Stories by Lawrence Lessig

  • Why the Banks All Fell Down

    In Joseph Sargent's 1970 film "Colossus: The Forbin Project," the U.S. president loses confidence in his judgment about how to manage nuclear weapons and turns over control to a computer named Colossus. Soon after the change is announced, Colossus displays a message on its main console: THERE IS ANOTHER SYSTEM. It turns out the Soviets have done the very same thing. Soon the two machines are communicating with each other. After a struggle resulting in the detonation of two nuclear bombs, the computers gain complete control over both governments."Colossus" may have something to teach us about the current financial crisis. It is certainly more instructive than the two most common explanations. The first is that banks recklessly gambled in uncertain and unproven markets. The second is that regulators took a holiday while this party raged on.But the banks didn't "gamble." Instead, they locked themselves, Forbin-like, into computer-based financial models that have an obvious systemic...