A Very Bad Bet: How Wall Street Deluded Itself

The very best thing I’ve read this past week was a discussion about the worldview of the super-rich which came courtesy of the Washington Post’s Wonkblog.

Ezra Klein spoke with the brilliant Chrystia Freeland, author of the new book Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else.  Chrystia’s become something of an expert on the global over-class through her reporting on the topic of wealth for Reuters over the past year. And I’m told I have a cameo in the book but I haven’t gotten around to reading it just yet so I’m not sure!

Anyway, Chrystia explains how the Mitt Romney campaign became “the worst Wall Street bet since subprime” in the interview with Klein, which included this fascinating insight:

EK: You and I spoke shortly before the election for a piece I was doing on Romney’s history as a manager. These folks, too, are purportedly very data focused, very good at assimilating new information. So I find it genuinely scary that neither Romney nor his super-rich backers had any idea he was going to lose. All the polls, all the models, all the betting markets said he was likely to lose. How did a group of people who, in their jobs, have to be willing to read and respond to disappointing data convince themselves to ignore every piece of data we had?

CF: That’s the single most astonishing thing. By his own definition, Romney’s single strongest qualification to become president was analytically based, managerial excellence. And if the election campaign were the test of that, and even if you were ideologically his fan, you should think it right that he lost. Now, how could it happen? My first thought was it was also the case that all the smartest guys in the room managed to lose a lot of money in 2008 and managed to convince themselves of a set of very mistaken beliefs about where the markets where going to go. It was a lot of the same people on the wrong side of both bets.

But I find it truly mystifying. I don’t claim to have particularly unique insight. I think it could be a combination of things. One is a generic belief that in order to run for president you have to think you’re going to win. You can’t do it otherwise. A second thing, and this is not so much about the rich guys as about the Republican Party in America, I think Republicans have felt since the time of Ronald Reagan that they are the party that represents the true America, and that the Democrats might sometimes win, but it’s kind of an aberration. And when it comes to the super-rich guy dimension, and I imagine this has happened to Obama as well, when you’re a rich and powerful guy, it can make it hard to see reality, especially when you’re paying your campaign staff great salaries, as Romney was.

Don’t miss the rest of this conversation, it’s both illuminating and entertaining all at once.

Source:

‘Romney is Wall Street’s worst bet since the bet on subprime’ (Wonkblog)

See Also:

Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else (Amazon)