Friday, September 26, 2008

Wall Street Ignored the World of Uncertainty

(heads up since this post has religious references)

As our financial world has been in a tailspin, I’ve been reflecting on the numerous events and stories that have surrounded my life over the past few months, such as my younger brother’s experience at Bear Sterns, my cousin’s at Merrill Lynch and friends at other investment firms. I was also concerned whether we are in the eye before the hurricane or near the end of a terrible storm as Congress deliberates on Secretary Paulson’s plan. These thoughts brought me again to 1 Timothy 6:17-18:

“Command those who are rich in this present world not to be arrogant nor to put their hope in wealth, which is so uncertain, but to put their hope in God, who richly provides us with everything for our enjoyment. Command them to do good, to be rich in good deeds, and to be generous and willing to share.”

I hate using the same verse in my posts, however this verse from 1 Timothy was relevant again but in a different context. As I read it today, the part that stuck out for me was “nor to put their hope in wealth, which is so uncertain.” It seems some people on Wall Street became enamored by their salaries, SIVs (structured investment vehicle) that falsely created enormous revenues leading to those huge bonuses, and the certainty of their wealth. If wealth is certain anywhere, it would be on Wall Street. In Silicon Valley a decent startup exit would be a few million, but that is the annual salary of managing directors from a bulge-bracket investment bank. While the highs may be higher in Silicon Valley, wealth is built more consistently on Wall Street. Also there is a built-in humility for people in Silicon Valley because many entrepreneurs realize the value of luck in their process to hit a double or a home run. They see thirty file storage companies scrabbling to survive and hope their company will end up on top or within the top three, and then hope for an IPO or acquisition.

Maybe having a biblical perspective would have tapered Wall Street’s uncontrolled enthusiasm and behavior over the past several years? I’m not talking about going to church, but having a Biblical perspective that had a grounded worldview with a core principle that we live in an uncertain world. It’s a perspective that we are not in control and nothing is certain in this world. It’s interesting to note that I found the word “uncertain” in this form nowhere else in the Bible. Maybe God knows wealth is the thing that can distract people the most and create an air of misleading certainty.

Even if you hire the best quant jocks for your investment fund, with PhDs from MIT, and economic models built by University of Chicago professors, you still cannot predict the future of our markets. If you have a server farm of a thousand computers and engineering and math wizards from Caltech, what program could be created that would guarantee certainty in any financial system? Nothing is certain but God.

“Come now, you who say, ‘Today or tomorrow we will go to such and such a city, and spend a year there and engage in business and make a profit.’ Yet you do not know what your life will be like tomorrow. You are just a vapor that appears for a little while and then vanishes away. Instead, you ought to say, ‘If the Lord wills, we will live and also do this or that.’ But as it is, you boast in your arrogance; all such boasting is evil.” James 4:13-16

Uncertainty is not the worldview of Stephen Hawking, who is a determinist and believes everything is governed by cause and effect so human freedom is nonexistent. If Hawking was in finance, he might have collapsed our whole system years ago with an overconfidence in mathematical models and their powers of predictability. A better worldview is sometimes a seemingly illogical (or at least less logical) one. It’s a worldview that places God firmly in the center and accepts uncertainty as a pattern in life.

The danger in seeking a more biblical worldview is asking for God’s involvement in your life. Because God can certainly remind you of life’s uncertainty and inform you that he, not you, is the master of the universe. Just ask Moses or Job or David. From this worldview, humility drapes your being. Wealth is no longer certain. It is a gift, and others would call it luck or fortune. Exotic financial vehicles with minimum risk and infinite upside simply are not a reality in a God-centered world. The only gift of infinite upside is grace and your hedge is mercy.

Wall Street has had its head on collision with the world of uncertainty. Hopefully this will bring into light the only certainty in our world.

Originally posted at InsideWork (no longer an active site).

No comments: