Weapons of Math Destruction: How Big Data Increases Inequality and Threatens Democracy by Cathy O'Neil Read Free Book Online

what we were doing. In a sense, information was cloistered in a networked cell structure, not unlike that of Al Qaeda. That way, if one cell collapsed—if one of us hightailed it to Bridgewater or J.P. Morgan, or set off on our own—we’d take with us only our own knowledge. The rest of Shaw’s business would carry on unaffected. As you can imagine, this wasn’t terrific for camaraderie.
    Newcomers were required to be on call every thirteen weeks in the futures group. This meant being ready to respond to computer problems whenever any of the world’s markets were open, from Sunday evening our time, when the Asian markets came to life, to New York’s closing bell at 4 p.m. on Friday. Sleep deprivation was an issue. But worse was the powerlessness to respond to issues in a shop that didn’t share information. Say an algorithm appeared to be misbehaving. I’d have to locate it and then find the person responsible for it, at any time of the day or night, and tell him (and it was always a him) to fix it. It wasn’t always a friendly encounter.
    Then there were panics. Over holidays, when few people were working, weird things tended to happen. We had all sorts of things in our huge portfolio, including currency forwards, which were promises to buy large amounts of a foreign currency in a couple of days. Instead of actually buying the foreign currency, though, a trader would “roll over” the position each day so the promisewould be put off for one more day. This way, our bet on the direction of the market would be sustained but we’d never have to come up with loads of cash. One time over Christmas I noticed a large position in Japanese yen that was coming due. Someone had to roll that contract over. This was a job typically handled by a colleague in Europe, who presumably was home with his family. I saw that if it didn’t happen soon someone theoretically would have to show up in Tokyo with $50 million in yen. Ironing out that problem added a few frantic hours to the holiday.
    All of those issues might fit into the category of occupational hazard. But the real problem came from a nasty feeling I started to have in my stomach. I had grown accustomed to playing in these oceans of currency, bonds, and equities, the trillions of dollars flowing through international markets. But unlike the numbers in my academic models, the figures in my models at the hedge fund stood for something. They were people’s retirement funds and mortgages. In retrospect, this seems blindingly obvious. And of course, I knew it all along, but I hadn’t truly appreciated the nature of the nickels, dimes, and quarters that we pried loose with our mathematical tools. It wasn’t found money, like nuggets from a mine or coins from a sunken Spanish galleon. This wealth was coming out of people’s pockets. For hedge funds, the smuggest of the players on Wall Street, this was “dumb money.”
    It was when the markets collapsed in 2008 that the ugly truth struck home in a big way. Even worse than filching dumb money from people’s accounts, the finance industry was in the business of creating WMDs, and I was playing a small part.
    The troubles had actually started a year earlier. In July of 2007, “interbank” interest rates spiked. After the recession that followed the terrorist attacks in 2001, low interest rates had fueled a housing boom. Anyone, it seemed, could get a mortgage, builders were turning exurbs, desert, and prairie into vast new housingdevelopments, and banks gambled billions on all kinds of financial instruments tied to the building bonanza.
    But these rising interest rates signaled trouble. Banks were losing trust in each other to pay back overnight loans. They were slowly coming to grips with the dangerous junk they held in their own portfolios and judged, wisely, that others were sitting on just as much risk, if not more. Looking back, you could say the interest rate spikes were actually a sign of sanity, although they