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Lumifer comments on Rationality Quotes Thread November 2015 - Less Wrong
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Comments (143)
Matt Levine
Um, no. That is, to put it politely, a naive view of what a financial crisis is. I can express it less politely if need be.
The quote isn't supposed to define financial crisis. It's claiming that a financial crisis isn't called a crisis if the people who lose money are unpopular.
Though I read the link and still don't know what people Matt's thinking of.
The original source is more explicit:
Puerto Rico's Slide
It sure looks like it's trying to.
Unpopular? That's an even worse way to try to define a financial crisis.
When someone says "Something is called an X when it has properties P, Q, and R", they need not be endorsing the definition. They might simply be saying (with more or less cynical exaggeration) "This is how the term gets used in practice". Like when someone says that a language is a dialect with an army, or that a freedom fighter is a terrorist the speaker approves of.
I paraphrase Mike Levine's comment, in its context, thus: "If you look at how politicians and newspapers and the like use the term 'financial crisis', you will find that the point at which those words start getting used is the point at which someone is owed money they aren't going to get, and the powers that be find it unacceptable for them not to get it. From this cynical perspective we can see what's going on with these proposed new rules about banks: the idea is to make it clearer what sorts of debt the government can be expected to make sure gets paid back, and crucially what sorts it can't, in the hope that future bank failures will be less likely to be classified as financial crises."
I haven't looked at how the term "financial crisis" actually gets used carefully enough to know whether Matt Levine's description is defensible (as it stands, or as a deliberate overstatement for cynical effect). Perhaps it isn't. But the right criterion to judge it by isn't whether it offers a good definition of "financial crisis", but by whether it offers a good description of the (perhaps very bad) way in which that term actually gets used.
Yes, I got a whiff of the "when a prole loses everything no one cares, when a fat cat gets pinched it's a crisis" flavour in the quote, but didn't bring it up since it was just a whiff and nothing conclusive.
I don't mind Matt Levine saying all these things in his column. But I don't see how it is a rationality quote and the smell of class struggle certainly doesn't help here.
Oh, I completely agree that it doesn't seem at all like a rationality quote.
I know we kind of hate authority here, but the guy did work on wall street for a number of years, and has written his financial newsletter for years as well.
I feel like the quotes I've made recently have been taken less charitably than is usual here.
Anyway, with this particular claim, I think it's meant more as a simplistic view that gets at some truth versus something that's always true, in which case that might be naive (although you didn't provide any counterexamples).
That doesn't make him an authority on financial crises. It makes him a Wall St. M&A lawyer who went into journalism.
Perhaps try with quotes that are more than "a simplistic view that gets at some truth"?
I see no reason to be charitable to quotes, anyway. There is a very very large number of quotable sentences around and stringent curation is much better than loose, lest we drown in clever turns of phrase without much insight behind them.
I'm not really arguing for a different norm. I'm just noting that it seems the norms have changed.
Also, you still haven't really justified your opposition to the claim. Even if you aren't going to be charitable, you should at least explain why you're rejecting it, in a more substantial critique than "naive".
I'm inclined to call it "not even wrong", but let's take an example. The Financial Crisis is the crisis of 2008. It started (the crisis itself, not the preshocks), notably, with a bankruptcy of Lehman Brothers which the Fed allowed to happen. This, by the way, was later deemed to have been a mistake and the TBTF -- Too Big To Fail -- monsters were born. The immediate danger during the September and October of 2008 was that the global payment network would freeze because of counterparty uncertainty and that the world finance would, essentially, collapse. That did not happen, but the effects on real economy were severe nevertheless -- consult any GDP graph for the relevant period.
So let's apply Levine's definition. Who in 2008 were the borrowers and who were the lenders? It was deemed "socially or politically unacceptable" for which creditors to not get their money back? Is it a useful way to think about the situation?
AIG was the borrower (and separately Fannie and Freddie), banks were the lenders, it is absolutely useful to think about the situation in those terms. It highlights the conflict between our political intuition that insurance should be protected and financial speculation should not - some people thought AIG was doing one, some people thought the other. Likewise some people thought Freddie and Fannie were widows-and-orphans investments that the government should guarantee and some people thought they were private financial traders. Clarifying these things could have averted the crisis, it's absolutely a useful model.
I don't know about other quotes but I think this quote also would have gotten resistance years ago. Complex problem X can be simplified to Y and solved with populist solution Z is not a template that generally popular in the rationalist quote thread.
Maybe you did post different quotes in the past?
He's mostly describing what's going on, not giving advice on what should be done. And the TLACs he's discussing are not populist.
(This may be clearer in context.)
"clearly define the classes of people whom it is socially and politically acceptable not to pay back." sounds to me like a populist suggestion.
To the extend that you quoted him out of context, that's still an issue with the quote.
I kind of expect someone disagreeing with a quote to at least look at the context. Do you think quoting the entire section would have gotten a better reaction?
I generally do think that quotes in this thread are supposed to be able to stand alone.
Lumifer probably still would have objected.
I looked at the context -- the quote was made while Levine was talking about Puerto Rico. It still does not make sense. He might have meant it as a fancy way of saying that if nobody cares then nobody cares, but that's a trivial observation.