Computer-generated complexity caused herd buying of incomprehensible derivatives

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

Categorization

• SEED: Angle: incomprehensibility itself (not just greed) as a driver of financial and tech herd behaviour — ‘if no one understands it, everyone buys it’.
• XREF: Connects to platform opacity claims later in the book; also to information-asymmetry economics. — connects to: Dark pools and algorithmic trading remain opaque even to most traders — Aris Komporozos-Athanasiou, Speculative Communities: Living with…, 92; Derivatives are speculative techniques betting on future asset-price movements — Max Haiven, Cultures of Financialization, 153; Competitive speculation wipes out predictable price moves — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 279 (+6 more)
• corroborated: 2 independent passages support this claim — Yanis Varoufakis, Technofeudalism: What Killed Capitalism, 223

Broader Connections

• Derivative logic prices and trades assets’ attributes without ownership, applied to texts #expands (0.90)
• Screen-based trading preserves mutual anticipation among algorithmic traders #complicates (0.75) — Aris Komporozos-Athanasiou, Speculative Communities, 427