In this blog I talk about Financial Crisis and Big Data. We read Chapter 2 of Cathy O’Neil’s weapons of MATH Destruction. In this chapter, she talks about how WMD’s are used for financial gain and the corruption and tricks that people use with them. O’Neil talks about her first experience with WMDs, working for D.E. Shaw, a global investment and development firm. She talks about the competitive nature of the company, citing an example of how teams were not allowed to share ideas and algorithms with each other, with the idea being that no single person could leave and take their ideas and algorithms to a competitor firm such as Bridgewater or J.P. Morgan.
she talks about how right before the market crash of 2008, she started to notice weird things happening, such as currency forwards, or promises to buy large amounts of foreign money in the coming few days. O’Neil seems to think that the terrorist attack in 2001 caused low interest rates, which in turn lead to a housing boom. This along with other factors, is what O’Neil says lead to the market crash of 2008. Her first experience with a WMD was when banks started loading mortgages into classes of securities and selling them, and she describes how the risk-model attached to mortgage-backed securities was a WMD. This tricked people into signing mortgages that they were unable to pay in the end, with the focus of the investors/businessmen being short term profit.
My biggest takeaway from this chapter is probably the heartlessness of big banks and hedge funds that do this to people. I had always viewed Mathematic as a way to advance society and technology, but here I see it being described as a tool to make the rich richer and the poor poorer. It’s a pretty depressing though that the rich have the means to stay rich while the poor stay poor and get poorer.