Feb 16, 2010 12:21 pm


That is the question asked by Matthew Valencia in the Economist in reference to the financial market. No, I do not think it is G-d striking back, seeking to punish but it is just that human hubris caught up with the fact that reality is too complex to understand, not to mention to control as G-d warned Job.

“THE revolutionary idea that defines the boundary between modern times and the past is the mastery of risk: the notion that the future is more than a whim of the gods and that men and women are not passive before nature.” So wrote Peter Bernstein in his seminal history of risk, “Against the Gods”, published in 1996. And so it seemed, to all but a few Cassandras, for much of the decade that followed. Finance enjoyed a golden period, with low interest rates, low volatility and high returns. Risk seemed to have been reduced to a permanently lower level.

It certainly cannot be controlled with a single mechanically applied strategy:

Mr Haldane has suggested that these knife-edge dynamics were caused not only by complexity but also—paradoxically—by homogeneity. Banks, insurers, hedge funds and others bought smorgasbords of debt securities to try to reduce risk through diversification, but the ingredients were similar: leveraged loans, American mortgages and the like. From the individual firm’s perspective this looked sensible. But for the system as a whole it put everyone’s eggs in the same few baskets, as reflected in their returns (see chart 2).

May I suggest that similar hubris is backfiring when it comes to attempts to control global climate, global history or human longevity.

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