Name: The world of finance has a dark side, but that's only half the story
Uploaded: 2020-02-25T17:20:54.000Z
Duration: 9 min 31 s
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JUDY WOODRUFF: When it comes to Wall Street, many people think of money and greed, but

a professor at Harvard Business School argues there's a lot more to the world of finance,

and he uses books and movies to make his case.

Our economics correspondent Paul Solman has the story.

It's part of our series Making Sense, which airs every Thursday.

PAUL SOLMAN: The field of finance, you might say it has an image problem.

Consider "The Wolf of Wall Street," based on a real-life character.

LEONARDO DICAPRIO, Actor: If anybody here thinks I'm superficial or materialistic, go

get a job at McDonald's, because that's where you (EXPLETIVE DELETED) belong.

PAUL SOLMAN: Investment banker Patrick Bateman in "American Psycho" is fictional, but not

CHRISTIAN BALE, Actor: I have all the characteristics of a human being, flesh, blood, skin, hair,

but not a single clear, identifiable emotion, except for greed and disgust.

MICHAEL DOUGLAS, Actor: I am not a destroyer of companies.

PAUL SOLMAN: Hey, finance has had an image problem since buyout bro Gordon Gekko graced

MICHAEL DOUGLAS: The point is, ladies and gentlemen that greed, for lack of a better

ACTOR: Big bank, small bank, I like to make money.

PAUL SOLMAN: And the real events of the 2008 financial crisis only made matters worse.

PAUL SOLMAN: But Harvard Business School's Mihir Desai says there are two faces to finance,

though he readily acknowledges the dark one to his students.

�MD+IT��MD-IT� MIHIR DESAI, Harvard Business School: Many

people demonize what you do, and it's hard to live that way.

PAUL SOLMAN: And he told me he gets why that perception is so pervasive.

MIHIR DESAI: When you have real-life figures like Martin Shkreli, who was both a hedge

fund trader and then took over a pharmaceutical company, jacked up prices by 5000 percent,

subsequently engaged in a variety of nefarious behavior, and very proudly so, so it almost

makes you feel like real life is outpacing fiction.

PAUL SOLMAN: Desai has written a book to try to balance the picture, "The Wisdom of Finance."

MIHIR DESAI: The goal in the book is to try to demystify finance so that the people who

currently demonize it will come to understand it, as opposed to simply oppose it.

And then for the people who are in finance, we have to get back to the ideas.

PAUL SOLMAN: To Professor Desai, the big idea of finance is illustrated by the Quincunx

machine in Boston's Museum of Science: the ability to find order in a seemingly random,

MIHIR DESAI: This was a real revolution in probability, which is random things happening

PAUL SOLMAN: Balls drop, bounce randomly left or right as they encounter the pins, and eventually

MIHIR DESAI: Things that seem random actually end up resulting in a very orderly pattern,

in fact, this bell-shaped distribution or normal distribution.

And that, of course, is the foundation of finance, because you observe a lot of random

things, but it ends up behaving in predictable ways.

PAUL SOLMAN: Randomness and its risks are everywhere.

The income plight of women throughout most of history.

ACTOR: You should consider that it is by no means certain that another offer of marriage

MIHIR DESAI: Mr. Collins, who delivers the worst proposal ever to Lizzy Bennet in "Pride

ACTOR: I am well aware that 1,000 pounds is all you may ever be entitled to, but rest

assured I shall never reproach on that score when we are married.

MIHIR DESAI: You're not that wealthy, you're not that pretty, you have an offer on the

PAUL SOLMAN: It's the great economic risk faced by all Jane Austen's Bennet girls, but

MIHIR DESAI: Lizzy turns down Mr. Collins, and the advice of her mother, because she

Of course, that ends up very nicely, ultimately, with Mr. Darcy, but, at the time, she didn't

PAUL SOLMAN: No, Lizzy was lucky in love and money.

MIHIR DESAI: The next day, he gives the same proposal to Charlotte, her friend, and she

ACTOR: Cousin Elizabeth, you can see before you the happiest of men.

PAUL SOLMAN: Charlotte Lucas' lot wasn't the happiest, but better than penury, one imagines.

MIHIR DESAI: She said, I'm just going to take the solution.

PAUL SOLMAN: In Anthony Trollope "Phineas Finn":

ACTOR: How nice to find you and to find you alone.

PAUL SOLMAN: Violet Effingham had a very different problem: too many suitors.

ACTRESS: And you look very piratical tonight, Lord Chiltern.

ACTOR: That is because you see me by the side of all these smug, glossy parliament men.

MIHIR DESAI: She doesn't know who to choose, and she says, you know, if only I could marry

You know, she's the essence of diversification.

PAUL SOLMAN: Because then you wouldn't have all your eggs in one basket.

You would have 10 different guys, 10 different fortunes.

The intuition that you can lower risk by dividing resources is extremely old.

That diversification idea goes back to shipping, when you split up your cargo across routes.

It goes back to agriculture, when people would split up their land.

In Ecclesiastes, we see the advice to invest in seven ventures -- no, eight ventures, because

you never know what disaster will happen.

PAUL SOLMAN: So this is the benign face of finance.

It allows you to protect against risk by, among other things, diversifying your investments.

When you invest, you're still stuck with the risk of giving your money to someone else.

MIHIR DESAI: I gave my money to Tim Cook, who runs Apple, and I own one share.

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The world of finance has a dark side, but that's only half the story

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