Portfolio insurance creators accepted increased volatility as unproblematic

Evidence

“It was as if Pandora’s box had been open [ed]” (Rubinstein interview): “we could shut our doors, but that wasn’t going to stop anything” (O’Brien interview). LOR’s principals did not envisage a catastrophic crash they assumed, as had Jacobs, that “savvy investors” (Jacobs 1999, p. 303) would step in to exploit and thus limit the mispricings induced by positive feedback but they suspected that market volatility could be increased. “If that’s what people want to do [purchase portfolio insurance],” they thought, “then the market should be more volatile. There’s nothing necessarily bad about it” (Rubinstein interview). — Donald MacKenzie, An Engine, Not a Camera, 813

Categorization

• XREF: The ‘savvy investors will arbitrage away mispricings’ assumption connects to the efficient-market thesis that Chapter 1-6 established as the alternative to performativity. Also ties to Herstatt/Goodhart-style infinite-regress arguments about expectations of expectations. — connects to: Derivatives inverted from insurance into engines that increase volatility exposure. — Aris Komporozos-Athanasiou, Speculative Communities: Living with…, 91; Portfolio insurers built practical safeguards for events their models excluded. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 806; Widely adopted portfolio insurance would amplify market price movements — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 809 (+3 more)
• BMF: The inventors releasing a mechanism they cannot recall and accepting its side effects as ‘not necessarily bad’ echoes the creation-escape motif in White Noise — where technological entropy is generated and simply accepted as ambient condition rather than consciously controlled.

Broader Connections

• Portfolio insurance designed to limit losses can amplify market volatility. #expands (0.85) — Shapiro, Susan P., The Social Control of Impersonal Trust, 144