Somehow the genius quants — the best and brightest geeks Wall Street
firms could buy — fed $1 trillion in subprime mortgage debt into their
supercomputers, added some derivatives, massaged the arrangements with
computer algorithms and — poof! — created $62 trillion in imaginary
wealth. It’s not much of a stretch to imagine that all of that
imaginary wealth is locked up somewhere inside the computers, and that
we humans, led by the silverback males of the financial world, Ben
Bernanke and Henry Paulson, are frantically beseeching the monolith for
answers. Or maybe we are lost in space, with Dave the astronaut
pleading, “Open the bank vault doors, Hal.”
As the current
financial crisis spreads (like a computer virus) on the earth’s nervous
system (the Internet), it’s worth asking if we have somehow managed to
colossally outsmart ourselves using computers. After all, the Wall
Street titans loved swaps and derivatives because they were totally
unregulated by humans. That left nobody but the machines in charge.
Link: The Rise of the Machines.
Dooling points to a related essay by science historian George Dyson at Edge: Economic dis-equilibrium.