Friday, March 5, 2010

Financial Engineering as the wave of future for the Superorganic evolution

This is an NSF (National Science Foundation) sponsored lecture by Doctor Andrew Lo of MIT in which he attempts to explain the technology behind the financial crisis of 2007 - 2009. He addresses the issue of who or what was responsible. His conclusions are that it was the free market and human behavior which ultimately brought about the crisis. The technology of modern financial engineering has created products which are far more complex than the systems designed to regulate and control these markets could adapt to in a timely manner. That is, success in regulating these instruments requires perfect timely in a perfect free market by totally rational human actors, none of which exists.

Financial systems are super organic systems. They exist and operate at the societal level. As social systems they are beyond the control of single individual actors. They depend on the coordinated actions of many moving parts and the perfect synchronization of all elements in the process to achieve the 'engineered" outcome. These action turn out to be the parts in an imperfect free market being synchronized by poorly prepared and integrated human actors.

While Dr. Lo's lecture deals with rather complex issues, his presentation is geared to an informed, but not necessarily technically trained, audience. His presentation style, illustrated with simple PowerPoint slides, is understandable and enjoyable.

Are Mathematical Models the Cause for Financial Crisis in the Global Economy? from jojimbo on Vimeo.