Peston: Men caused the credit crunch

Re: Consider, he says, that it's impossible to find a single woman at the top of the banks and other institutions that failed so badly.

Counter example: Zoe Cruz at Morgan Stanley. Not at the very top-- she was President not CEO. But that's just one rung down. She was also made the fall-girl when things went south in late 2007 and given her retirement package.

Re: And the kind of complex mathematical modelling that underpinned so many of the toxic financial products - and of flawed systems for controlling risk - is also a peculiarly male practice.

The problem was the math itself. The problem was the data. The models simply assumed it would be accurate. But it wasn't: houses weren't worth what people were appraisers were quoting them at, people didn't have the munificent incomes they were claiming on their mortgage apps, and so forth. Garbage in, garbage out as they say.

No Rod. You will BE ABLE to say that someone's gender, race or sexuality contributed to a business failing. But you will probably not be able to say it free from consequences and one of those consequences may be misplaced social disapproval. But you would not expect to be able to say anything free from consequences. So I don't see what the problem is, political correctness does not stop free speech.

You're a big boy. I'm sure you're not going to be stopped by accusations of racism or sexism or homophobia. Hasn't stopped you yet.

Well, that's not really fair. That's like saying that because colleges throughout much of European history only let in white males that white males are responsible for all of the technological advances of history. Correlation, not causation.

There was an interesting article tangentially related to this in Vanity Fair recently. It was mostly about the economic collapse in Iceland, but there's some discussion about differences in behavior of women and men traders.

http://www.vanityfair.com/politics/features/2009/04/iceland200904

Here's an excerpt from page 7:

Back in 2001, as the Internet boom turned into a bust, M.I.T.’s Quarterly Journal of Economics published an intriguing paper called “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment.” The authors, Brad Barber and Terrance Odean, gained access to the trading activity in over 35,000 households, and used it to compare the habits of men and women. What they found, in a nutshell, is that men not only trade more often than women but do so from a false faith in their own financial judgment. Single men traded less sensibly than married men, and married men traded less sensibly than single women [....]

One of the distinctive traits about Iceland’s disaster, and Wall Street’s, is how little women had to do with it. Women worked in the banks, but not in the risktaking jobs. As far as I can tell, during Iceland’s boom, there was just one woman in a senior position inside an Icelandic bank. Her name is Kristin Petursdottir, and by 2005 she had risen to become deputy C.E.O. for Kaupthing in London. “The financial culture is very male-dominated,” she says. [...]

[I]n 2006, she quit her job. “People said I was crazy,” she says, but she wanted to create a financial-services business run entirely by women. To bring, as she puts it, “more feminine values to the world of finance.”

Today her firm is, among other things, one of the very few profitable financial businesses left in Iceland. After the stock exchange collapsed, the money flooded in. A few days before we met, for instance, she heard banging on the front door early one morning and opened it to discover a little old man. “I’m so fed up with this whole system,” he said. “I just want some women to take care of my money.”

Actually you should read the whole article. There's lots of good stuff that a crunchy con would probably appreciate. What exactly drives a nation of hardworking, conservative, traditionally-skilled fishermen and craftsmen to suddenly go collectively insane and start calling themselves bankers and selling worthless financial assets to each other for billions of dollars?

Another excerpt, from the same page. This is a former fisherman turned banker, who's just lost everything. He's reminiscing to the author about the years and years he put in as an apprentice fisherman, slowly learning all the subtle skills involved in finding and catching fish on the wild North Atlantic:

This marvelous training was as fresh in his mind as if he’d received it yesterday, and the thought of it makes his eyes mist.

“You spent seven years learning every little nuance of the fishing trade before you were granted the gift of learning from this great captain?” I ask.

“Yes.”

“And even then you had to sit at the feet of this great master for many months before you felt as if you knew what you were doing?”

“Yes.”

“Then why did you think you could become a banker and speculate in financial markets, without a day of training?”

“That’s a very good question,” he says. He thinks for a minute. “For the first time this evening I lack a word.”

