How to Explain the Financial Crisis (in Under 100 Words)

Psychologist Dr. James Thompson explains the financial crisis in fewer than 100 words:

How did the international bankers screw up?

The managers were 2 sigmas, and they hired too many 3 sigma mathematicians whom they couldn’t really understand. The 3 sigmas were so happy with their bonuses that they kept cranking out complicated derivatives.

The managers liked the answers they got from the mathematicians, which seemed to make risk disappear by distributing it very widely.

They cranked up a sales campaign run by 1 sigmas, who cruelly exploited the –1 sigmas and –2 sigmas, all encouraged by vote buying politicians (2 sigmas?) who wanted to give everyone a house even if they couldn’t pay for it. …

I hope that explains it all.

Not all, but quite a bit.

(Sigma is 15 IQ points so a 2 sigma is IQ 130, a 3 sigma IQ 145, a -1 sigma is IQ 85, and a -2 sigma IQ is 70.)

Unfortunately, if you are at -1 or -2 sigma, it is all too easy to be exploited. Some government protection, which some might call paternalism, is needed to try and prevent this. Unfortunately, the recent mania for deregulation overlooks this truth.

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