There is no lack of contributing culprits, factors, or causes when it comes to the current financial crisis. But one particular thread that's intrigued me from the start is the role that bold, arrogant, or naive (depending on your take) attitudes about risk played in the calamity.
It's a theme that's received new attention with the publication of Gillian Tett's book Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan was corrupted by Wall Street Greed and Unleashed a Catastrophe
. According to Tett (and many others), it was the idea that risk could be eliminated (or diluted so much that it wouldn't matter anymore) that fueled the innovative securitized debt and derivative schemes that resulted in such a breathtaking global disaster. The system came apart when the housing bubble burst because all sorts of players had extended themselves far beyond what would have been considered prudent, or even possible, without the magical, disappearing risk trick that J.P. Morgan's financial whiz kids devised.
Other writers, including Tett, can get into the exact details of how that played out far better than I can. But what has struck me since I first heard about how these bankers decided they could, as one reviewer
put it, "defeat the banker's oldest foe--the danger that borrowers will not repay their loans," is the thought that all of Wall Street's risk-takers should be required to learn to fly small airplanes. For if they did, they'd learn that risk, like gravity, can only be negotiated, not eliminated. And that one gets overly bold and audacious about their ability to ignore, out-scheme, or beat the immutable powers of nature and physics--risk included--at their peril.
Risk, for a pilot, is an ever-present and formidable opponent that faces you down in a three-dimensional chess game every time you climb into the cockpit. Flying a small airplane, without all the back-up systems and performance of a large airliner, is not a matter of bold audacity. In fact, there's a well-known saying in aviation: "There are old pilots, and bold pilots, but no old, bold pilots." Survival in the sky is a constant dance between immutable forces of nature (gravity, drag, winds, weather) and the plane and pilot's ability to navigate skillfully through that gauntlet. And if you judge that balance incorrectly, and fail to give risk its due respect, there's no bailout available. The consequences are unforgiving, life-threatening, and final. No numerical wizardry can outfox a strong downdraft, counter a low gas tank, or perform a magical pull-up after a badly-planned low show-off pass.
Any number of young guns begin their pilot training with the idea that they can outmaneuver the elements better than their elders. But few pilots get through even their initial pilot training without experiencing at least one moment of truth when they miscalculate the risks or forces at play, and end up scaring the daylights out of themselves. Something about the realization that you can actually kill yourself doing this activity tends to sober most pilots up a bit. Those who don't sober up tend not to live that long.
What's particularly helpful about flying for teaching a respect for risk is not just that the consequences are physical, but that they follow so quickly after a bad or overly risky decision or approach. Years don't unfold before you learn the downsides to your arrogance or misjudgment. And the consequences don't happen to other people while you continue to fly merrily along, undisturbed and well-compensated.
Not that pilots are immune to the lure of new innovations or the seductive idea of conquering risk. The advent of glass cockpit technology (computer screens in the cockpit that allow moving maps, terrain, traffic, and weather information to be clearly displayed and updated), and the Cirrus Design Corporation's famous all-airplane parachute, have lured more than one pilot into a false sense of security. But the sky, and the laws of physics, are stern and swift correctors to any overly bold thoughts. The Cirrus planes had a higher level of accidents than other models, when they first came out, until pilots realized that the new equipment hadn't eliminated risk, after all, and they still needed to exercise serious and prudent judgement, even with the new technology and tools.
Having flown small airplanes for 20 years, my respect for the ubiquitous and constant presence of risk, and its always-attendant consequences, is almost part of my basic DNA. Some pilots manage risk better than others (hence the still-present pilot-error accident rate), but nobody could ever convince me that any new technology--financial tools or strategies included--could ever truly conquer or eliminate the demon of risk.
So I can't help but wonder ... before they gamble with other people's money, in situations where consequences are often long-term, distant, and impersonal ... what would happen if we required all of Wall Street's risk-takers to actually learn something about the nature of the beast first? In a setting where the consequences for hubris, arrogance, or misjudgment would be real, immediate, and personal? It might not prevent another bubble of reckless, over-confident behavior or thinking. But it might leave an impression on enough of them to mitigate the excess inclinations of the others who, like the doomed flyer Icarus, believe they can fly to any heights without peril or care.