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Diffusion Of Responsibility

Over the weekend I revisited this article from The Guardian

It was the holy grail of investors. The Black-Scholes equation, brainchild of economists Fischer Black and Myron Scholes, provided a rational way to price a financial contract when it still had time to run. It was like buying or selling a bet on a horse, halfway through the race. It opened up a new world of ever more complex investments, blossoming into a gigantic global industry. But when the sub-prime mortgage market turned sour, the darling of the financial markets became the Black Hole equation, sucking money out of the universe in an unending stream.

It is interesting that in the various post hoc justifications we are seeing for flawed judgement and immoral behaviour that a set of symbols assembled in a certain way are now to blame for the GFC.

 

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Comments

  1. Did I read that correctly, the sub prime crisis and hence the GFC is to be blamed on a mathematical formula?

    This is akin to me getting blind drunk,falling on my face and then blaming Newton’s law of gravity for the bruise on my forehead!

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