Physics Can Fix This

One of the NCAA pools I’m in has a copy of Obama’s bracket entered, and the last I checked, I’m a couple of games up on him. This means I’m as qualified as anyone else to offer a plan to fix the financial crisis, and I have just the plan we need.

On the question of the AIG bonuses, I’m pretty much in agreement with the people who say that it’s not worth making too much fuss over less than a tenth of a percent of the total bailout funding they’re received. Passing laws to punish specific individuals is a lousy precedent, and it’s not worth corrupting our principles for such a pittance. Let the executives at AIG and the other companies have their lavish and undeserved bonuses.

Then fire them. All of them. Every trader who bought or sold a mortgage-backed security, every manager who signed off on the buying and selling of credit default swaps, every CEO of every company now in need of a federal bailout, everybody who ever shook hands with Bernie Madoff. It’s well established that they’re thoroughly reprehensible, so good riddance to bad rubbish. Do not pass go, do not collect $2.4 million, you have two hours to pack your personal belongings into a milk crate, and then security will escort you to your helicopter.

Of course, we need somebody to take over those jobs, and I’ve thought of the perfect replacements: physicists.

I’m not talking about the ex-physicists who are sometimes blamed for teh whole thing. We fired them a couple of paragraphs ago– they’re long gone. This isn’t a “reward the people who got us into this mess” scheme.

I’m talking about people who are currently underemployed as physicists– current grad students in theoretical physics, people toiling in second and third post-docs with no real prospect of a tenure-track position, adjuncts and soft-money researchers at big universities. We fire all the current financial services executives, and replace them with physicists, thus killing the maximum possible number of birds with the minimum number of stones: we get rid of all the worthless financiers, and we clear out the physics job market at the same time.

“But wait,” you say. “The current mess is a hopeless web of incredibly complicated transactions, and there’s lots of money to be lost if you don’t have experienced financial professionals to unwind things.”

This is wrong on several levels. First and foremost, the people who are pushing that line the hardest are the people who stand to benefit most from large windfall payments to the current financial industry. Which is to say, the people who have wrecked the economy by failing to understand the most basic facts of the underlying market. They have lots of experience, to be sure, but the bulk of their experience is in being wrong about everything. They lost billions to a Ponzi scheme, for God’s sake.

And, seriously, do you really think that these transactions are too complicated for physicists to figure out? We’re talking about people who have spent the last several years thinking about folding and twisting strings in eleven dimensions. Unless the transaction records are all encrypted in some private cipher, they’ll have no trouble figuring it out. And even if they are encrypted, that will only slow things down a little– given what we know about the rocket scientists on Wall Street, the cipher key is probably written on a Post-It stuck to the computer. With a magnet.

Better yet, they’ll be cheap. We’re talking about theoretical physics grad students and post-docs– most of them are currently working for less than Vikram Pandit spends on shoes. The pre-bonus salary given to a typical financial executive is more money than they can reasonably expect to make in their current line of work. It’ll be a major blow to the over-priced restaurant industry in lower Manhattan, but they’ll rebound once they learn to mark up Ramen noodles a thousand percent.

And best of all, we don’t have to worry about them getting greedy and wrecking the entire global economy in order to make some short-term gains. We’re talking about people who, to this point, have completely sacrificed their financial well-being in pursuit of higher mathematical truth. They’re used to working toward the long-term success of abstract goods.

The only question remaining is what to do with the captains of industry who have been replaced by physicists. But, hey, if we go with this plan, there will be lots of openings for people studying string theory and TA’ing Physics for Pre-Meds…

Then again, maybe that’s too cruel.

Comments

  1. #1 Dave
    March 24, 2009

    Physicists might be ok, but I think engineers or chemists might be better. After all, wasn’t Margaret Thatcher a chemist?

    Dave

  2. #2 Eli
    March 24, 2009

    Ha! I really rarely crack up when reading science blogs, but this was fantastic.

  3. #3 Uncle Al
    March 24, 2009

    Physics does not handle systems with positive feedback. Finance is massively recursive under a Grand Guignol of tax codes. Long-Term Capital Management. Patriarch Joseph Kennedy became a Honey Fitz by standing on the bloated bellies of corpses of his own making. Contrast the Woz with Steve Jobs for the real world difference in outcomes between honest technical competence and unabashed carnivory. The US House of Reprehensibles is the best legislative body money can buy.

    Turn on your Wincrap computer. That is BillGates richly laughing. You cannot make omlettes without killing roosters. Besides… who would do lunch with a high autist physicist?

  4. #4 Jason Dick
    March 24, 2009

    Uncle Al,

    ‘course it does. Gravity is a prominent example.

  5. #5 Eric Lund
    March 24, 2009

    The only question remaining is what to do with the captains of industry who have been replaced by physicists. But, hey, if we go with this plan, there will be lots of openings for people studying string theory and TA’ing Physics for Pre-Meds…

    As you say, that would be too cruel … to the pre-meds. You assume without evidence that the captains of industry would be able to pass, let alone TA for, a freshman-level physics class. Some–the ones who took their physics Ph.D.’s to Wall Street–could, but most of these folks majored in some humanities/social science subject. And most of the latter have been paying people to crunch numbers for them.