.....if we accept that personality traits related to masculinity, either biologically or culturally based, are responsible to some degree for the catastrophic failure of these businesses, then we must logically accept that it is theoretically possible to blame business failures in particular circumstances on biological and/or cultural factors on the role women took in the business, or minorities.

No, we needn't accept that, unless we're unable to distinguish between local and systemic effects.

A serious analysis -- as opposed to the "hack psychology" that Robert Peston himself knows he's flirting with here -- would assess not only the degree to which individual bankers or traders, being male, were operating on too much testosterone, but the degree to which that kind of behavior was encouraged, or "incentivized," by the structure and rules of the business/financial system itself. That system was also built almost entirely by men, of course, but that's the point: In order to find "particular circumstances" in which you could "blame" business failures on women or minorites (or their bio/cultural attributes), you would have to compare, not just individual men with individual women or their companies, but entire male-constructed and male-dominated systems with entire female-constructed and female-dominated systems (or minority-constructed, etc.).

Otherwise, you're comparing apples and oranges. And since there aren't any systems of big business or high finance that were constructed and historically dominated by women or minorities, a true comparison can't actually be made. Which may be just as well, because this kind of essentializing analysis smacks of the old, repressive, racist/sexist arguments that women are naturally made for domesticity, or that blacks are products of "the jungle" with no collective capacity for the heroic risk-taking and high achievement needed to make civilization work.

There may be real differences among groups -- it's certainly true that men are on average taller than women, for instance -- and a very careful, thorough analyst might be able to look closely at all the evidence and draw conclusions about ethnic or gender group tendencies without falling into versions of those old, obnoxious libels. I know some such analysts are trying. But a newspaper columnist-cum-blogger with a bunch of political axes to grind? Uh, that's probably not as good a bet.

If nothing else, at the very least, statements like these should/ought to cause at least a few of those men to pause and consider...perhaps, just maybe, there might be something to it. One should never just casually sweep away criticism of ones own group without first taking a look to see if there might not be a small grain of truth hidden in there. Even if the person stating the criticism is part of the "other" groups around.... perhaps even BECAUSE the person stating the criticism is part of the "other" group... just a tought.

I would have to disagree with Peston's comments. Not because I am offended as a white male, nor because I feel the need to curb the all-too-familiar prejudice toward white males, nor because I think it's all too easy for everything to be blamed on the white males as the last people group for which it is socially acceptable to bash. No, I base my opinion on personal observation. To say that women do not have a tendancy to "keep score" or be driven by competition proves ignorance. The person that thinks that has never competed against my wife... in ANYTHING. She's a very respectful person, but she'll cut your throat on the basketball court and laugh daintily while you bleed. My own boss, the picture of feminine grace, is incredibly competitive. Anyone who has watched moms at a beauty pageant, sat on the bleachers at a tee-ball game, or risen early to get a deal on Black Friday, knows just how cut-throat, competitive, and mindful of the score a female can be.

No, the credit crunch was caused by greed, not only for money by people at ALL levels of the financial market, not just at the top, but also for power by an over-reaching government. Greed. No one could say that greed is a sexually discriminating vice. It is the root of ALL evil, not just MALE evil.

The source of the credit crunch is a HUMAN condition, not limited to just one of the sexes.

Here's a link to the Barber and Odean paper (Quarterly Journal of Economics, 2001) that was mentioned in the article about Iceland:

http://www.mitpressjournals.org/doi/abs/10.1162/003355301556400

They looked at investment and trading data from 35,000 households in the US. On average, men performed worse than women, and single men were much worse than single women. They ascribe these differences to overconfidence by men in their own abilities.

Some thoughts:

(1) These are average differences. Obviously, some men will make better investment decisions than some women.

(2) This study says nothing about whether the differences are due to "nature" or "nurture" (or some combination of both).

(3) One thing I thought was interesting was that this study looked at data from a period when the market was rising (1991-1997). If there was any period when men's overconfidence would lead to better outcomes, you'd expect it to be during that kind of market. The fact that even in ideal conditions men underperformed women is very surprising to me. One wonders how much worse the results would have been (from a male perspective) if the study had used data from 2000-2002 or 2006-2009!

(4) As a male myself, I don't have any problem with the idea that our society is too male-dominated and that it would be better for us to place less value on stereotypically male attributes.

