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{{a|devil| | {{a|devil|{{image|Concert flyer|png|Bring cushions.}}}}{{Quote| | ||
{{office scene|III|iv|gazes admiringly at his own Insta feed, which consists entirely of touched-up selfies|silently fumes while the [[JC]], who has managed to elbow his way into what was meant to be a private meeting of important people, will now not stop talking}} | {{office scene|III|iv|gazes admiringly at his own Insta feed, which consists entirely of touched-up selfies|silently fumes while the [[JC]], who has managed to elbow his way into what was meant to be a private meeting of important people, will now not stop talking}} | ||
:'''[[JC]]''': [''Winding down''] “... so, I ask you: why | :'''[[JC]]''': [''Winding down''] “... so, I ask you: why has the legal industry been so ''inept'' at preventing catastrophic risks? There are more lawyers than ever, but we don’t seem to be able to stop anything: Nick Leeson, [[LTCM]], [[Amaranth]], [[Enron]], Global Crossing, Kerviel, [[Madoff]], Bear Stearns, [[Lehman]], [[LIBOR]], Theranos, London Whale, Mossack Fonseca, 1MDB, Wirecard. All our immense legal firepower failed to prevent ''any'' of these.” | ||
:'''[[Head of Legal Ops]]''': ['' | :'''[[General Counsel]]''': [''Deploying the “[[Elephant|elephants hiding in custard]]” gambit''] Oh, but imagine how much ''worse'' it would have been had we [[legal eagle]]s ''not'' been on hand. It doesn’t bear thinking about. | ||
:'''[[Head of Legal Ops]]''': [''Darkening'']: Ah, yes! Well, it’s simple. Lawyers are not [[proactive]] enough in looking for it. They do not [[leverage]] [[data]] properly. | |||
:'''[[JC]]''': What? | :'''[[JC]]''': What? | ||
:'''[[Head of Legal Ops]]''': [''Gravely''] To add value as an [[Inhouse lawyer|in-house legal]] function we need to use [[Innovation|innovative]] tools to crunch [[data]], proactively spot emerging risks and escalate them to business.” | :'''[[Head of Legal Ops]]''': [''Gravely''] To add value as an [[Inhouse lawyer|in-house legal]] function we need to use [[Innovation|innovative]] tools to crunch [[data]], proactively spot emerging risks and escalate them to business.” | ||
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On every [[disclaimer]] any [[financial services]] firm has ever sent — and ever ''will'' send, in the history of the world, until the [[End of days|End of Days]] — however paranoid, overblown, absurd, weird or wonderful, there will be one constant, ringing reminder: one thing, which, above all the others it will say: “[[past performance is no indicator of future results]]”. | On every [[disclaimer]] any [[financial services]] firm has ever sent — and ever ''will'' send, in the history of the world, until the [[End of days|End of Days]] — however paranoid, overblown, absurd, weird or wonderful, there will be one constant, ringing reminder: one thing, which, above all the others it will say: “[[past performance is no indicator of future results]]”. | ||
But how easily we | So we know this. It is encoded into what we do. But how easily we ''overlook'' it. | ||
===A cold night in Vienna, 1808=== | ===A cold night in Vienna, 1808=== | ||
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This is the human condition, summarised. Only ''once it has happened'' — [[past tense]] — and often, only months or years after that, can we ''possibly'' appreciate the significance of the unexpected. | This is the human condition, summarised. Only ''once it has happened'' — [[past tense]] — and often, only months or years after that, can we ''possibly'' appreciate the significance of the unexpected. | ||
===The category error: providing for the future by reference to the past=== | ===The category error: providing for the future by reference to the past=== | ||
