THE JOURNAL
Illustration by Mr Giordano Poloni
An expert guide to making managing your money a bit more fun.
Finance is much cooler than you think it is. At least, this is the argument being made by Harvard Business School professor Mr Mihir Desai in his book The Wisdom of Finance, a strikingly involving, strangely life-affirming new tome about – and, yes, it feels odd to say this – the world of insurance, stock options, leverage, mergers and acquisitions.
According to Mr Desai – who spent his early career on Wall Street before making the move into academia with a PhD in political economy at Harvard – our contemporary understanding of finance often fails to engage with the essentially moral, human concepts that have always informed it. In fact, he says, finance has an awful lot more in common with the kind of ideas we find in the humanities – art, philosophy, literature – than most people would give it credit for. The problem is, he says, that we simply don’t have a good cultural frame of reference for finance. If it’s not greed, excess, hubris and tragedy, we don’t tend to see it.
“I think people organise their lives around stories, and most people in finance have really bad stories,” says Mr Desai. “Stories of Bernie Madoff, or Gordon Gecko, or The Wolf of Wall Street, or Don Dellillo’s Cosmopolis. They’re terrible stories. I mean they’re cautionary stories, of what can go wrong, but they're not stories of what can go right.”
In his book. Mr Desai’s response to this situation is to provide the world of finance with some new stories via a wide-ranging series of references to the classical world, the literary canon and contemporary pop culture as well as his own career and family life. Elizabeth Bennett’s marriage problems in Pride And Prejudice become an explainer for optionality. The intertwining plotlines of the Merchant Of Venice demonstrate how debt is about personal, as well as financial bonds. He explains how insurance can be seen as something of a socialist, pragmatic enterprise, with reference to the philosopher Mr Charles Sanders Pierce. He shows that finance is like romance and if you don’t agree with that, he says, you need to watch Working Girl.
“People in finance will talk about marriage as the death of optionality,” he says. “So they already make a mapping between phenomena in their life and their work. Everyone does that in a certain way. But I think in finance the correspondence is more robust than I would have imagined, because finance is about creating value. About how you think about where value comes from. Really, that’s what we're all interested in, in one way or another.”
Though this all might sound a little bit like too much sophistry, following Mr Desai through his arguments and explanations is, in practice, a disarming and illuminating process. In fact, though Mr Desai bristles at the term “self help” (“it’s these simple solutions – I think it’s total bullshit,” he says) his ability to tie financial concepts to relatable, human situations, demonstrates how an understanding of these ideas can be not just monetarily beneficial, but personally empowering. By understanding risk, he suggests, you can make sure you have the right amount of it in your life. You can extend yourself to your utmost, while protecting yourself from failure. Even when it does go all wrong – as he explains in his chapter on bankruptcy – you can fail the right way.
As well as engaging a wider reading public, Mr Desai’s book is motivated by an admirable ideal: to encourage people within finance to behave better. He concedes that, even in the aftermath of the 2008 crash, the financial industries, and many of the people that work within them, remain largely unreformed.
“What’s interesting about now is that you’ve had this kind of seismic event and people are obviously extremely disappointed with finance, he says. “And yet we haven't seen as many changes to performance as we would have expected. The industry hasn't changed significantly. Certainly in the U.S. and also in the U.K. So the disappointment is compounded. Right. People say well why didn't anything happen?”
His hope is, by reconnecting finance to the ideas behind it – most of which are to do with benefitting the many, rather than enriching the few – he can at least start a discussion about finance and morals. Reform itself, says Mr Desai, is complicated and full of obstacles, not least because the concerns involved are so large and powerful. “The better way out of it,” he says, “is to say, ‘you know, we expect more out of you. You have to behave better. And in fact, the ideas you work with have moral content, so you should look at them with a moral lens.’”
“That may sound a little simplistic and panglossian,” he continues. “Like we’re going to change the world. But I will say there are very few other ways to change the world. As an academic, what do I believe in? Ideas change the world.”