Presumably, if one is to blame men for the most recent market failure, then one should also credit the same men for all of the success, growth, and expansion that came before it.

However, this is overly myopic. The economy, contrary to the fantasies of the media and conspiracy theorists, consists of billions of transactions between individuals daily. The current derailment of the economy was systemic. Yes, irresponsible Wall St. traders played a major role in this, but they were hardly alone: Investors, ratings agencies, irresponsible lenders and banks, shady mortgage brokers and their clients who bought into the lie that their home values would never decline so they needn't worry about repayment and could refi their adjustable rate, interest only loans indefinitely.

...men are more prone than women to simply run like a train at the goal, and never mind who's flattened along the way...

Exactly the kind of behavior that build the modern world and modern economies in the first place.

As has been pointed out, this is a systemic problem, and women have just as large a stake in it as men. The welfare state and the War For Universal Suffrage wouldn't get very far without the Fed and its network of preferred dealers and the bond markets.

Ah, "Peston", not "Preston", sorry! That's what I get to having lost sleep the past couple nights working on a project, after having seen "The Music Man" last weekend. The sleep-deprived mind does indeed do funny things. Sorry about that, everyone! My bad!

"Should we use Peston's theory to explain the failures of The Church? Not much estrogen there either."

Not much testosterone, either.

Richard Bottoms, I hate to add to the threadjack, but looking at that poll, the question needs to be asked: What the heck is wrong with Southerners?

Richard Bottoms, I hate to add to the threadjack, but looking at that poll, the question needs to be asked: What the heck is wrong with Southerners?

Do I even need to swing at such a fat, slow ball coming over the plate?

Is it worth mention that a lot of this 'testosterone poisoning' is mostly due to women judging men as to how good a mate they'd make based on how much money they have?

Seriously, folks. Men have no biological need to impress other men, they're trying to impress women.

Or, to generalize: When gender A behaves a certain way way more than gender B, it likely is because that gender B values that trait in gender A.

Men focus on their own money and power, to get women for sex.

Women focus on their own beauty, to get men for security for their children.

Let's not act like we're surprised by all this.(1) What are we, alien observers of earth?

Oh, sure, we've all 'moved past' this, where everyone values everyone else as a person and not means to an end, and if you believe that I've got a bridge to sell you. To be fair, though, we've mostly stopped doing it consciously.

And, hilariously, because we've stopped talking openly about this, often the means to the end (Gain money, look attractive) have become the actual ends, culturally speaking.

1) And to get back what we're talking about in the transsexual post, this is one of the ways that homosexuals break the gender assumptions...because men trying to attract men stop caring about money and power and start caring about their looks, and women trying to attract women stop caring about their looks and start caring about wealth, or usually short circuit that directly to security.

"To say that women do not have a tendancy to 'keep score' or be driven by competition proves ignorance." Eric

TR: I agree. I think many men have a tendency to want to flatter women this way. "Oh women care about others and don't keep score this way blah blah." I think there are certainly score-keeping women ready to flatten others and I think if a man actually talks to women they'd know this.

However parts of what he is saying might have some validity. I do think men are more reckless than women. This seems to be the case in most cultures I'm aware of and there's a certain logic to why it'd be so. (Two main ones being pregnancy and lactation. A man can die 8 months after conceiving a child without the future generation being killed. A man can ingest certain toxins without effecting the baby) I also think men are more likely to develop connections to inanimate objects and mathematical abstractions. This doesn't mean all or most men do, or that women can't, but generally speaking a person who gets deeply invested in their train-set or algorithm is a male.

Bradley writes:
Many do not understand the conceptual distinction between individual versus group differences.

The Null Hypothesis is the difference in mean mathematical ability of the sexes ($\mu_f-\mu_m$) is much smaller than the standard deviation in mathematical ability within each sex, ($\max(\sigma_f,\sigma_m)$).

Having trouble with that? Don't worry your pretty little head about it.