This is where my friend the middle manager makes his [[category error]]. [[Data]] all come from the same place: [[Past results are no guarantee of future performance|the past]]. When we review risks, catastrophes and step-changes; when we consider [[punctuated equilibrium|punctuations to the equilibrium]] be they fair or foul, our wisdom, our careful analysis, our sage opinions, our hot takes, our [[thought leader]]ship — ''all'' of these are [[Second-order derivative|derived]] from, predicated on, and delimited by [[data]] which, when the event played out, ''we did not have''. | This is where my friend the middle manager makes his [[category error]]. [[Data]] all come from the same place: [[Past results are no guarantee of future performance|the past]]. When we review risks, catastrophes and step-changes; when we consider [[punctuated equilibrium|punctuations to the equilibrium]] be they fair or foul, our wisdom, our careful analysis, our sage opinions, our [[Hot takes on Twitter|hot takes]], our [[thought leader]]ship — ''all'' of these are [[Second-order derivative|derived]] from, predicated on, and delimited by [[data]] which, when the event played out, ''we did not have''. | ||
And herein lies the tension and profound dilemma of the received approach to modern legal practice. For we commercial lawyers are charged with anticipating ''the [[future]]'' | And herein lies the tension and profound dilemma of the received approach to modern legal practice. For we commercial lawyers are charged with anticipating ''the [[future]]'' but we are sent out to battle armed with a methodology drawn exclusively from ''[[Past results are no guarantee of future performance|the past]]''. Just occasionally, this [[dissonance]] rears up and hits us, when the formal imperatives of [[legibility]] take priority over the logic of common sense. When, say, the financial controller insists {{sex|she}} must hold capital against undoubted shortcomings in a contract documenting a transaction that has already matured — a risk that ''did not come about and no longer can'', even though the reporting period rumbles on. That kind of thing. | ||
It is a persistent frame: by the time we get around to analysing any catastrophe and how it played out, all circumstances are known, all options have crystallised and all discretions have hardened. The employee who, with imperfect information and in the fog of war, tacked to ''starboard'' when hindsight revealed a safe harbour to ''port'' finds {{sex|himself}} short an very ugly option which those with executive responsibility for his performance will be mightily tempted to exercise. This is the lesson of {{fieldguide}}: | It is a persistent frame: by the time we get around to analysing any catastrophe and how it played out, all circumstances are known, all options have crystallised and all discretions have hardened. The employee who, with imperfect information and in the fog of war, tacked to ''starboard'' when hindsight revealed a safe harbour to ''port'' finds {{sex|himself}} short an very ugly option which those with executive responsibility for his performance will be mightily tempted to exercise. This is the lesson of {{fieldguide}}: the executive blames the [[meatware]], because by doing so, it exonerates the executive. | ||
What caused the catastrophe — an inquiry one can only launch upstream — forms, informs, and reforms the ''down''stream narrative. Take [[Madoff]]: now we have [[No One Would Listen: A True Financial Thriller|the book]], the film, the exposés, the fabulously gruesome congressional committee hearings, ''everything'' about | {{rightbox|<youtube>https://www.youtube.com/watch?v=8PlLCKW4zuY</youtube>}} | ||
===[[Madoff]] and catastrophe=== | |||
What caused the catastrophe — an inquiry one can only launch upstream — forms, informs, and reforms the ''down''stream [[narrative]]. Take [[Madoff]]: now we have [[No One Would Listen: A True Financial Thriller|the book]], the film, the exposés, the fabulously gruesome congressional committee hearings (see panel) — now we know all that, ''everything'' about Madoff’s investment strategy is ''obviously'' bogus. How could this possibly have been allowed to happen? There can be only one explanation: ''someone further down the chain was asleep at the switch''. | |||
