I have just finished listening to Michael Lewis’s excellent book The Big Short on Audible. It is a fascinating narrative based around the collapse of the sub-prime mortgage market told through the stories of those who saw it coming and laid bets involving huge amounts of money. Lewis does a great job of making the complexity of the story understandable and while none of the characters are what you’d call likeable you do end up getting carried away with the roller coaster ride they were on.
The book reminded me of the time a few years ago when we went to our bank to ask for an extended mortgage to extend the our house. I would have said that I visited “our bank manager” but he wasn’t our bank manager he was some guy in a suit driving a computer terminal. He still had the air of pomposity and making me feel small for asking for money but I realised as we watched him struggling to input the data into his terminal that he wasn’t deciding if we could have the money, the algorithms behind the software he was using were. I was tempted to say “You go off and have a coffee while I input the data because I could do it much faster myself”. But then I realised that I actually wanted him to be like an old fashioned bank manager. I wanted him to know my circumstances, have known my father, have a basis on which to make a judgement on both of our behalfs as to whether or not to lend me the money.
Reading Paul Volcker’s article in The New York Review Of Books this morning on the financial crisis I was struck by the following paragraph:
One basic flaw running through much of the recent financial innovation is that thinking embedded in mathematics and physics could be directly adapted to markets. A search for repetitive patterns of behavior and computations of normal distribution curves are a big part of the physical sciences. However, financial markets are not driven by changes in natural forces but by human phenomena, with all their implications for herd behavior, for wide swings in emotion, and for political intervention and uncertainties.
This is yet another time when I want experts, I want intelligent meatware, and I’m not so sure I can trust disembodied, disconnected systems run by morons!
[I would have linked to the Audible file of the book rather than Amazon but Audible’s affiliates scheme is such a pitiful mess I couldn’t be bothered]