Tuesday, June 7, 2011

Pericopes for the Week: From Buttonwood's "Faith and the markets"

Back in March, 1999, the Atlantic published an article by Harvard theologian Harvey Cox entitled, "The Market as God." He noted that the financial world is much like the religious world: both operate with arcane language, both have comprehensive myths that seek to reveal the inner meaning of human history, and both have rituals/sacraments. Both have their orthodoxies and heresies, their notions of salvation, and their calls to faith/trust in the words of the business/religious gurus, and, of course, both have their objects of "ultimate concern" (Paul Tillich's phrase, not Cox's). In the case of free-market capitalism, the Market is God.

I thought of Cox's important essay (of more value today than when it first appeared, I would think) when I read Buttonwood's column on page 76 in the May 28th Economist: "Faith and the markets." This week's pericopes will be taken from it:

"...Religion is largely a matter of faith, rather than scientifically testable propositions. But even in the financial markets, where participants worship Mammon rather than God, faith plays a larger role than its hard-headed participants would like to admit.

"...When it comes to assessing the prospects of a company like LinkedIn, a newly floated online business-networking firm, investors rely entirely on the assumption that the company's future growth can justify the stratospheric level of its current valuation... Buying shares in such a company is a leap of faith by any standard...

"...Finance even has its own high priests in the form of the analysts and fund managers who promise their clients heavenly rewards if only they listen to their advice. The preach regular sermons in the form of brokers' notes and quarterly reports, and they house themselves in vast cathedral-like buildings that dominate the skyline. Each day also has its canonical hours as traders pray for profitable opportunities at the European, American, and Asian market openings. Finance has its annual calendar, too, marked by festivals known as result seasons in which the lucky participants receive their temporal (rather than spiritual) dividends.

"And like any self-respecting religion, finance has its doctrinal schisms as well. Active fund managers are a bit like the medieval Catholic church, offering eternal salvation to whose willing to pay the appropriate sum, which are known in modern parlance as performance fees rather than indulgences. The active-investment sect has its elaborate rituals and language, with a liturgy ('information ratios' and 'alpha generation') as baffling to the layman as the Latin mass was to the medieval peasant. Clients are supposed to listen to their presentations in a reverential hush, trusting that all the mumbo-jumbo will deliver superior results.

"The passive fund managers, or index-trackers, are akin to early Lutherans. Investors have no need for priestly intermediaries between them and the market, say the index-trackers. All they require is the full text of those companies that are included in the benchmark.

"Finance also has its equivalent of holy men... [and it] seems to be polytheistic rather than a monotheistic faith..."

For the full column, visit http://www.Economist.com/blogs/buttonwood

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