But ''were'' they? This is where the historian’s perspective is more useful than the [[thought leader]]’s.<ref>Sidebar: {{author|Thomas Kuhn}}, the greatest of all philosophers of science, was neither a scientist nor a professional philosopher but a ''historian''.</ref> We know [[Madoff]]’s regulators were ''not'' asleep at the switch because we have {{author|Harry Markopolos}}’s testimony that they ''can’t have been'': he kept prodding them in the ribs with a stick and pointing out exactly the anomalies they should have been alarmed by.<ref>His paper to the SEC, in November 2005 —more than ''three years'' before Madoff eventually shopped himself (even then the SEC didn’t see it!), was entitled “The World’s Largest Hedge Fund is a Fraud.” If that won’t wake you up, nothing will.</ref> | |||
As of January 2021, we have an opportunity to see this [[dissonance]] live, in the wild, before it to ossifies into wise hindsight, with the [[GameStop]] phenomenon. Here, “lack of attention to | it wasn't that the operators were asleep, that is to say, but that ''their switch didn’t work''. something about the narrative frame was amiss. But a maladroit switch is the responsibility of the executive, not the [[meatware]]. | ||
===[[GameStop]] and catastrophe=== | |||
As of January 2021, we have an opportunity to see this [[dissonance]] live, in the wild, before it to ossifies into wise hindsight, with the [[GameStop]] phenomenon. Here, “lack of attention to [[data]]” is less plausible even than usual because the putative “victims” — [[hedge fund]] industry titans: tiny violins, right? — had more [[data]], and more ''data-processing capability'' at their disposal than ''anyone in history''. Their opponents, a rag-tag aggregation of retail deplorables coalescing around a Reddit channel, had the [[network effect]] and the wisdom of crowds in their corner, but nothing like the computer horsepower nor institutional support of the funds they took down. As I write the situation is ongoing: GME is fighting like a hooked Marlin, but you sense the end is near. But Melvin is down 53% already. Damage done. | |||
''A “failure to crunch data” was not the problem here''. The problem was ''a failure of narrative''. Part of that failed narrative was ''the primacy of [[data]]''. [[In God we trust, all others must bring data]]. But will ''that'' be the lesson we all learn from this debacle? Like the certain death of a bricks-and-mortar company with an irretrievably broken business model, don’t bet on it. | ''A “failure to crunch data” was not the problem here''. The problem was ''a failure of narrative''. Part of that failed narrative was ''the primacy of [[data]]''. [[In God we trust, all others must bring data]]. But will ''that'' be the lesson we all learn from this debacle? Like the certain death of a bricks-and-mortar company with an irretrievably broken business model, don’t bet on it. | ||
It is interesting to that when executives appeal for change, for “[[revolution]]” — ironic, I know, but I’ve seen it happen — for “a new way of working” they are not talking about the revealed failings of their own narrative — | It is interesting to that when executives appeal for change, for “[[revolution]]” — ironic, I know, but I’ve seen it happen — for “a new way of working” they are not talking about the revealed failings of their own narrative — it’s got them where they are, after all, so it can't be ''all'' bad — but is upon the inconstant performance of those mortal, expensive, fallible [[Meatsack|meat-sack]]s snoozing away at the switch. Thanks to overwhelming [[confirmation bias]], the idea that ''the switch isn’t working'', and ''it’s the hierarchy supporting the broken switch that is not fit for purpose'', somehow fails to occur. | ||
And this is not to mention — no; no: it is [[Archegos|still too soon]]. | |||
{{sa}} | {{sa}} | ||
*[[Signal-to-noise ratio]] | *[[Signal-to-noise ratio]] | ||
*[[Proactive]] | *[[Proactive]] | ||
*[[GameStop]] | *[[GameStop]] | ||
*[https://www.youtube.com/watch?v=8PlLCKW4zuY The SEC [[general counsel]] trying to plead executive immunity from testifying before Congress] | *[https://www.youtube.com/watch?v=8PlLCKW4zuY The SEC [[general counsel]] trying to plead executive immunity from testifying before Congress]Representative Gary Ackerman (now retired) will forever be a ''Hero of the JC, First Class'', for this excoriation. | ||
{{ref}} | {{ref}} | ||
{{newsletter|5/2/2021}} | |||