Wednesday, March 25, 2009

Rise of the Machines - Cringely on technology

I’m beginning to think there aren’t as many devils as one might suspect in this passion play. There are a few devils, sure, but also a lot of innocent dopes who may have made the situation much worse while not even making very much money from our pain.

A lot of it comes down to a probable misapplication of technology, something that hasn’t been discussed much in the coverage of this financial crisis. We talk for seconds at a time about the confounding complexity of derivative securities then quickly go on to something more understandable.

Is technology our friend in this mess or our enemy?

If a bunch of wealthy traders get together at Starbucks and agree to short-sell a company or a financial instrument, driving down that price ideally to the point where it never recovers, well that’s against the law. But with trading automation and the Internet as a platform it is possible to accomplish this same end WITHOUT it being explicitly illegal. It is even possible that the perps don’t know the level of damage they are inflicting, though I doubt that’s true. The trick is to avoid communication. If there is no communication between traders there is no chain of causation, no conspiracy, just an unhappy accident.

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