Humpty Dumpty World Economy

And all the king's horses, and all the king's men, couldn't put the international economy back together again....

As Richard Dooling points out in today's op-ed "The Rise of the Machines," (NYTimes) " 'Beware of geeks bearing formulas.' So saith Warren Buffett, the Wizard of Omaha. Words to bear in mind as we bail out banks and buy up mortgages and tweak interest rates and nothing, nothing seems to make any difference on Wall Street or Main Street. Years ago, Mr. Buffett called derivatives 'weapons of financial mass destruction' " —

Dooling ties together the philosophies of the financial wizard Buffett, a physicist, and a serial killer who all warned us of this financial crisis.

The physicist.... Freeman Dyson, an eminent math and theoretical physicist, in a 1981 documentary described the seductive power that brought us to create atomic energy out of nothing... "To perform these miracles, to lift a million tons of rock into the sky. It is something that gives people an illusion of illimitable power, and it is, in some ways, responsible for all our troubles — this, what you might call technical arrogance, that overcomes people when they see what they can do with their minds.”

So, how does this bear on the current financial meltdown? Dooling explains: "The Wall Street geeks, the quantitative analysts ('quants') and masters of 'algo trading' probably felt the same irresistible lure of 'illimitable power' when they discovered 'evolutionary algorithms' that allowed them to create vast empires of wealth by deriving the dependence structures of portfolio credit derivatives.

"What does that mean? You’ll never know. Over and over again, financial experts and wonkish talking heads endeavor to explain these mysterious, 'toxic' financial instruments to us lay folk. Over and over, they ignobly fail, because we all know that no one understands credit default obligations and derivatives, except perhaps Mr. Buffett and the computers who created them.

"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.' "

The king's men aren't in charge.... the machines are.

Enabled by computers, the greedy, deregulated Wall Streeters made money by moving it around like a shell game from shell to shell with such velocity that it could exist in Asia one moment and Wall Street a split second later.

George Dyson, Freeman's son and a historian of technology who wrote "Darwin Among the Machines“ warns that technical arrogance could lead to technology out-evolving us and taking over. He predicted: The unlimited replication of information is generally a public good. The problem starts, as the current crisis demonstrates, when unregulated replication is applied to money itself. Highly complex computer-generated financial instruments (known as derivatives) are being produced, not from natural factors of production or other goods, but purely from other financial instruments.”

As Dooling points out, a serial killer also warned us. He asks if we know who said: "But we are suggesting neither that the human race would voluntarily turn power over to the machines nor that the machines would willfully seize power. What we do suggest is that the human race might easily permit itself to drift into a position of such dependence on the machines that it would have no practical choice but to accept all of the machines’ decisions. ... Eventually a stage may be reached at which the decisions necessary to keep the system running will be so complex that human beings will be incapable of making them intelligently. At that stage the machines will be in effective control. People won’t be able to just turn the machines off, because they will be so dependent on them that turning them off would amount to suicide."

This statement was in the Unabomber's manifesto. Theodore Kaczinski, who created horrors of his own as a homicidal psychopath and paranoid kook, who nevertheless presciently warned of the horrors of technology.

Wall Street geeks put computers in charge and our financial system had a great fall.

As all the king's men struggle to reassemble the financial world's broken egg.... whose pieces float scattered by inscrutable technology in the ether.. the result will undoubtedly be a world far different than were our illusions of our world.