Opinion

Felix Salmon

The Gaussian copula function tattoo

By Felix Salmon
May 13, 2011

Tattoo.jpg

Heidi Moore has found the owner of the Gaussian copula function tattoo — it’s advertising copywriter Jared Elms.

Jared’s professional work is great stuff — I particularly like his idea of pitting the Chrome browser against a potato gun in a speed test. His body art, by contrast, is more emo grad student: his first four tattoos were inspired by Samuel Beckett, Jean-Michel Basquiat, Ludwig Wittgenstein, and the Uruguayan-born French surrealist Comte de Lautréamont.

And now, to that list, you can add David X Li.

Why is Li’s ill-fated formula tattooed across Elms’s forearm? Here’s how Elms explains it:

All my tattoos are all concepts that are smarter than me that I’ll be chasing my entire life. It’s how I know I will never regret getting them, because these are concepts I never want to forget…

It’s pretty corrupt. It’s been hitting me pretty hard what happened just a few years ago. Then you see Carl Levin and the Senate looking to bring criminal charges against Blankfein. There are some key learnings that came out of that period in history, and it felt like it was a really appropriate thing to eulogize on my body…

To me this represents the recipe for human greed. It was severely misappropriated by traders, the way it was oversimplified and reduced it to a single gamma number – and they couldn’t stop using it even knowing the inherent fallibility in it…

I’m only now learning what was taking place and how it happened, because there are all these amazing books and documentaries, like David Harvey’s Enigma of Capitalism. And obviously Inside Job did an amazing job of articulating what happened, how it could all ripple and global…

I was just reading The Violence of Financial Capitalism, and that book got really deep into what was going on [during the crisis] from a trading standpoint. It’s a world I have very little knowledge about, how trading occurs and what those guys are doing. I wondered: Was there something they were all paying attention to, what were the tools they were referencing?

I remembered googling it and coming across that Wired article. It was an amazing article. I was really thankful for pieces like that. It was such a powerful concept to me, and when you realize how much [the Gaussian copula] embodies the potential for human greed, it ends up being a pretty powerful and poignant lesson. [The way companies communicate financially is] all predicated in obfuscation, like if we don’t understand, we don’t question. We should be vigilant and not forget, and this is the way I do not forget it.

The tattoo, then, is the work of a guy who very much buys the argument of David Harvey, who wants a Communist revolution which will overthrow the current capitalist regime. Elms is also a fan of this book, which as befits a Semiotext(e) publication includes lots of writing along these lines:

Crowdsourcing technologies, based on what Alexander Galloway called “protocological control,” represent the new organic composition of capital, i.e., the relationship between constant capital (as the totality of “linguistic machines”) dispersed in society and variable capital (as the totality of sociality, emotions, desires, relational capacity, and… “free labor”) deterriotorialized, despatialized, despersed in the sphere of reproduction, consumption, forms of life and individual and collective imagination.

Ellipsis, needless to say, in the original.

As someone who doesn’t want to overthrow capitalism and who has never read more than a few paragraphs of a Semiotext(e) book without needing to lie down and recuperate slowly, it’s natural for me to treat Elms with some prejudice — even though he does describe my Wired article as “amazing”, which is very nice of him.

But I do think Elms is onto something here. The financial crisis was a major event which was caused by Wall Street’s shortsighted greed — a greed which is epitomized in the way that the copula function became ubiquitous even though risk managers and even Li himself knew full well that it was extremely limited in how it should be used. If we want to “be vigilant and not forget” the destructive potential of Wall Street, then the Gaussian copula function is actually a really good thing to get as a tattoo.

There’s an irony here too. Elms got this tattoo, in part, because of its very incomprehensibility — the way it epitomizes the way that Wall Street is “predicated in obfuscation”. But Wall Street embraced Li’s formula for the opposite reason — that it was very tractable and easy to understand, at least if you were a quant with a degree in finance.

Elms’s tattoo is the version of the formula which I used in the Wired article — but it’s not, actually, the version of the formula which was used day-to-day on Wall Street. In fact, it took me a long time to find the formula written down in a manner which looked like an old-fashioned formula, and which I could annotate graphically — here’s the gamma, here’s the copula, here are the distribution functions. Most representations of the copula look nothing like that, and are much harder to understand.

All of which shows that Elms is absolutely right, at heart, about the copula function and what it represents. To Wall Street, it’s simple and easy — disastrously so. To the rest of us, however, it makes a Semiotext(e) book look like a Sesame Street lyric. And that, I think, is why Levin and Elms are going to be disappointed, and Blankfein is going to remain out of jail.

Back in 1933, when Ferdinand Pecora uncovered huge scandals on Wall Street, they were easy for all Americans to understand, and easy to protect against. This time around, Wall Street’s activities are incomprehensible not only to the lay person but even to senior bankers: a big part of the reason why the crisis was so big and so bad is precisely that people like Stan O’Neal and Bob Rubin failed at their job of understanding the risks their banks were taking. They were knavishly foolish, but still more fools than knaves — which means that it’s extremely hard to make a strong case in front of a jury that what they did was criminal.

