MonkeyBusinessBlog: Dalai Lama Blames Economic Disaster on "Lack of Spirituality" I Respectfully Disagree.

Yesterday, Tibet's spiritual leader, The Dalai Lama, blamed our our economic trainwreck on a, "Decline in culture and spirituality." The Dalai Lama also said,, "People have become selfish and materialistic, which has led to the economic slowdown." Dealing with the latter statement first, I'm not sure what time frame the Lama is talking about when he says we've "become" selfish and materialistic. As far as I remember we've always been pretty selfish and materialistic. Still, I'll cede that point to the Lama (I keep hearing Bill Murray in Caddyshack everytime I write "Lama", I hope you do too!). Most probably he's talking about it in a relative sense. Where I don't agree with the Lama is the lack of spirituality. It is obvious he never sat on a structured security or exotic derivative desk.

Spirituality is the belief and faith in a transcendent reality. Any religion that believes in a higher deity or god, accepts the fact that there are things that are beyond our grasp of knowledge. We must have faith in things that to us, defy our earthly beliefs in what is possible. We accept these things as truth despite the fact that we cannot see them or understand them. This mode of thinking fits perfectly into the world of high finance no? Talk about transcendent reality!

"How can we structure a subprime deal that produces 80% risk free, AAA bonds from a pool of mortgages made to people that can never pay them back."

"Because our model says we can."

"But what if they all default?"

"They won't. We are diversified and even if they do, home values always increase."

"They do? Why?"

"Because they do."

"Oh. Well, what about all the loans in our Alt-A deal? The borrowers have no documentation and credit scores, like FICO can easily be gamed. How do we know that the weighted average FICO score is > 680."

"Because we have faith. Blessed are those who have not checked documentation and yet still believe."

"Ok, what about the exotic derivative desk? I see here you just did a big deal that pays the buyer 15% if the S&P 500 is greater than 1,400, the Ten-year Treasury note is less than 5% and USD/Yen is greater than 80......TEN YEARS FROM NOW! You say it's worth $100, you sold it for $110 and booked a $10 gain. How do you know that what you sold is worth only $100?"

"Because our model tells us it is. Actually the model says its only worth $95 but we are being conservative.

"How can you possibly figure out the value on all those parameters and their correlations to one another, TEN YEARS FROM NOW?"

"Because the model tells us it is so and therefore it is.

Don't tell me we don't have spirituality!