The drunk schmoe theory of the financial meltdown

He is best known for his humorous writings about food and eating

Wikipedia (not that there's anything wrong with that)

And you didn't understand his "model" anyway. It has nothing to do with who is supervising who, or who is more greedy. The premise is that smart guys of the old Ivy League all wanted high-status/medium-pay jobs, because the medium-status/high-pay jobs on Wall Street didn't pay an enormous amount more. But when the financialization of our economy started (think Bonfire of the Vanities), the Wall Street jobs started paying millions more. That lead to the smart guys of the new Ivy League and the really smart guys of M.I.T and Caltech going to the Street, where they figured out the crazy securitizations that drove the real economy off a cliff.

Trillin's foil claims that the dumb guys were morally eroded, so they let it happen, but that's the weakest part of his model. (Strange that it would attract all of your analysis) I'm sure the smart guys provided dumbed-down versions that the dumb guys understood. They certainly knew what a leverage ratio was.

BTW, who is this "one" that can hire and fire the Street at a snap of his fingers? Mr. Anderson, perhaps?

PS I've always wondered why the title of the post page is different from the post title on FP. In this case you would have been better off not choosing "In which Calvin Trillin manages to display snobbery and stupidity at the same time." I think plenty of people will agree with me that Calvin Trillin has never been either snobbish or stupid. Projection, perhaps?

I didn't like the op-ed. too simplistic. Trading on wall street was run by people who in addition to varying degrees of intelligence, had serious street smarts, who had very sound understanding of the psychology of markets and who were greedy, as is everone on the street. And that's not a bad thing, it's just a trait needed to survive in the environment, and survivors learn to keep it in check.

Those who ran banks wanted to make more money and one easy way to do it was to sell the same thing three times over, see the over-securitization of mortgages over the last 10 years. They needed people with increasing amount of booksmarts to develop these securities. These physicists, mathematicians, and egads, economists, who were also greedy, developed very complex mathematical models to splice and dice mortgages and other assets into complex securities.

Then two things happened, people got so greedy they got sloppy, as seen in the ridiculous assumptions used in the subprime mortgage backed securities (impossible that there would ever be nationwide drop in housing prices.) Part of the domino effect was caused because people who were making the securities had no sense of market psychology and systemic risk in financial markets. And, the people running the banks became too greedy, no longer really knew what they were selling and became detached from the traders on the floor of the exchanges and the frothiness of the market.

The reason Goldman is thriving, aside from government support to save the financial system, is that it remains a firm of disciplined traders; their leadership combines booksmarts and streetsmarts, (and great connections.)

The problem isn't smart or dumb, it's the mission that these people were tasked with, and their incentives. They were tasked with improving the bottom line for the quarter, and given short term incentives. If they had to have a professional license that mandated doing no harm to the economy, and if there were a professional board that could remove their licenses for taking risks with the economy, you'd see more socially responsible behavior. It works with other professions.

Also, the great majority of bonus incentives should be long term stock options, so that the welfare of their company and its stock would be a long term goal that these managers have a personal stake in.