And so maybe it makes sense to get a tattoo of the copula function — it’s a way of remembering not only the financial crisis, but also the dangers of believing other people who claim to have found a clever and simple way of improving the world. Such claims have a tendency to be entirely true, until they’re not.

Comments
11 comments so far | RSS Comments RSS

This is boring and Wired is much more boring

Posted by profane10 | Report as abusive
 

“it took me a long time to find the formula written down in a manner which looked like an old-fashioned formula, and which I could annotate graphically”

Well, you can’t have looked very hard. It’s equation 12 in Li’s classic paper!

Posted by Greycap | Report as abusive
 

“Back in 1933, when Ferdinand Pecora uncovered huge scandals on Wall Street, they were easy for all Americans to understand, and easy to protect against. This time around, Wall Street’s activities are incomprehensible not only to the lay person but even to senior bankers …”

“… which means that it’s extremely hard to make a strong case in front of a jury that what they did was criminal.”

Too bloody true, bit it isn’t impossible. If the SEC had been educating their staff and garnering evidence rather then protecting banks and collaborating with them, there would have been many prosecutions.

Your wired article was very well done and probably did more to educate than most.

Posted by hsvkitty | Report as abusive
 

Felix, I second havkitty. Vuvuzelas on the Wired article, and this follow-up. Your efforts to educate us morts does not go unnoticed. Cheers.

Posted by EricVincent | Report as abusive
 

Isn’t all greed shortsighted? In the longterm greed must end in resource exhaustion, sort of parasite as murder-suicide.
Still, it seems simpler to me if Elms has a single tat stating “opacity is power”

Posted by thispaceforsale | Report as abusive
 

That Wired piece is not as good as you think. The best math-free account of what has gone wrong in banking was written by the novelist John Lanchester. It is called “I.O.U.: Why Everyone Owes Everyone and No One Can Pay.” The series of pieces he wrote for the London Review of Books is also excellent and covers similar ground.

He’s not a bad novelist either; I recommend “The Debt to Pleasure.”

Posted by Greycap | Report as abusive
 

I second Greycap about Lanchaster. He writes quite well. I enjoyed his novel about the history of Hong Kong: Fragrant Harbour.

Posted by Christofurio | Report as abusive
 

I third Greycap about Lanchester. But I’m puzzled where he gets the idea that anybody at all thinks the Wired piece to be better than Lanchester’s stuff.

Posted by FelixSalmon | Report as abusive
 

“Back in 1933, when Ferdinand Pecora uncovered huge scandals on Wall Street, they were easy for all Americans to understand, and easy to protect against.”

I hope you don’t seriously believe that Pecora was both a brave defender of the public interest and a member of Tammany Hall, and “uncovered huge scandals on Wall Street.” Oh my, JP Morgan didn’t pay any income tax for two years!! These were show trials. Pecora was either bought and paid for and hand-picked for the show trials, or just doing some friends o’ his a few favors, which also set him up for a nice cushy judgeship down the line. He and hims family were from Nicosia, in Sicily, a notorious mafia town. You think they didn’t have mob connections in New York? If you do, I don’t know what to say. You know that Leon Panetta’s family hails from the hottest Ndraghetta region of Italy? You know how Ndraghettonians started to make their money in the States in the early days? Running some kind of scam in Mining towns. You know what his dad did before settling down in Northern California? Worked in “mining.” You think it’s a freaking accident that he’s running the CIA and becoming secretary of defense. What was his previous military experience? An army attorney in Vietnam? Salmon, you have to be playing the innocent. Would you lose your job if you didn’t? See what happens. You’re fairly intelligent, not a bad writer, easy on the eyes when you’re not all dolled up in neon clothing… why do you want to perpetuate this baloney? You’ve bought into the whole “we’re making a better world” manure? Wake up… these are fascist dirtbags and you’re doing their dirty work.

“The financial crisis was a major event which was caused by Wall Street’s shortsighted greed — a greed which is epitomized in the way that the copula function became ubiquitous even though risk managers and even Li himself knew full well that it was extremely limited in how it should be used.”

No, the ultimate cause was not the greed, it was the people who know how to use greed. Conmen.

Posted by Uncle_Billy | Report as abusive
 

For further reading, you can skip the blog post and just read Greg’s comments:

http://www.nakedcapitalism.com/2009/07/g uest-post-review-of-ferdinand-pecoras.ht ml

Posted by Uncle_Billy | Report as abusive
 

Thank you, Uncle_Billy! Excellent link and suggestion.

Greg was very thorough. Doctor_Rx grumped about it at the very end. I think Greg might know what he is talking about though. (Doctor_Rx is sadly misinformed about the nature of blog comments. But that was back in 2009. People may have been more civil back then….)

Posted by EllieK | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •