself, and perhaps to your family.

You had no real feelings of loyalty toward the firm, because, after all, the firm had never shown much loyalty to you. They loved the numbers you produced; they compensated you generously.

But they knew, and you knew, that the day you stopped producing would be the day that you became expendable.