Get Real

For the record, I'd heard of the economy before I started working at Big Anonymous Financial Services Firm. You too, no? Yes, of course! It was the economy got Bill Clinton elected, remember? (If you don't, go watch this, it's fun.) Obviously there are subsets of the economy created by different industries (the stock market is probably the most well known, but there's a ton of them -- diamond markets and coal markets, bird markets and possibly bee markets) but they basically they all feed into the Economy, with a capital E.

At least, this is how I understood things to be. But once I wound up on the inside, I learned that that is not how financial services people think about it. For them, there is not one Economy with sub-industries. There are a bunch of distinct economies, among them the Housing Economy and the Financial Economy (whose little duet is part of what's causing us so much angst these days) and then, in a completely different bucket, what they call the Real Economy.

The Real Economy is the one we live in, the one with jobs and schools and groceries and car payments, with movies and basketball games and CDs (music CDs, that is) and train tickets. The one that got Clinton elected. The one that--by financial service people's own nomenclature--EXISTS. When I first started at BAFSF, the mortgage crisis had just begun to unravel. In trying to explain to investors what was going on, someone created a graphic to show how current events in the housing and financial economies intersected at certain points with the real economy and what the results were. It showed a pair concentric circles that shifted from purple to blue and back again, as if the colors were moving around the rim of the circles. The outer circle had a label that said "Real Economy," and the inner circle had labels for "housing economy" and "financial economy;" spaced around them were four jagged double lines that spanned the concentric circles (they lay across from the outer to the inner circle like little bridges), representing the jolts each economy felt from the effect of the other. Imagine a purple double halo with lightning bolts coming out of it. That's how much sense it made.

And all I could think was, "Listen, you guys, just listen for a sec, because this is why your graphic makes no sense. Are you ready? It's because the economy is ALL REAL. Do you not understand? This is ALL. REAL. And every time you try to create a complicated financial instrument that will make you rich without putting you at risk, it has REAL EFFECTS, because that is REAL PEOPLE'S REAL MONEY you are dealing with. There is ONE Real Economy, and collectively you have screwed it up almost beyond measure, and it is going to take more than a purple halo with lightning coming out of it to explain what you've done."

The scary thing is, they genuinely do not get this. They don't. And if they read this, they would have explanations that make sense if you just follow it through and if you only understood what they were talking about. On an individual basis they could probably make a case; I'm far from understanding everything about investments and asset management, though I've learned a lot in the past nineteen months. But as I see it, it's the mindset that's the problem. Language matters, and when you call things separate that aren't, you're in for a world of trouble. By separating them in language you think of them as actually, completely separate things, and you free yourself to make rash choices in one place without connecting the possible consequences of those choices to the other place. You will never be able to successfully anticipate the consequences of their intersection; you'll never even see it coming.