The Guardian view on finance failures: manmade errors amplified by machines | Editorial


Markets aren’t working when a system makes Elon Musk billions by adding his company Tesla to the US stock index

The late economist Hyman Minsky was a pioneer in understanding finance’s grip on the US economy – and the consequences for society. In the 1980s, he predicted the rise of “money manager capitalism” and foresaw that institutional investors would become masters of the universe. Today, we are in a world of “money machine manager capitalism”, where algorithms control the buying and selling of securities. Those paid to pick shares, mindful perhaps that their sales pitch was being undermined, claim such passive investing is “worse than Marxism”. The rise of the robots has been undeterred by such criticism.

The pioneer of this approach is the US firm BlackRock, which is the world’s largest asset manager and last year became Britain’s biggest one too. Humans still set the rules that computers follow. But artificial intelligence is blurring the distinction. Computers run investment portfolios offering cheap “exchange-traded funds” that automatically track indices of shares and bonds. This has been so successful that the big three – US firms BlackRock, Vanguard and State Street – now manage $19tn in assets, roughly a tenth of the world’s quoted securities.

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