May 21, 2007

Please assure Mr. Merton that no one is holding him personally responsible

Gillian Tett does a splendid work interviewing Mr Robert Merton “The appliance of financial science” May 21 and let us hope that on the behalf of all of us she has really been able to convey that we really will not hold him personally responsible for whatever could happen with all of his and his friend’s inventions and creations such as derivatives, option pricings and what have you, just as no one does holds Einstein and his friends responsible for what more bad the nuclear bomb might bring. Of course it will all come down to how these great and useful inventions are used.

Having said that I would like to comment on that when Merton says “Just think of all the crises that haven’t happened, say with the downgrade of General Motors and Ford” it really does not mean the negative effects have disappeared, just that they have been so diluted that we do not notice it. Spreading ink in a lake instead of a bathtub will get less noticed but keep on doing it and then suddenly you will have a whole lake go ink-blue and that could suddenly turn to be even catastrophic.

Question. Are derivatives a way of pushing things forward to future generations so as to better being able to enjoy the blissful ignorance bubble?