Mark Cuban, owner of the Dallas Mavericks, recently wrote an article in his blog and used the term Financial Engineering, implying it was responsible for ruining financial markets. I agree with the points he makes, but find his application of the term ‘engineering’ to be a gross misapplication of the word. I suppose it puts engineers in good company, since the term ‘doctoring the results‘ has similar negative connotations, even though doctors are generally thought to be upstanding members of the communities they serve.
I shouldn’t give credit to Cuban for coining the term since there is a short Wikipedia entry for Financial Engineering. It reads:
“Financial engineering is a multidisciplinary field involving financial theory, the methods of financing, using tools of mathematics, computational and the practice of programming to achieve the desired end-results.
The financial engineering methodologies usually apply social theories, engineering methodologies and quantitative methods to finance. It is normally used in the securities, banking, and financial management and consulting industries, or as quantitative analysts in corporate treasury and finance departments of general manufacturing and service firms.”
Not that the Wikipedia is an authority on the topic, but Cuban’s use of the term financial engineering, implying that it involves fraudulently manipulating the market to profit a select group by creating huge losses for true investors, is not consistent with that definition.
Engineers are measured by how well they can discern and explain truths. If you’re an engineer and prone to lying about your calculations, you won’t be an engineer for very long. You could even get someone killed. I’m not saying that it’s impossible for an engineer to lie, it’s just that engineers who do lie usually aren’t very good engineers and generally leave the profession, usually moving on to areas where that skill is better appreciated.
Some professions actually place a high value on stretching the truth and consider it a desirable trait. Marketing comes to mind :-). One of the most prolific writers on the subject of marketing, Seth Godin, actually wrote a book entitled ‘All Marketers are Liars‘, and it became a best seller. I read it and it’s very good, just like his other books. Godin originally wanted to call the book “All Marketers are Storytellers”, but used the word “Liars” to sell more books. That’s an example of lying wrapped in the guise of clever marketing.
Marketing isn’t the only profession where spinning a good yarn can be appreciated. If you’re guilty of some crime, you probably would want a lawyer who could spin the facts to make it look like you’re actually innocent. Used car salesmen are often times thought to be quintessential liars, not all of them, mind you, just the really good ones. If you’re an actor, you have to lie to convince the audience you’re some character that you’re obviously not. So lying may be a necessary skill in some professions, but engineering is not one of them.
That’s why when Cuban uses the term ‘financial engineering’ as the cause the stock market bubbles and current credit crisis, it rings hollow for me. I’m not suggesting he call it ‘financial marketing’, ‘financial lawyering’, or ‘financial acting’, although those terms might more closely align with his implied definition than ‘financial engineering.’
I wish I could help Cuban out by coming up with a new term for the financial fraud that periodically gets perpetrated on Wall Street, but perhaps we should just call it what it really is, that is, fraud, since there’s no reason to tarnish a profession by implying that its name is synonymous with the word ‘fraud’.