Coke and the quants

I was happy to read yesterday that the financial crisis of 2008 was likely the result of a rampant cocaine habit among bankers, not because it offers any sort of explanation of the crash (did bankers snort mountains of cocaine because they were taking mad risks, or vice versa?) nor because it provides a lucid sidelight on the whole sorry culture of risk and entitlement, but because it is a physical precipitation of the insanity of the times, like the wine of The Bacchae or the gin of Hogarth.

somuchcocaineI remember teaching a very pleasant and apparently sane and sober trader in around 2005 at one of the big corporate banks on Canary Wharf in London. He was a mathematician by training, and had been employed by the bank in the first instance as what they call a quant (short for quantitative analyst) where he had been partly responsible for devising some of the insanely complicated and highly leveraged quantitative models used in the lead-up to the crisis.

The world of the quants is now commonly understood to have been populated by eccentric, gifted, hubristic individuals whose financial models dabbled on the margins of chaos theory, sudden high concentrations of trades leading to – for all practical purposes – unpredictable and violent fluctuations in the markets, and eventual collapse of the whole edifice.

My ex-quant told me that none of his colleagues or managers had the least understanding of how the various financial products they were trading or using actually worked. It was all, he opined, a big in-joke, men and women playing with numbers as though they were tokens, with no meaning outside the game. He struck me as a thoughtful individual, not a coke-head by any stretch; but the world he described we know now was more than a bit of sinister fun; the fruits of wealth were, as usual, poisoning the spring.

You can read the article on cocaine and the crisis, here.

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One thought on “Coke and the quants

  1. zachandclem says:

    What’s a physical precipitation of the insanity of the times, is that none of these stories have been checked out yet and are spread around by virtual media as truth.

    Like

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