Monday, August 18, 2014
The Subtle Power of Financial Jargon
by Kathleen Goodwin
Few students of colonial history can deny the power of spoken and written language to subject and subdue a population. Zia Haider Rahman's "dazzling debut" of a novel, "In the Light of What We Know", contrasts two South Asian characters who attended Oxford together as undergrads—a privileged Pakistani narrator who becomes an investment banker in London and his friend Zafar, an impoverished refugee of the 1971 Bangladeshi Liberation War turned Harvard educated international human rights lawyer. One of the central themes of the novel is the way language can exert power over individuals and groups, as well as entire nations. Spoken language is an obvious manifestation of the tension created by modern day neo-colonialism or the 1971 splintering of Bengali-speaking East Pakistan from Urdu-speaking West Pakistan. But Rahman also explores a parallelism in the way language—in the form of industry jargon, acronyms and other forms of coded phrasing— can create power structures with remarkable potency.
"In The Light of What We Know" skips around temporally but the narrative is centered around London in 2008, in the midst of the unfurling financial crisis. The nameless narrator is revealed to not only be a banker, but the head of the mortgage-backed securities unit of his (also unnamed) global investment bank and thus on the verge of losing his job as the public condemns him and his counterparts for the calamity that is taking place. Tellingly, Rahman's résumé includes a stint as a Wall Street investment banker prior to becoming a novelist. His purpose does not appear to be to crucify the financial sector, rather his novel explores the great irony of the financial crisis—the securities derived from residential mortgages, which when the American housing market collapsed became essentially worthless and set off the chain of events that have changed history forever, were vetted and encouraged by the entities that should have understood and prevented the systemic risk to global markets these securities posed. Rahman's narrator explains this as being a function of the incestuous and hierarchical relationship between the big banks and the ratings agencies and regulators. The narrator describes a financial club of sorts, headed by chummy Oxford classmates who maintain a revolving door hiring policy and most importantly—speak a financial language incomprehensible to the ignorant public. The critical point is the way these hidden power structures allowed the conditions preceding the financial crisis to occur. The ratings agencies and regulators were compliant with the investment banks while the rest of society was unaware of the huge gambles being sanctioned, which eventually proved to be detrimental to the stability of the global economy.
One of Rahman's points is that an inner circle of investment bankers were able to receive the blessings of ratings agencies and regulators by means of the confusing acronyms and jargon that typifies Wall Street. As his novel explores, M.B.S.s (mortgage backed securities), and the related collaterized debt obligations (C.D.O.s) and credit default swaps (C.D.S.s) which were also tied to the American housing market, were actually only fully understood by a very small population of financiers in the years leading up to the financial crisis, and certainly not understood by the population at large. As John Lanchester wrote in the New Yorker last week, "it was hard to take in the fact that C.D.S.s were on the verge of bringing down the entire global financial system when you'd never even heard of them until about two minutes before."
In the case of Wall Street, an alarming list of terms actually mean quite the opposite of what a layperson may assume. In some cases this is a purposeful marketing tool, "high yield bonds" sound like a more attractive buy than "riskiest bonds" which is what they truly are, but in others this is simply because of historical background— the original hedge funds used to hedge market positions but now many of them don't. Lanchester discusses the importance of "reversification" when it comes to many finance and economic terms, or how a word comes to mean precisely the opposite of what it sounds like it should. He writes, "‘Credit' has been reversified: it means debt. ‘Inflation' means money being worth less. ‘Synergy' means sacking people. ‘Risk' means precise mathematical assessment of probability. ‘Noncore assets' means garbage."
