The power of market devices on Vanity Fair

September 5, 2009

Vanity Fair produces some SSF insights. The magazine compiled a list of the 100 people/things to blame for the economic crisis. The list is sorted alphabetically and in B you can find, among other things ‘Bloomberg terminal’. This is how Vanity Fair explains why Bloomies, as they are known affectionately in the City (thanks, Jan!) should take some blame for the mess:

11. Bloomberg Terminals.

Because they led Wall Street to believe it was invincible. If you wanted to play the futures market on the commodity price of bulk clams in Manila, the Bloomberg machines could do it. If you wanted to leverage egg prices in Bulgaria against the long bond in Brazil, and pay for it in yen, they could do that, too. Hell, if you wanted to eventually self-finance a run for mayor of New York City, underwritten by the idea that information is currency, and the fact that these terminals had become the mandatory desktop toy for every budding financial master of the universe, you couldn’t invent a better A.T.M. They were all-knowing, and all-powerful. Still, for all their financial wizardry, there was also the law of unintended consequences: If you give enough monkeys enough typewriters, you may get Shakespeare. But if you give enough electronic monkeys enough high-tech typewriters, sooner or later you’ll definitely get a financial meltdown.

The text is meant to be light and funny, after all, this is Vanity Fair, not Journal of Finance, but there are a few important nuggets of truth and even, some implicit calls for further research. First, can it be that the availability of Bloomberg terminals, providing immediate access to wealth of information promoted over-trading? A classic paper by Barber and Odean tends to indicate so. Barber and Odean, however, do now explore the techno-social infrastructure that enables overtrading. Alex Preda’s study about the language of day traders may be a step in this direction.

Second, Bloomberg terminals do much more than simply provide the single trader the ability to compose and execute complex, exotic trades. The terminal subscription includes instant messaging service that is used intensively by traders. Opinions, trading ideas and even ‘model-verified’ ideas flow quickly and effortlessly among Bloomberg users. What is the role of this market device in establishing ‘consensus trades’? How do such machines increase opinion clustering among market actors?

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