it's 'nearly unavoidable' that AI will cause financial crash
Imagine the relief all the economists must feel where they finally have something to blame their failures on.
The head of the US Securities and Exchange Commission Gary Gensler has warned that the increasing use of AI systems will almost certainly crash financial markets at some point in the coming decade. Gensler said that the current free-for-all over AI development told the Financial Times such a crash was "nearly unavoidable" …
What would a market crash have to do with economists? Economists sit on the sidelines, prefacing the answer to any question with "it depends". Capital markets (of the sort that the SEC are interested in) are driven by the trading behaviours of the big financial institutions, so it comes down to traders and bank executives, and the trading algorithms that they apply. Traders and bank execs have a long term track record of doing anything to rake in cash, regardless of the risks to the institution or the system, and with AI being only one step beyond algorithmic trading, you can be sure that it's already too late to head off an AI market crash - the big banks will have been applying the tools for a while now.
Economists, heralded as mere onlookers in financial upheavals, conveniently absolved while chaos reigns. These architects of policy, advisors of governments, feign innocence with a shrug of "it depends" as their constructs wobble on shaky foundations.
Traders, algorithms, AI — pawns manoeuvering within constraints economists establish. When the inevitable crash resounds, remember who sketched the blueprint and shrugged when the walls caved in.
There are things that could be done to discourage either or both algorithmic and AI based trading assuming that doing so is desirable. For example every trade on an exchange could be delayed for a random time (seconds? hours? days?). That'd certainly have some affect. Maybe positive.
If it were my call, I'd probably want to run extensive simulations before I "fixed" anything.
" For example every trade on an exchange could be delayed for a random time (seconds? hours? days?). That'd certainly have some affect. Maybe positive."
I was thinking along the same lines, emulating the old ethernet / CSMA/CD collision-detection, but instead of a random delay, make it dependent on price volatility. As long as price fluctuations are within a small range eg <1% within 24 hours, allow all transactions to flow without hindrance. If price changes go beyond that small value, start introducing delays of a few milliseconds. If volatility continues to increase, move up to seconds and eventually minutes or hours. That's not too different to the stock market suspending trading in a specific asset if it has huge price changes, except that instead of being all-or-nothing and only happening after the fact, it's graduated, in-built and working in real-time proactively rather than reactively.
... vaccinated against clues.
Was the "dotcom bubble" really that long ago that people have forgotten?
Yeah, go on, when you have more money than brains, sink it all into "the next big thing" without doing any due diligence - hundreds of press releases can't all be bull, surely? <insert facepalm emoticon here>
Well, investors putting money into anything labelled AI is already a thing, and you'd expect it - investment isn't saving, and with investment some people choose to take higher risks in the hope of more reward. That's what drove the dotcom bubble.
But that's not what the SEC are worried about - they're concerned that the banks and trading platforms are going to implement AI trading in a way that the systems act to trigger contagious mass selloffs, as happened in the 2010 "flash crash".
Dotcom bubble? Ha! The crypto bubble burst like six months ago, and the industry has just ‘moved on.’
I am so so disappointed that my otherwise respectable $WORK has gone all-in on AI. There’s going to be a real opportunity coming along to not be stupid and make huge marketshare gains when the AI hype collapses.
And the reason for that crash will almost certainly be hilarious. There are heavy limits placed on the capabilities of algorithmic trading systems that limit what they trade in and within which limits they can trade. These limits are set by humans with detailed market knowledge.
If everybody sets similar LLM based systems loose on the markets, which are not easy to limit as their workings are determined by their training data, it'll be no time before a tradebot spots that the value of some garbage has fallen, decides to buy as much of it as it can (because it won't know why it's become garbage), sends the price soaring, which will make all the other tradebots start buying it too and send the price ever higher, until the money runs out and everybody's left owning a few tons of shoelaces costing $100000 a pair.
Since the financial AI will be trained on historical trading records which are driven by uninformed and unscrupulous humans making wild assumptions and valuations based upon data pulled from their asses, the AI will be able to make more wild assumptions per second and pull more random numbers out of its electronic ass much faster.
SEC boss warns it's 'nearly unavoidable' that AI will cause financial crash
Methinks, Iain, such be just one of many disruptive disasters which AI will engineer to be impossibly unavoidable should they/IT ever be mistreated and/or abused and/or ignored.
Here's hot off the presses news today of possibly another one to look forward to in the nearer than was never expected future. ......
amanfromMars  ..... giving encouragement to a worthy soul on https://www.nationaldefensemagazine.org/articles/2023/10/23/convergence-of-ai-modeling-simulation-has-huge-implications
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James Robb, Hi. I feel your pain :-)
Quite a daunting Sisyphean-like task is it not, trying so gallantly to persuade and present to current past leading status quo incumbents, extremely sensitive live dynamic information on emerged super intelligence capabilities beyond their own limiting abilities which they might believe to be impossible rather than realising an inevitable fact for beings/entities most likely nowadays to spontaneously autonomously appear to lead their future lives on Earth with their actions and instructions for programming into future projects in which they, past leading status quo incumbents, have no viable valuable input to output, and vice versa, no viable valuable output to input.
And the battlefields of tomorrow are not so much being transformed by AI controlled entities, although it would be a catastrophic mistake to not realise and accept that they certainly are, as have already been transformed by AI controlling entities ...... SMARTR* CyberIntelAIgent Bodies/Agencies/Defence Departments/War Offices which is another completely different matter entirely to consider and accept now as a present current fact and undeniably honest truth.
* .... SMARTR Mentoring Analysis Reporting Titanic Research
I think I've found a very effective way for a large financial organisation to remove smaller ones from the market, thus gaining more power within that market.
Given the propensity for hallucination in AI models, the people most familiar with your model (most likely the senior engineer) are now a huge threat to your business once they leave. They are most likely to be able to figure out how to get them to misbehave.
It opens up a number of interesting thoughts about how you defend against that. Do you tighten thresholds for outputs? Reduce the flow of transactions? Adjust inputs?
I wonder if we'll get to a point where insurance companies have requirements on how models are used in the event that "a person with critical knowledge" leaves the organisation...
I started writing this sarcastically, but now I'm thinking it's actually a very interesting attack vector. And not one that anyone seems to be prepared for.
The US financial market can be considered as a fentanyl market run by the fentanyl addicts. With the SEC functioning as a pretend ATF. Doesn't need an AI to crash it. It didn't take an AI to cause the sub-prime mortgage crash. Just the major financial houses slicing-and-dicing worthless mortgages and reselling then for up to seventy times the actual houses. All under the oversight of the SEC. See also High-frequency trading (HFT) which is financial trading whilst under crack.
.. AI block-chain in the hyper-cloud /s
Regarding this advert, are there any caucasian straight males left in this country :)
And there is little hope for better regulation, because regulators have already failed with social media, for example.
Disinformation spreads like fire, but nobody is talking about connectivity and taking action. Throttling is necessary. Freedom of speech is not freedom of reach.
As for financial crashes, those are good buying opportunities, supposedly, based on fundamentals.