    You’re also being too kind to the captains of industry. These folks need to acquire some self-awareness of what they have done, stat. They are just noticing that ordinary people are angry at them, and they don’t yet understand that the anger is justified.

  6. #6 Eamon
    March 24, 2009

    I am in total agreement!

    (Please hire me!!)

    ;)

  7. #7 Jonathan Vos Post
    March 24, 2009

    If major Finance companies hired String Theorists, would we have 30 years of promises of a great breakthrough, and meanwhile no experimental results?

    At least Isaac Newton succeeded as an Alchemist, in the sense that he ended up in charge of all the Gold in England.

  8. #8 Eric
    March 24, 2009

    Damn, I’m in the wrong science. Shame on me for picking biology.

  9. #9 Cogmios
    March 24, 2009

    This is, ofcourse, not a realistic scenario but it somewhere touches another key point. We have models which we back up with scientific and philosophy as to have the best models currently known at least in science.

    In business however both the organizational structure and many decisions are made on “feelings” and “rumours” while they do have far more impact on society. Even worse business is highly infiltrated with religion 2.0 “the secret”, “coaching”, “NLP” etc… which make matters worse.

    So the seed of the thoughts is if we could “make business more scientific” by placing the correct persons in the correct key positions since it is all human decision making after all. And since it often requires creativity it’s a single person job not a group think effort where the problem is to make the selection group open enough to also involve candidates which may seem unfit for the job based on “feelings” but by doing actual scenario’s with real targets as the criteria including a reference group.

    So using the scientific method to determine the best persons for the key positions, it would prevent totally “unfit” persons to aquire key positions simply because they would greatly screw up during the tests making it clear before hand.

    Would that not be … “logical” ?

  10. #10 cogmios
    March 24, 2009

    As an addition: it would mean a solution for the “planet of the apes” society where we still live in: the biggest gorillas sit on top of the hill.

    Communism didnt have touched the real pain point in society: the 20 percent assholes. It just created another society for them to bubble up. It really doesnt matter.

    The solution I see to many big problems is to change the “biggest gorilla on top” / “planet of the apes” kind of organizational structures (any) and reverse that pyramid: the biggest gorilla’s are being put in the place they belong.

  11. #11 Brian H
    March 25, 2009

    Physics does not handle systems with positive feedback.

    The nonlinear dynamics research group here at UMD may be surprised to learn this.

  12. #12 Moth Eyes
    March 25, 2009

    Assume a spherical economy in a 26-dimensional vacuum…

  13. #13 BillM
    March 25, 2009

    Does this mean that US industry will finally run as lean & mean as typically collider gang bang effort?

  14. #14 Nick Nolan
    March 25, 2009

    It may surprise you, but Wall Street has been one of the biggest employer of Physicists in recent years. Physics and modern finance are both dealing with similar things. Differential equations, nonlinearity and chaos. Many hedge fund models are developed by physicists. New models of trading derivatives are invented by physicists.

    The real reason for this mess is not lack of intelligence. It’s the system that is rigged so that you have to play Martigale. Explanation: http://yourmortgageoryourlife.wordpress.com/2009/01/15/the-real-cause-of-the-financial-crisis-an-mit-blackjack-team-perspective/

    There is need for more regulation and new rules. What we need is Mechanism design approach from game theory.

    references:

    http://www.amazon.com/Physicists-Street-Essays-Science-Society/dp/0387765050

    http://www.npr.org/templates/story/story.php?storyId=101868301&ft=1&f=1007

    http://blogs.physicstoday.org/newspicks/2009/03/the-physics-of-wall-street.html

  15. #15 Lew from York (UK)
    March 25, 2009

    Uncle Al, you obviously don’t know much about physics. From the gravitational collapse of cosmic clouds to form the heavenly bodies, through the formation of snowflakes, to the inner workings of thermonuclear devices (successful bombs, or unsuccessful power stations) physics is absolutely FULL of positive feedback.

  16. #16 Eofhan
    March 25, 2009

    “. . . stuck to the computer. With a magnet.”
    Thank you, thank you, thank you. I haven’t laughed so hard in days.

  17. #17 agm
    March 25, 2009

    Please sergeant, may I have some more!

  18. #18 Sam K.
    March 26, 2009

    It’s hard to tell where you’re trying to say something to be funny and where you’re actually saying something you believe, but I’m under the assumption that you meant at leat 50% of your 3rd paragraph. If not, my humor-meter must be way off today.

    In any case, I think P3 is a perfect example of totally not getting it (the media pretty much believes P3 in entirety, as far as I can tell). Madoff, having been the chairman of NASDAQ, “shook hands” with damned near the entire financial community. Also, lumping in MBS with subprime-backed ABS and CDOs (the actual source of the problem, along with lending policies) is just silly. The media has just labeled all related assets “toxic” and therefore anyone who has ever touched anything fixed-income related outside of gov’t backed bonds is assumed to be totally retarded.

    I had to vent. That is all.

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