Bank complexity disperses culpability for ignored fraud warnings

Evidence

Computers allowed financiers to complicate their gambles immensely. Instead of a simple option-to-sell boring old shares to Jill, Jack could now buy much snazzier options called derivatives. For example, he could buy a derivative that was in essence an option-to-buy a bundle containing shares in a variety of different companies plus bits of debts owed by homeowners in Kentucky, German corporations, even the Japanese government. As if that were not complex enough, Jack could also buy a derivative amounting to the option-to-buy a bundle of many such … derivatives that some super-computer would create. By the time these derivatives containing other derivatives had come out of the computer, not even the genius financial ‘engineer’ who created them could understand what was in them. Complexity thus became a great excuse not to delve into the derivatives that one bought. It liberated the Jills and the Jacks from the need to explain to themselves why they were buying them. Once computers had guaranteed that no one could possibly understand what these derivatives were made of, everyone wanted to buy them because … everyone was buying them. — Yanis Varoufakis, Technofeudalism, 223 (#complicates, via linked claim)

Categorization

• XREF: connects to: Financial system complexity now exceeds human cognitive and regulatory capacity — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 39; Consumer-protection transparency rules fail because banks manipulate the very form of simplicity — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 350; Computer-generated complexity caused herd buying of incomprehensible derivatives — Yanis Varoufakis, Technofeudalism: What Killed Capitalism, 223 (+2 more)

Broader Connections

• Computer-generated complexity caused herd buying of incomprehensible derivatives #complicates (0.75) — Yanis Varoufakis, Technofeudalism, 223