Required reading for all citizens should be the letter to the editor of the New York Times by Michael Burry, April 3, 2000.
http://www.nytimes.com/2010/04/04/opinion/04burry.html?_r=0
Dr. Burry is depicted in the movie version of The Big Short and he saw the impending collapse of the mortgage backed security market which did not just ripple through the rest of the American economy but hit it like a tsunami and only by extraordinary measures did we avoid roaring off the cliff into the next Great Depression.
 |
| Dr. Burry |
Burry begins by quoting Alan Greenspan about the crisis. You remember Mr. Greenspan, that guru whose every opaque uttering, each sounding more recondite and insightful than the last, could send markets soaring or plunging as if God had spoken from the mountain top.
There are way too many people who think we can hear God's voice from a mountain top coming through the vocal cords of a man. This is true not just for economics but for religion, but religion is a topic for another time. Macro economists like Mr. Greenspan have been given oracle status and each capitalizes on this irrational belief by demanding huge speaker's fees.
Mr. Greenspan testified: "Everybody missed it: academia, the Federal Reserve, all regulators." But, as Dr. Burry said, "That is not how I remember it." Greenspan was, as he was so often, wrong while others saw what Greenspan missed. Dr. Burry tried to tell anyone who would listen, and a few people did listen, shorted the market and, along with Dr. Burry, made billions.
What interests me is the how. What Dr. Burry did is what we were all taught to do in medical school--he went to the bedside.
One of the things professors of medicine did with interns, residents and medical students when they were presented a patient's case is they refused to accept the formulation of the folks below them on the chain, but they took the thundering herd with them to the bedside and examined the patient themselves, elicited a history from the patient themselves. Not every time, but frequently, the case as presented by the intern fell apart under the more expert questioning and examination by the professor.
I certainly saw that in private practice, years later. Whatever the nurses, the medical students, even the emergency room doctor told me over the phone, I could be sure of only one thing--when I went to see the patient, I would find something different.
The most extreme case was the call from an ER doctor who said he had a patient in ketoacidosis and would I call in some orders for the patient so they could get treatment started. But I haven't examined the patient or even seen the patient, I objected. Oh, that's okay, he assured me. I refused. Then I got a call from the patient's primary care doctor. Why wasn't I calling in orders? Because I don't call in orders for a patient I've not personally seen. I need to evaluate the patient myself. Well, said the indignant PCP, what next? Was I going to insist on being present in the laboratory to be sure the lab tech did the blood glucose correctly?
As it turned out, when I arrived to examine the patient, she did not look at all like a patient in DKA, no Kussmal (rapid, deep) breathing, no signs of dehydration. She in fact did not have DKA or diabetes at all, but hypercalcemia. Had I called in the orders, I would have given insulin to a patient with high blood calcium, which might have put her into hypoglycemic coma.
And that is what Dr. Burry did: He refused to accept the analysis from other people but examined the raw data himself. You can see him scrolling through the data on each home mortgage and seeing large numbers of debtors way behind on their payments. Later, another group following the same hunch, visited mortgage delinquents in Florida and found strippers in go go bars who had mortgages on five homes, and they interviewed the men who made NINJA loans to these debtors--no income, no job application--you still get the loan. These bonehead frat boys were lending to the worst credit risks they could find because they made more money on sub prime loans. They didn't care what happened to these borrowers or the banks; they were getting big commissions.
All the while, Mr. Greenspan is eating lunch in fashionable restaurants in New York, blissfully unaware, having accepted the word of those lower down the chain, that everything is doing just fine in the mortgage backed security market. The regulators and the academics all said things were fine.
It's not that Mr. Greenspan is stupid, just lazy; not that he is incapable of analysis, just that he does not do the really hard work of going to the bedside.
And that is the problem with the American style of management and analysis. You don't see the CEO, who makes 600 times what the average worker makes, actually walking the floor of the factory, looking at the individual mortgage holder, hanging out on the ward or in the Emergency Room to see what is happening there. They are too busy luxuriating in the board rooms, too far removed.
The Navy has a rule that went the ship is at sea, the captain cannot leave the bridge--he sleeps on a bed in a small alcove there and whenever a ship is picked up on radar, he is awakened. When he is in port, he might be found below decks in the engine room, or elsewhere. This is hands on management.
This is not Alan Greenspan. This is not what we have in the financial sector, far as I can see. This is not what we had a General Motors or even Volkswagon and it is surely nowhere to be seen in hospital or health care management.
Joseph Heller came closest to depicting this sort of asinine management in Catch-22. Colonel Cathcart keeps raises the number of missions a crew must fly to finally qualify to be sent home. Eventually, the crews simply drop their bombs in the ocean and turn around and return back to base. The Colonel never flies with the crews to be sure they are actually effective.
It's the great American way.
No comments:
Post a Comment