Governance failures can be caused by opaque jargon and can be triggered with poor accountability and overt fraud. An example is the infamous, failed JP Morgan hedge strategy in 2012. This is called the “London Whale,” with the bank losing more than $6 billion and government fines exceeding $1 billion. A transparent, outspoken, unusually self-critical internal investigation conducted for the Board and a 2013 parliamentary investigation by the Homeland Security and Government Affairs Committees identified a massive deal catastrophe that was not a deliberate managerial deception but was the result of a disruption in governance over terminology.
On January 26, 2012, a disastrous series of transactions by JP Morgan Trader Bruno Iksil spiraled when losses increased due to permits granted by the bank's senior leaders. The probe revealed that none of the surveillance acknowledged a lack of understanding of what the traders were looking for. His requests were the mysterious suggestion of “selling forward spreads in toning movements and buying protection,” “using indexes to add to existing positions,” “long risks of some abdominal tranches, especially if defaults are realized,” and “purchasing HY and Xover protections in the rally and changing positions to monetize volatility.”
Famous New York Times Financial reporter Floyd Norris reassured readers, “If the proposal doesn't make sense to you, don't despair. It's largely shining.” As the Senate investigation ultimately concluded, “The proposal encompassed multiple complex margin trading strategies using terminology that even relevant parties and regulators could not understand.”
If none of the JPMorgan board or management thought about what “belly tranch” was referring to, why didn't they ask? That's because both high-level executives and boards fear that they may appear unsleashed before their peers. This obfuscation with jargon hides their confusion. Instead of using JPMorgan's accident as a lesson, we continue to use and expand this kind of heart-warming jargon, including business executives, media commentators, research analysts, and tech investors.
Calculation: Shortly after the revelation of China's destructive deepscake AI search model, one of the world's best chipmakers declared, “The next generation of AI needs 100 times more calculations than older models than when ChatGPT came on last year.” Analysts, commentators and competitors have launched an echo chamber for requests for “more calculations” which they interpreted as a surge in GPU needs, device limitations, data center jumps, engineering staff lifts, and increased investment or energy needs. Clubbee's shorthand, “More calculations needed,” does not clearly calculate what calculation needs are needed.
Visibility: Similarly, 25 years ago, when we discussed what technology was back then, entrepreneurs and their VC supporters began screaming “Now there is little visibility.” The term has been more recently reflected on the effects of tantrums on the volatile Trump trade. But what is the visibility they mention? Is that the speed of change in the external market? Array of alternative strategy scenario options? Is it an evolution of internal technology, or is it an internal business process, or the type of skills required? Despite no one knows this phrase is reflected confidently by executives, analysts, commentators and directors.
Risk-on/Risk-off: The macho experts in trader talk have infected investors and now even executives and board directors feel compelled to mimic what they have heard about managing uncertainty with terms like decision-making risks and “risk-off.” And who knows if they believe it's a good or bad thing?
Referring to predictive behavior, even that only jargony terminology is a non-word from the 1980s and is now generally accepted as a genuine adjective, so can we be “aggressive” in this respect?
The secret is that having the courage to ask stupid questions can clarify the deliberate opacity behind Clicish Jargon. He served on four boards in succession with the Invesco CEO and Atlanta Olympics Committee Coo Ad Frazier. He met universally every time with the chorus of us co-sick people who thanked us for asking what we all wanted to know.