Financial jargon accomplishes two things simultaneously—it makes those who speak and understand it feel as if they are part of some sort of elevated clique, or more aptly considering the demographics of Wall Street, a fraternity. It makes those who don't understand it feel excluded and unintelligent, and consequently and even more importantly, discourages them from questioning the validity of the content being discussed. The structures derived from residential mortgages had been successfully repackaged and neatly summarized for ratings agencies and regulators to deem "safe". Thus when the financial system that had been built on their faulty premises collapsed spectacularly, the investment banks could displace culpability to the entities who had authorized and encouraged them to create such securities in the first place. Hence an endlessly circular blame game that continues to play out today, where investment bankers claim they can't comprehend why they're being vilified for pushing securities that were given safe ratings by agencies like Moody's and approved by the government regulators like the SEC.
Rahman's narrator opines, "Everyone in finance relied on the yawning indifference of the public and press to what was really going on…Don't they say that all evil needs is for good people to do nothing?" But I would disagree slightly with this characterization, it was not that the public and press were indifferent, they were excluded from the power structure that proved to have the fate of billions of people in its hands. And the primary means of their exclusion was their inability to understand the language of the financial sector. Consequently, global investment banks were able to take huge gambles once they received approval from regulators, as no one had sufficient words to challenge their authority. As Lanchester writes, "The language of money is a powerful tool, and it is also a tool of power. Incomprehension is a form of consent."
While I work in finance, I have an abundance of close friends who are entering medicine, and in comparing the two worlds I'm struck by the similar reliance of the healthcare sector on jargon and the accompanying abundance of acronyms. Doctors, like bankers, exist within a highly specialized and increasingly esoteric realm, and are able to speak to one another efficiently using technical terms and industry-wide coded speech. However, a layperson doesn't necessarily understand the language of doctors, which causes obvious problems when someone with minimal medical knowledge is trying to understand his/her own or another's illness. As an oversimplified example is the season two episode of "The Office" when manager, Michael Scott, comically mistakes his employee's "negative" skin cancer test results for bad news. After being informed of the misunderstanding, Scott summarizes: "Apparently in the medicine community, negative means 'good,' which makes absolutely no sense. In the real world community that would be chaos." Even those with superior intelligence to the fictional Scott are aware of some of the counterintuitive and potentially emotionally jarring risks of medical jargon.
There is convincing data that doctors put their patients' health in jeopardy when they are unable to prevent themselves from using complicated jargon, especially since they are already in an elevated position of power over patients and by virtue of their superior medical knowledge. As neurologist Dr. Richard Senelick wrote in the Huffington Post:
"One study of 249 emergency room patients reported that 79 percent did not know that the word hemorrhage was the same as bleeding and 78 percent did not know that a fracture was a broken bone. In case you think these were illiterate, underprivileged people, 45 percent of the people in the study were college educated."
While investment bankers seem unlikely to cause confusion surrounding cancer diagnoses, the fallout of the financial crisis on all segments of the global population shows that banks have the power to cause systemic damage to the global economy and have adverse effects on quality of life. And while it is generally understood that it is crucial for doctors to stop using jargon when explaining diagnoses and course of care to their patients, I'd posit that it is equally or more important for investment bankers to stop speaking in a coded vernacular—because it establishes an untouchable hierarchy that has proven to be extremely detrimental to the world outside of finance.
My experience within a Wall Street firm in the post-crisis "new world" is limited, but overall I have been impressed with investment banks across the Street in their eagerness to consider a wide range of downside scenarios before making decisions and to willingly comply with increased sanctions and oversight from regulators. After all, no one wants another 2008, least of all those who became the villains deemed responsible for the entire debacle. I can admit that acronyms, abbreviations, and succinct phrasing cuts down time in day to day interactions among colleagues. Yet, I would advocate for a shift away from financial jargon and renaming of essential financial terms so that they accurately reflect the things they are named for. While the government regulators have certainly cracked down on checking the power of investment banks, it is also now important for the press and public to be able to understand and monitor the financial sector. In the aftermath of the financial crisis, the world, but particularly the US, is becoming more unequal, with a growing number of "have nots" controlled by increasingly powerful "haves". Any way that we can find to pinpoint the embedded power structures that maintain this lopsided status quo are valuable when it comes to imagining a more equal future.
Posted by Kathleen Goodwin at 12:10 AM | Permalink