How Money Became Dangerous: The Inside Story of Our Turbulent Relationship with Modern Finance
Christopher Varelas and Dan Stone
Ecco/An Imprint of HarperCollins (November 2019)
How removing character assessment has stripped away much of the humanity from the financial world
In this book, Christopher Varelas and Dan Stone examine what has happened — for better and worse — in the financial world when two developments occurred: shifting from the paper spreadsheet to a computer spreadsheet, thereby replacing loan officers with computer analytics, and, removing character assessment from the decision-making process, thereby stripping away much of the humanity from the financial world.
Varelas and Stone suggest that recognizing ten contradictions is a key to finding a positive path forward from the currently turbulent relationship with modern finance.
“Here’s what we’ve seen throughout the course of this book about how each evolution of our financial system achieved great progress while leading to undesired behaviors and outcomes.” Check out the full list on Pages 360-362. Meanwhile, these are three of the ten contradictions that Varelas and Stone cite:
“The introduction of the computer spreadsheet unleashed the creative energy of the financial industry, while helping to eliminate human subjectivity and biases. And yet…The computer spreadsheet led to to the erosion of analytical integrity and the loss of character.” (Chapter 1, Fool’s Gold)
“Speed and precision have enabled the creation of new products and made markets more efficient, increasing access and lowering costs. And yet…Speed, efficiency, and perceived precision have supplanted thoughtful, careful analysis in all areas of finance, including those best served by analytical reflection.” (Chapter 4, Conquistadors of the Sky)
“The construction of financial supermarkets created platforms capable of efficiently delivering the breadth and depth of products demanded by increasingly vast and complex international businesses and markets in a globalizing world. And yet…The advent of financial supermarkets led to the creation of financial institutions that are unwieldy and challenging to managed, as well as to the deterioration of the corporate culture needed to foster and sustained desired behaviors.” (Chapter 6, Shooting an Elephant)
These three and the other seven contradictions suggest the unique contributions that humans and machines can — and cannot — contribute when working in collaboration.
Christopher Varelas and Dan Stone also offer recommendations worthy of thoughtful consideration: Three Action Items for the Banking System and Investment, convinced that the financial world has lost common humanity but that can be regained. I hope they’re right, although I probably won’t live long enough to see that happen.