Love and Loss at the Langham

Well, finally, after many years of fruitful correspondence, I met face-to-face yesterday with Dr. Capital, at his secret lair, the marvelous Palm Court (slides 7-10) at the Langham in London.

A generation older than me, Dr. Capital would seem world-weary and exude an air of resigned bemusement at the state of affairs on planet earth, except that he is so incredibly rich it really is hard for him to care. No one questions, however, his continued intellectual engagement and ongoing fascination with the great game of markets.

After some lighthearted banter about how little we resembled our (decade-old) photographs, we sat down to chat. I have learned through a few unfortunate phone calls to ration out the deep questions. It is not that Dr. Capital is averse to answering them, but, really, the only reason he talks to a prole like me is that he enjoys a light conversation now and then. If things get serious he is likely to start his meter running, and we both know I can't afford that.

So we talk about the latest light entertainment in Leicester Square (across from the Hippodrome), the tragedy in Liverpool, and the dubious virtues of the Birmingham lecture circuit.

The coffee comes. My latte is superb, smooth and light, the foamed milk composed of almost microscopic bubbles that put those gauche Starbucks concoctions to shame. Served in a white porcelain cup with tasteful brown inlays, on a white porcelain saucer with tasteful brown inlays, it is nothing less than a concentrated bit of civilization.

So, I ask, it is time to give up on modern finance? After all that has happened surely we have to acknowledge that there has been more than a little witch doctoring?

"Of course, of course," he laughs, "throw it all away. Wouldn't it be wonderful to go back to the markets we have before? Say the 1920s, or the 1930s? Those were the good times, weren't they, unburdened by the destabilizing forces of global credit derivatives."

"Look," he says, becoming more serious, "there is more than one Chicago School. There are the Friedmanites, there are the equilibrium guys, and they are very different in important respects. I am partial to the basic toolkit because it is logical, it usually makes a good fit with reality."

"But," he pauses... "When the tools fail, they fail. It is not as if there is a better alternative toolset waiting in the wings. We have what we have, and it does not always work. Much of the art of modern finance is understanding the limitations of the tools you are using. Just there are storms no ship can survive, so it is with financial markets."

"Thaler and his ilk have a bit of a point. Markets are made of humans, and humans often do foolish things. But I must say I still have Friedmanite sympathies. Markets are Darwinian - fools die off quickly. The fact that so many fools are ruined, and yet markets remain less-than-perfectly-rational suggests to me not that markets are not perfectable, but that it is mankind itself that suffers from some deep intrinsic flaw."

For a brief moment the smile disappears from his face, almost as if he had suddenly, for only just a moment, remembered that he is just another little primate, breathing, sweating, and lonely, on an island off the coast of Europe.

The bill comes just then, and the cheer returns as Dr. Capital writes his room number, ends the interview with a smiling handshake, and rises to proceed to the sitting room, where he will engage Financial Times mano a mano.

I hesitate, then venture my last question for the great man - are you happy with all you have accomplished? The smile changes from something manufactured to something a little more natural. He shakes my hand. "There is an old proverb," he says. "Do not make yourself big. You are not so small."

With that, he takes his leave, and I, in my rumpled blazer, lugging my oversized briefcase, stumble down the front steps of The Langham, back into the rough-and-tumble of real-life London, my mind dancing with images of Brownian Motion and Ito's lemma.

In that moment of exhilaration I suddenly realized...that someone had stolen my cell phone.