Thomas,

If men have an edge in spatial reasoning and visualization, which can be verified and explained on an evolutionary basis, then certainly this will give them an edge in high school mathematics BECAUSE OF THE WAY IT'S TAUGHT. Mathematical rigor is introduced through geometry so that students can rely on spatial reasoning as a crutch in proving theorems. However, mathematical rigor could just as easily be introduced through formal logic, which is suite to linguistic rather than a geometric intuition. It's likely that those with superior language skills would do better in math if taught formal logic instead of plane geometry.

Oddly enough, geometric intuition plays NO ROLE in the mathematics behind options trading. The spaces involved are infinite-dimensional (Hilbert spaces). Being a gay, dyslexic, male who specializes in this kind of mathematics, I see no reason why being typically male helps at all.

"If men have an edge in spatial reasoning and visualization, which can be verified and explained on an evolutionary basis, then certainly this will give them an edge in high school mathematics BECAUSE OF THE WAY IT'S TAUGHT."

So sex-segregated education tailored to each sex will help women learn math better? Fine by me, but I think the equality police won't like it.

Radiofreerome,

Re: "BECAUSE OF THE WAY IT'S TAUGHT

You're blowing smoke. Students are introduced to higher level math axiomatically through algebra. Geometry next and then an integration with calculus. Visualization provides little value in learning differential equations.

And re: "The spaces involved are infinite-dimensional (Hilbert spaces)"

Portfolios are generated using mathematical programming techniques of convex and non-convex optimization. Cutting planes precisely define a finite hull that bounds a feasible region. If a solution space were infinite there would be no solution.

Are you sure you are in the business?

Yes, Elizabeth Anne, he's the guy. And in his case, I have to say, the Grand Coalition seems to be succeeding! We've got him all flummoxed, and he's firing his paintball gun around corners at non-existent feminists in infinite-dimensional spaces.

Elizabeth Anne
DavidTC - that's why all the macho posturing happens in the mens room, right? Because of all the women standing around? Please. Men want to impress other men as much as women want to impress other women.

Erm....what? What are you talking about? What 'macho posturing'? Guys don't even talk to each other in men's room. (How do you know what goes on in in a men's room?)

The only think I can figure out you might be talking about is high school locker rooms. And that's because 'power', in high school, is directly tied to your social status. Which will be, tada, determined by other boys.

So they are, in a sense, impressing other boys to get status and power to impress girls.

You'll notice this pretty much stops when people enter the real world. Guys in the real world (Barring some pretty childish people that never grew up) do not run around bragging about how 'macho' they are, and all the women they're sleeping with in an attempt to impress other guys.

Of course, that's not to say guys never try to impress other guys, obviously they do sometimes. Duh. People try to impress other people for lots of reasons.

But in high school, the reason they're doing it, the reason why rumors about their sexual conquests get spread everywhere, is due to the fact they want to raise their social standing, and it stops when their social standing stops having to do with that and starts having to do with money.

And, because, by then, they've discovered that women hate it. (1) But it's a sociological-trained behavior, it doesn't actually have to make sense, because it's not conscious behavior.

1) Incidentally, women hate being portrayed as 'promiscuous' because of another thing men want in a mate, along with 'attractive'. Men want a mate that they know is just having sex with them, so women have 'chosen' to be reluctant to have sex, just like they've 'chosen' to be as attractive as possible, and men have 'chosen' to be powerful as powerful.

Really, everyone's behavior is almost entirely due to what the other gender wants. It's actually somewhat weird. And suddenly I'm wondering when I became a massive cynic.

SteveM,
Optimization is the way that portfolios are selected since the work of Markowitz in the 1950's.

Derivative securities are priced using a diffusion approximation called the Black-Scholes formula, which was devised by Robert Merton from the work of Kiyoshi Ito on rocket guidance. The infinite dimensionality of the space comes from the dynamics of the prices which although traded in discrete time are frequently modeled as though they evolved in continous time because the theory for random processes is easier than that of random walks. (See Merton _Continuous Time Finance_).

The Black-Scholes formula and its descendants are based on the idea that the securities of interest are few in number and that the market is so large that its effect on these securities can be modeled in aggregate. Therefore, the market drives the pricing model for these securities as a kind of "random noise." The calculus for solving ordinary differential equations involving this random noise (usually Brownian motion) is called the Ito calculus. Once those securities are adequately modeled according to the Ito calculus, one then uses optimization you describe to select a portfolio. Because derivatives can be based on any event, pricing them isn't cut and dried.

