I finished reading A Demon of Our Own Design a few days ago and I enjoyed it. A lot of the details about financial instruments and trading strategies were way over my head, but I did learn some things. For instance, I was aware that there was this thing called Long Term Capital Management that caused a huge ruckus several years ago, but now I have a better grasp of what it was doing and how it caused that ruckus.
The parts of the book that I found most interesting dealt with possible policy responses to the burst of financial innovations that have been driven by increased computing power and globalization. The main point that I took away was that the author believes that adding more regulation will just make future crises more likely since the problems in the financial market are related to how complex it already is.
This is not some sort of laissez faire-ish argument for keeping the government out of the market, rather it is simply saying that by reducing complexity the transparency of the system will be increased. This would be a good thing since more people will be able to understand what’s going on. As things are, only a few people understand how certain parts of the market work, so it is easy for them to game the system if no one else can figure out what they are doing (his phrase for this is “complexity helps the malfeasant”).
I think the concept of transparency clearly applies to more than just the financial markets. Governments certainly work better when they are transparent and understandable (to reference a different phrase here “sunshine is the best disinfectant“). This also applies to software and the Internet (although I’m clearly a little biased here in favor of open source). If you want a phrase here to describe why developing software in a transparent way is better than doing it in a closed way, take your pick from The Cathedral and the Bazaar.
Up next: Umberto Eco’s Serendipities.