I am just now getting to read Malcolm Gladwell's 2009 collection of essays, What the Dog Saw, and I was intrigued by his essay on the Enron collapse, "Enron, Intelligence, and the Perils of Too Much Information." One of his main points is that sometimes you can have so much information that it becomes impossible for anyone except an expert willing to devote a great deal of time and effort to the task, to actually understand what is going on. The problem with the complex deals that Enron was engaged in was not that information was hidden from stockholders and market analysts; the information was there for anyone to see. The problem was that there was so much information that it presented a daunting prospect, a mountain of detail and legalese that hid the forest in the trees.
He points out several examples of people who managed to slog their way through the mass of material and see with some clarity what was going on. Some began with tips; some just took a look at what would have been available to almost anyone interested to look for it. Indeed, he closes his essay with an almost ironic allusion to a term project of a group of six students (students at Cornell University to be sure, but just students nonetheless) who analyzed all the data and concluded very accurately that Enron was overvalued. Their recommendation: sell! It would seem, then, that with a little hard work, it was possible to understand the machinations of Fastow and the other smartest guys in the room.
On the other hand, at the time that the scandal was a major news story, journalists, both print and electronic, rather than trying to explain the intricacies of Enron's accounting schemes, fell back on the line that the whole thing was just too complicated for anyone other than a professor of economics to understand. It was so complicated they couldn't possibly explain it to ordinary human beings. Expert commentators would appear on the cable channels and explain why they weren't going to bother to try to explain. "Too complicated to understand" became the cliché mantra.
Flash forward to the financial scandal du jour, derivatives and the banking crisis. Once again we are faced with a massive amount of information, most of it arcane, most of it couched in legalese or the jargon of specialists. As with Enron, it is not so much that the information crucial to reading the tealeaves wasn't there to be seen; the documents were available. There were those like the Cornell students who were able to read them. Based on the research of Professor Dirk Bezemer, Wikipedia lists a dozen economists who predicted the crisis, including perhaps the most well known, Nouriel Roubini. Just as it was not impossible to understand what Enron's best and brightest were up to, it was not impossible to understand what the boys at Bear Stearns and Goldman Sachs were doing. It may have been difficult to understand, it may have been difficult to explain, but difficult is not impossible.
Yet when it came to news coverage, what were we told? "These derivatives were just too complicated to understand." "Even the experts couldn't understand them." "They had been purposely made so complex, so as to ensure that no one could figure out what was going on." Now while it may well be true that these investments were created with the intention of obfuscating, that does not mean that they cannot be clarified so as to be understood. At least some of the people who were selling them, if not some of the people who were buying them, must certainly have understood what they were all about. Still, over and over again, all the newscasters can tell us is that these derivatives are seemingly beyond the comprehension of mortal man.
People are not stupid. We may not want to wade through pages and pages of dry-as-dust economic fine print; many of us may not be able to do so. This does not mean that no one should do the wading, and put the information in terms we can understand. What is CNBC for? This is not quantum mechanics. It is not string theory. It is not even the general theory of relativity. I'd like to think that at least some of us might be able to understand what was going on, especially with a little help from our friends. Why is that help not forthcoming?
When a journalist or commentator says that something is too complicated to explain, what he is saying is that it's too complicated for him to explain. In a world where things grow more and more complex on a daily basis, too complicated to explain is an excuse that doesn't cut it. What we need are people willing to do the work to make the complex comprehensible. What is needed is another six Cornell students.Powered by Sidelines