The Real, and Simple, Equation That Killed Wall Street

“If it weren’t for those meddling kids!” That was the punch line for every Scooby Doo episode. It also is the overly simple narrative that many in the media have spun about the last financial crisis. Smart meddling kids armed with math hoodwinked us all. 

One article, from the March 2009 Wired magazine, even pinpointed an equation and a mathematician. The article “Recipe for Disaster: The Formula That Killed Wall Street,” accused the Gaussian Copula Function.

It was not the first piece that made this type of argument, but it was the most aggressive. Since then it has been a common theme in the media that mathematics, especially obscure advanced mathematics, is largely responsible for the catastrophe that doomed the world to the last five years of recession and slow growth.

 

 This theme plays on the fallacy that danger always comes from complexity. It’s a fabrication that obscures the real causes, that makes it easier to say, “Hey, it wasn’t my fault, I was blinded by science.”

For the rest of the story: http://blogs.scientificamerican.com/guest-blog/2013/01/30/leveraged-yield/