Bubbles and Sex
March 04, 2009, 08:02 PM
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Michael Lewis visits Iceland for ten days for Vanity Fair to develop A General Theory of the Icelandic Financial Crash.

The subtext of his article is that Lewis, who wrote a bestselling memoir in 1989 about his few years on Wall Street,is suddenly so much in demand again as a financial journalist that he's getting rapid-fire assignments on topics about which he knows nothing.

The resulting article is a wonderful example of how reporters parachute into some place unknown and create general theories based on trivial travel incidents. When his plane lands, an Icelandic bumps him while getting his bag out of the overhead bin (ICELANDIC MEN ARE MACHO). The airport passport control has one life for foreigners and natives (ICELANDERS ARE EGALITARIAN), etc. At times it sounds like something that one of the foreign correspondents in Waugh's Scoop would write.

After visiting a museum devoted to Iceland's bloody medieval sagas, Lewis eventually arrives at the theory that Iceland went hog wild financially out of excessive machismo. Well, excessive machismo and excessive refinement, since Icelandic men were too cultivated to be fishermen or aluminum smelters, so they became investment bankers.

From there he develops a general theory of bubbles:

Back in 2001, as the Internet boom turned into a bust, M.I.T.’s Quarterly Journal of Economics published an intriguing paper called �Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment.� The authors, Brad Barber and Terrance Odean, gained access to the trading activity in over 35,000 households, and used it to compare the habits of men and women. What they found, in a nutshell, is that men not only trade more often than women but do so from a false faith in their own financial judgment. Single men traded less sensibly than married men, and married men traded less sensibly than single women: the less the female presence, the less rational the approach to trading in the markets. One of the distinctive traits about Iceland’s disaster, and Wall Street’s, is how little women had to do with it. Women worked in the banks, but not in the risktaking jobs. As far as I can tell, during Iceland’s boom, there was just one woman in a senior position inside an Icelandic bank.
Of course, this theory completely explains the much more important American Housing Bubble, as well, since women play virtually no role in buying or selling homes in the United States.