Notes on Cognitive Ballistics

by Limbic on May 2, 2010

Anthony Judge’s site is a marvel. It is packed with superb essays.

In this essay “Cognitive Ballistics vs. Derivative Correlation in Memetic Warfare: Suicide bombing as a weapon of mass distraction?”, Judge argues that suicide bombing is a rather unoriginal and unimaginative form of terrorist attack.

A memetic attack on the Western financial system, particularly one that exploits seeded weaknesses like the Gaussian copula function, is a far more effective attack and give the recent collapse of the system, may indeed of been subjected to just this sort of attack, perhaps by Islamists or the Chinese.

The focus here is on the destruction of the financial system as an example of memetic warfare in a global knowledge society. It builds on the understanding of structural violence as developed by Johan Galtung (Violence, Peace, and Peace Research, Journal of Peace Research, 1969) who distinguishes between physical violence and structural violence. Physical violence is for the amateur, using weapons in order to dominate. For Galtung, structural violence is the tool of the professional employing exploitation and social injustice to achieve domination. In this sense the question is whether the collapse of the financial system was brought about by professionals who had tricked those complicit in the globalization process into acting like amateurs in its defence.

…Given the success with which the western-inspired financial bubble of “globalization” was so disastrously exploded, this is an exploration of the possibility that ensuring the strategic focus on suicide bombing as the epitome of terrorism has been the mistaken pursuit of a decoy. Such a possibility would be consistent with the recognized lack of imagination, and the quality of groupthink, associated with the pursuit of weapons of mass destruction.

…It is within this context that the innovative formula of David X. Li with regard to the Gaussian copula function is of interest. It is admirably described by Felix Salmon (Recipe for Disaster: the formula that killed Wall Street, Wired, 17.03, March 2009) — or on the title page of the issue as The Secret Formula that Destroyed Wall Street. As Li had indicated in 2005 “Very few people understand the essence of the model” (Mark Whitehouse, Slices of Risk, The Wall Street Journal, 12 September 2005)..

Li’s original paper (On Default Correlation: A Copula Function Approach, Journal of Fixed Income 9, 2000, pp. 43-54) was the first appearance of the Gaussian copula models for the pricing of collateralized debt obligations (CDO’s). This quickly became a tool for financial institutions to correlate associations between multiple securities — allowing CDOs to be accurately priced for a wide range of investments that were previously too complex to price, such as mortgages. In this respect they were at the core of the subprime crisis.

In the aftermath of the global financial crisis of 2008–2009 the model has been seen as fundamentally flawed, notably as recognized by Nassim Nicholas Taleb (The Black Swan: the impact of the highly improbable, 2007): “People got very excited about the Gaussian copula because of its mathematical elegance, but the thing never worked. Co-association between securities is not measurable using correlation,”. He argues that ” Anything that relies on correlation is charlatanism”.

Clearly a group of sufficient intelligence — presumably accessible to, or inspired by, al-Qaida — might well have been able to ensure the design of what would appear to be a “silver bullet” for the financial markets. As the commentary shows, it only needs to work most of the time and people of lesser competence will believe that it works all the time. Presumably there will be plenty of models on offer for the Summit to consider that one or other will be relevant some of the time as a “silver bullet”.

Judge speculates as to who could have been responsible for the memtic virus that disabled the global financial system, he discusses Al-Qaeda, Neocons, China and others.

Each of these possibilities involves the “infiltration” of a cognitive virus — a memetic virus — into the central processor of the financial system, but at a higher order of complexity rendering it virtually undetectable. Whether it is to be framed as a “virus” or as a “corrective process”, clearly depends on the preferred comprehension of the global framework.

These is tons more to think about in this essay. well worth a read.

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