At one of our more recent DL events, the geeks among us speculated that the roots of the current financial crisis could be traced back to the cancellation of the Superconducting SuperCollider, which put a bunch of physicists out of work in this country and crimped the career plans of a lot of would-be physicists. A physicist will look for interesting work wherever it exists, and many of these physicists became the "quants", or quantitative traders, who created and priced things like Collateralized Debt Obligations--CDO's.
Those arcane financial instruments--among others invented by the quants--have been fingered in the current crisis. By coincidence, there's a great article by Dennis Overbye in today's NYT about the invasion of Wall Street by the physicists over the last decade or so.
My alma mater, MIT, figures in the article, where Mr. Overbye describes an overflowing giant classroom at MIT filled with students who would answer the question, "So, You Want to Be a Quant?" with an enthusiastic, "Yes!" I'm not surprised. MIT, despite its vaunted, near-Ivy reputation and price point, remains a school of aspiration for the lower and middle classes, immigrants and the children of immigrants. It's easy to get tempted there, particularly when you look at your student loan balance.
And when you're constantly taught that you're the brightest of the bright, it's easy to think that your simple analytical solution to modelling the price of a bunch of questionable mortgages lumped together with less-questionable ones is the coolest piece of work you (or anyone) has ever done.
There's a joke that physicists tell about themselves:
The point of the joke, as the Wikipedia page where I copied it explains, is that the map is not the territory. Even the most sophisticated models don't reflect reality. And physicists are used to reasoning about a reality which does not bite back. As Einstein put it, Nature is subtle, but not malicious.
Markets can be malicious. The physicists forgot that there is always someone on the opposite side of a transaction trying to get the better of you. They forgot that the truth you discover will be "twisted by knaves to make a trap for fools".
It's interesting to look back at the discussions surrounding the cancellation of the Superconducting SuperCollider. Many of them had to do with the end of the Cold War. The Soviet Union had fallen; who did we need to prove ourselves to? Little did we know that the seeds of our current precarious predicament were planted when we quashed the career prospects of all those physicists.
I don't want to sound like Charlton Heston beating the surf while wailing, "You maniacs! You did it to yourselves!", but I'm afraid I will if I go into this any longer.
Let's just hope that an administration which vowed to restore science to its rightful place will find a way to restore scientists to theirs: not in our banks, but in our labs, creating the discoveries which will make our world better.
Not the financial instruments which threaten to destroy it.
Those arcane financial instruments--among others invented by the quants--have been fingered in the current crisis. By coincidence, there's a great article by Dennis Overbye in today's NYT about the invasion of Wall Street by the physicists over the last decade or so.
My alma mater, MIT, figures in the article, where Mr. Overbye describes an overflowing giant classroom at MIT filled with students who would answer the question, "So, You Want to Be a Quant?" with an enthusiastic, "Yes!" I'm not surprised. MIT, despite its vaunted, near-Ivy reputation and price point, remains a school of aspiration for the lower and middle classes, immigrants and the children of immigrants. It's easy to get tempted there, particularly when you look at your student loan balance.
And when you're constantly taught that you're the brightest of the bright, it's easy to think that your simple analytical solution to modelling the price of a bunch of questionable mortgages lumped together with less-questionable ones is the coolest piece of work you (or anyone) has ever done.
There's a joke that physicists tell about themselves:
Milk production at a dairy farm was low so the farmer wrote to the local university, asking help from academia. A multidisciplinary team of professors was assembled, headed by a theoretical physicist, and two weeks of intensive on-site investigation took place. The scholars then returned to the university, notebooks crammed with data, where the task of writing the report was left to the team leader. Shortly thereafter the farmer received the write-up, and opened it to read on the first line: "Consider a spherical cow. . . ."
The point of the joke, as the Wikipedia page where I copied it explains, is that the map is not the territory. Even the most sophisticated models don't reflect reality. And physicists are used to reasoning about a reality which does not bite back. As Einstein put it, Nature is subtle, but not malicious.
Markets can be malicious. The physicists forgot that there is always someone on the opposite side of a transaction trying to get the better of you. They forgot that the truth you discover will be "twisted by knaves to make a trap for fools".
It's interesting to look back at the discussions surrounding the cancellation of the Superconducting SuperCollider. Many of them had to do with the end of the Cold War. The Soviet Union had fallen; who did we need to prove ourselves to? Little did we know that the seeds of our current precarious predicament were planted when we quashed the career prospects of all those physicists.
I don't want to sound like Charlton Heston beating the surf while wailing, "You maniacs! You did it to yourselves!", but I'm afraid I will if I go into this any longer.
Let's just hope that an administration which vowed to restore science to its rightful place will find a way to restore scientists to theirs: not in our banks, but in our labs, creating the discoveries which will make our world better.
Not the financial instruments which threaten to destroy it.
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