While Merton is credited for introducing this "rocket science" into finance, he didn't invent it. It was formalized by Kiyoshi Ito who applied it to rocket control systems. One of Ito's students, Henry McKean, actually did the first economic pricing application when Henry used the Ito calculus to price Warrants. Henry taught me.

Men don't compete on this level in a vacuum. How much economic and social competition between / among men is because the men are striving for the attention of "hot" women?

And how much of male striving has to do with the women they marry? If you have someone who "needs" to be swathed in diamonds and furs, are you going to bend a rule here and there to get them for her?

"because men trying to attract men stop caring about money and power and start caring about their looks"

I always thought it was possible to care about how I look AND how much money I make. I stand corrected.

The assumption in most analyses of the credit crunch assume it wasn't deliberate. It was deliberate. The finance industry knew that their pricing models were based on lies. The players all believed they would get out with their bonuses before the market crashed and that they would not be held responsible. They were right, weren't they? They were right about this in the crash of 87 after which some of the worst losers (of other people's money) became partners at Goldman. They were right about this during the crash of Long Term Capital Management. Even as LCTM fell, Wall Street geared up for the next bubble and bust, the mortgage fiasco. I interviewed for a mortgage backed securities job while LCTM was crashing. The people interviewing me knew they had no reliable data for pricing mortgages but they didn't need to care because the Fed's interest rate policy was inflating the worth of these securities and the players wanted a piece of the action. I walked away from the interview thinking that these people were creeps.

Radiofreerome,

You know nothing about Black-Scholes. Absolutely nothing.

The axioms of Black-Scholes are violated exhaustively in real life finance. E.g., the calculations are based the European, not American style option, there is no recursion toward the mean, jump diffusion calculations that do not take into account systemic market forces are "junk diffusions", yada, yada, yada... And Black-Scholes is an options model that has nothing to do with aggregation.

Moreover, continuous approximations of discrete distributions? Big deal. Once you code up the algorithm, everything becomes a difference, not differential equation because that's how processors think.

Don't continue to embarrass yourself...

Getting a feminist to guest blog for you last week ... showed your true colors and this post only confirms that..... I *insist* that you change the name of this blog, and your schtick in its entirety, to "Crunchy Crypto-Marxist", it has a nice ring to it and is just plain more honest. ("Reader")

I for one am pleased to see this blog finally called out for what it is. Rod Dreher's constant prattling about "ideological superstructures," and how all our problems will be solved under the dictatorship of the proletariat, was becoming far too predictable. Same with Erin Manning's tedious disquisitions on the social construction of gender and how it needs to be "problematized." I mean, these people should just go join a humanities department somewhere and be done with it.

Thomas R,
Your point about women being interested in new life may be important. Certainly, my niece has an enviable natural talent for math and physics but saw no need to pursue it when she could become a veterinarian.

Reader: Diversity Recession

I hadn't heard that term before. Care to explain what the theory behind it is?

DavidTC:

because men trying to attract men stop caring about money and power and start caring about their looks

Now this really drives home just how much Rod's original post was a massive oversimplification of psychology. If I may use myself as exhibit A in this little experiment, I won't claim that I'm particularly driven by money or power, but considering I'm an overweight, kinda hairy, ugly guy in my late 30s with a $10 haircut, an old pair of jeans and a white t-shirt, I'd have to say that your stereotypes need a little adjusting. I've got my desires, but looking good isn't all that high on the list.

The housing bubble was caused in precisely those neighborhoods where restrictive zoning drove up real estate prices. Busy-body zoning bodies and city councils forbade construction outside of given perimeters, drove up the real estate prices inside their perimters, and caused the housing bubbles. There's a very good study that identifies exactly those neighborhoods where housing prices have collapsed, and zoning is the culprit.

As for men, I know few men who want a house as large and lavish and as costly as their wives. Women want expensive housing, because it is a status symbol of their achievements.