January 27, 2008
The Fickle Finger

Glimpses into how the world actually works are scarce enough in books; in newspapers they are as rare as total eclipses. And yet in today’s New York Times there are two. One explains the even hand of justice; the other the invisible hand of the market. They are in Ben Stein’s column, from which this excerpt comes:

“…Legal realism” said that the whole common-law system of abiding by past decisions was a fig leaf. What really happened, at the appellate level and probably at the trial level, too, was that judges made up their minds based on their predilections, their biases, which lawyer was their friend, what they had for breakfast that day. (I myself love peach Activia yogurt.)

Then, because a case that reached appeal always had some legal merit on each side, the judges, or their very young clerks, picked whatever precedent they wished to support their bias and pretended that they were bound by that precedent and could not have decided any other way.

The scales fell from my eyes, and I went on to finish law school in fine fettle. It was just all show business and personal bias and what’s in it for the judge. That made law school easy.

Time has passed in a big way. But the lessons of legal realism have always been uppermost in my mind when I think about law or about anything else important: Stated reasons are often not the real reasons.

Because I usually write about finance, I have come to believe in the theory of what I would call “financial realism,” or what might more accurately be called “trader realism.” Under this theory, on which I have an imaginary patent, traders can see masses of data any minute of any day. They can find data to support hitting the “buy” button or the “sell” button. They don’t act on the basis of what seems to them the real economic situation, but on what’s in it for them.

Just as a tiny example, years ago a close friend, now deceased, was a trader in London for a big financial house. As he told it, one day I.B.M. came out with stellar numbers. The boss of the trading floor said, “O.K., the guy who’s getting the prize is the one who can make us money selling I.B.M. short.”

So the traders grabbed for their phones and started to put out any bad thoughts they could dream up about I.B.M. They called journalists, retailers, anyone. They sold huge amounts of I.B.M. short. Soon, they had I.B.M. on the run, made money on their shorts and went to Langan’s to drink champers …



Posted by Jerome Doolittle at January 27, 2008 03:11 PM
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Brings to mind the reality of Trading Places with Eddie Murphy and Dan Aykroyd. I think the MSN knows the score, but refuses to jump ship. They don't want to reveal how corrupt and rigged the system is. God forbid that people would think that the stock market is unfair.

Posted by: Political Sports on January 28, 2008 4:13 PM
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