Somewhere in China, David Li is keeping his head down. Before the crash, his grateful admirers in Wall Street and the City of London declared that he deserved the Nobel Prize for economics for discovering the wondrously enriching theory of “Gaussian copula functions,” which turned base assets into gold. While the market for credit default swaps went from US$920 billion in 2001 to US$62 trillion in 2007, he was a genius. Now that his name appears in headlines such as: “Was David Li the guy who ‘blew up Wall Street’?”, acclaim from the Swedes seems unlikely.
Mathematicians are trashing his reputation and the reputation of the banks’ other quantitative analysts. Their critiques are, inevitably, complicated, but the quants’ basic fault is easy enough to grasp. They assumed they could place reassuringly neat numbers on the risks of default in bundles of mortgages or bonds. Their figures were fantasies that bore no relation to the real economy in which homeowners and companies had to fund their debts because the quants never understood that the uncertainties in calculating risk were so great, all attempts to measure them were dangerously misleading.
“They were pretending mathematics was magic,” said Tim Johnson at Heriot-Watt University in Scotland, one of a group of financial mathematicians in UK universities who specialize in taking apart the models of bankers and dealers.
Ministers, led by Lord Drayson, have been wooing Johnson and his colleagues of late and I can’t say I am surprised. Tens of millions of people in the rich world and hundreds of millions in the poor are losing their livelihoods because bad math allowed bankers to pretend to themselves that they were not being insanely reckless.
The government thinks it knows how to stop a recurrence of the folly. It reasons that Britain is lucky enough to have a band of independent experts who can save jobs and stop the taxpayer being fleeced by pointing out the errors of the City’s — London’s financial district — calculations. The public pays the academics’ salaries and academics can return the compliment by protecting the public.
“You have a fucking duty to speak out,” as one blunt politician explained the deal to them.
But they are not going to speak out for a reason readers of this column will guess: Johnson and his colleagues fear being hauled before the libel courts. Academics have noted the willingness of the judiciary to allow believers in “alternative” chiropractic therapy to sue science writer Simon Singh, and can imagine all too graphically what would happen to them.
Chiropractors are small-time operators working from suburban offices, one said. Bankers have the most expensive lawyers in the City on call. If his colleagues were to hint that a bank were risking its investors’ money, they would be hammered.
The naive, who suppose that the law would protect mathematicians who told the truth, do not understand the wretched condition of freedom of speech in England.
The exorbitant costs of libel actions are far beyond the means of all academics and, increasingly, most newspapers; Singh can only fight the chiropractors because he is the author of four international bestsellers.
As important, the law is biased against defendants and judges put the worst possible interpretation on a writer’s words. In all likelihood, a mathematician who criticized the models of Goldman Sachs, say, or the Royal Bank of Scotland would find himself in court defending assertions he never realized he had made.
Thus, after the worst crash since 1929, and with the world economy in crisis, people who know what went wrong and why it went wrong are too frightened to go public.
If their fear does not make the case for reform of the libel laws on US lines, I don’t know what will. We should have free debate on matters of public importance, as long as writers are not malicious and do not display a wild disregard for the truth.
But where is reform to come from? Conservative lawyers tell me that Tory leader David Cameron is struck by the keenness of the judiciary to find in favor of Russian oligarchs and Middle Eastern petro-billionaires who, to put the case against them at its mildest, do not have the best interests of British democracy at heart.
I accept that you should not put your trust in promises from Tories, as the Conservatives are also known, particularly when they are trying to woo journalists in the run-up to an election. But I have watched a parade of grotesques from around the world marching out of English courts with fat checks and gagging orders in their pockets and accept that at least some Conservatives have come to believe that the libel law is a threat to national security.
The attitude of the liberal-left is more ambiguous. In theory, liberals ought to believe in freedom of speech. In practice, Labour ministers have yet to meet campaigners for law reform and wider liberal society has yet to overcome a way of thinking that stops it reconnecting with the best parts of the liberal tradition.
Singh and the mathematicians are now living with the consequences of the human rights movement of the late 20th century.
Former British prime minister Margaret Thatcher’s repeated election victories convinced British liberals to try to win in the courts what they could not win at the ballot box. The trouble with the strategy has always been that British judges, like judges across the EU, do not believe in freedom of speech. They are illiberal liberals who will defend all rights except the most fundamental right of a citizen of a free country to make his or her case without fear of the consequences.
“Wrong opinions and practices gradually yield to fact and argument: but facts and arguments, to produce any effect on the mind, must be brought before it,” John Stuart Mill said.
But the average British judge does not believe that free debate in the marketplace of the mind will expose “wrong opinions and practices.” He believes they must be suppressed because he retains the fear of the old European aristocracy that the masses cannot see through dangerous ideas and bad arguments.
To speak plainly, if I may, the judiciary has an elite suspicion of democracy and the price of its elitism is becoming too high for this impoverished country to bear.
A failure by the Chinese Communist Party (CCP) to respond to Israel’s brilliant 12-day (June 12-23) bombing and special operations war against Iran, topped by US President Donald Trump’s ordering the June 21 bombing of Iranian deep underground nuclear weapons fuel processing sites, has been noted by some as demonstrating a profound lack of resolve, even “impotence,” by China. However, this would be a dangerous underestimation of CCP ambitions and its broader and more profound military response to the Trump Administration — a challenge that includes an acceleration of its strategies to assist nuclear proxy states, and developing a wide array
Eating at a breakfast shop the other day, I turned to an old man sitting at the table next to mine. “Hey, did you hear that the Legislative Yuan passed a bill to give everyone NT$10,000 [US$340]?” I said, pointing to a newspaper headline. The old man cursed, then said: “Yeah, the Chinese Nationalist Party [KMT] canceled the NT$100 billion subsidy for Taiwan Power Co and announced they would give everyone NT$10,000 instead. “Nice. Now they are saying that if electricity prices go up, we can just use that cash to pay for it,” he said. “I have no time for drivel like
Twenty-four Chinese Nationalist Party (KMT) lawmakers are facing recall votes on Saturday, prompting nearly all KMT officials and lawmakers to rally their supporters over the past weekend, urging them to vote “no” in a bid to retain their seats and preserve the KMT’s majority in the Legislative Yuan. The Democratic Progressive Party (DPP), which had largely kept its distance from the civic recall campaigns, earlier this month instructed its officials and staff to support the recall groups in a final push to protect the nation. The justification for the recalls has increasingly been framed as a “resistance” movement against China and
Jaw Shaw-kong (趙少康), former chairman of Broadcasting Corp of China and leader of the “blue fighters,” recently announced that he had canned his trip to east Africa, and he would stay in Taiwan for the recall vote on Saturday. He added that he hoped “his friends in the blue camp would follow his lead.” His statement is quite interesting for a few reasons. Jaw had been criticized following media reports that he would be traveling in east Africa during the recall vote. While he decided to stay in Taiwan after drawing a lot of flak, his hesitation says it all: If