tumbling in value by the day, but it didn’t seem to matter as long as
there were still naïve investors out there to sell them on to. It was like
carrying a sack of money that you know has a massive hole in the
bottom, but not caring because you’re stuffing so much more in the
top.
As a strategy it was, well, full of holes. By August 2008,
speculation was rife about just how empty the money bags were.
Across the city, banks were looking for injections of funding,
competing to court sovereign wealth funds in the Middle East. I
remember equity traders grabbing passing interns to point out the
latest drop in Lehman’s share price. I’d walk past empty desks, where
once profitable CDO teams had been let go. Some of my colleagues
would glance up nervously whenever security walked by, wondering if
they’d be next. The fear was spreading. Then came the crash.
T – and fall of funds like
Long Term Capital Management – had persuaded central banks that
they needed to understand the tangled web of financial trading. In
May 2006 the Federal Reserve Bank of New York organised a
conference to discuss ‘systemic risk’. They wanted to identify factors
that might affect the stability of the financial network.[11]
The conference attendees came from a range of scientific fields.
One was ecologist George Sugihara. His lab in San Diego focused on
marine conservation, using models to understand the dynamics of
fish populations. Sugihara was also familiar with the world of finance,
having spent four years working for Deutsche Bank in the late 1990s.
During that period, banks had rapidly expanded their quantitative
teams, seeking out people with experience of mathematical models.
In an attempt to recruit Sugihara, Deutsche Bank had taken him on a
luxury trip to a British country estate. The story goes that during
dinner, a senior banker wrote a huge salary offer on a napkin. An
astonished Sugihara didn’t know what to say. Mistaking Sugihara’s
silence for disdain, the banker withdrew the napkin and proceeded to
write an even bigger number. There was another pause, followed by
another number. This time, Sugihara took the offer.[12]