He proposes that financial services are not as profitable as some headline numbers would suggest. And he suggests that the replacement of those who are good at meeting clients on the 19th hole with those who were good at solving complex mathematical problems was not always a good thing — sometimes clever people are the problem, particularly in a complex environment.
On that last point:
The organisational sociologist Charles Perrow has studied the robustness and resilience of engineering systems in different contexts, such as nuclear power stations and marine accidents. Robustness and resilience require that individual components of the system are designed to high standards.… More significantly, resilience of individual components is not always necessary, and never sufficient, to achieve system stability. Failures in complex systems are inevitable, and no one can ever be confident of anticipating the full variety of interactions that will be involved.
Engineers responsible for interactively complex systems have learned that stability and resilience requires conscious and systematic simplification, modularity, which enables failures to be contained, and redundancy, which allows failed elements to be by-passed. None of these features — simplification, modularity, redundancy — characterised the financial system as it had developed in 2008. On the contrary, financialisation had greatly increased complexity, interaction and interdependence. Redundancy — as, for example, in holding capital above the regulatory minimum — was everywhere regarded as an indicator of inefficiency, not of strength.
The finance industry’s incentive system doesn’t reward this kind of big picture thinking at all. It rewards small-scale projects that bring immediate profit, usually at the cost of increasing fragility — not to mention time and effort wasted chasing nickels from low-return gimmicks rather than improving products for scalability, supportability, redundancy, etc. After 15 years in the finance industry I got tired of banging my head against that wall and found something better to work on. Most people would be shocked at how ad-hoc the entire financial system really is.
I realized long ago that efficiency and redundancy are inherently contradictory ideals. The efficient is the one shortest and least-energy path from point A to point B. Everything extraneous to that single shortest path is inefficient. The redundant requires the investment of extra resources to keep additional small-world network paths open, including those few but critical long-distance connections that preserve the six degrees of separation.
To maximize profits finance always fetishizes the efficient over the redundant and robust, and that always leads to eventual institutional implosions. The failings of human nature are perennial.