Enough of that, though. King County was seduced by a system and seduced by abstraction. Here’s the sympathetic quotation in the article:
"They invested in commercial paper that they thought was as safe as Treasury bonds," said James Cox, a professor of securities law at Duke University. "They undoubtedly thought they were investing in something much more secure."What the financial industry values nowadays is abstraction above all: the abstraction of a rating substituting for actual informed, detailed analysis of whatever it is you’re investing in.
"We got caught up in the … disruptions caused by this sort of slick, extremely high-level shenanigans that were going on," said Larry Gossett, a member of the King County council.
And, indeed, how were they to know? Here’s the chain of investment: King County invests in IKB who invests in a synthetic CDO created by Goldman with the help of ACA at the bidding of Paulson; the CDO referenced other mortgage bonds based on subprime mortgages…and so on. That’s a complicated chain. That’s certainly more complicated than the ability of any one person to comprehend, in the thick of the action, as events are happening. And it’s clear even from books like The Big Short that even the outsiders who understood best of all did not understand everything. The people working in the system were abstracted away from whatever it was they were allegedly working on. If the goal of a financial system is to distribute capital efficiently for real-world tasks, King County was involved in a tangent of a tangent of a tangent of real-world activity. Therefore they almost couldn’t help but make mistakes: some expert’s figured this out, says its AAA, must be good. It’s the only way to deal with that kind of complexity. It wouldn’t be worth King County’s time to figure out all of the details because King County has other things to do, like governing King County. So they have to hire an expert.
Hiring an expert is pretty much routine for us at this point in human history. Specialization of work and all that. I understand the inner workings of my car no better than the cavemen understood fire. The inner workings of the car and the steps necessary to assemble or fix it are as close to me as an ideology. So I rely on experts to fix my car because I must. It’s the same for so many fields. Again, this works well the vast majority of the time, except when it doesn’t. And now that it doesn’t, the question is, what next? You can only be an expert in so many things, and efficiency dictates that. So what do we have left?