It's no fun being blamed for causing the collapse of the financial world as we know it. Yet, it would be hard to deny the direct role the US and its rabid ideology of free market and deregulation have played in triggering the worst financial crisis since the Great Depression. Predictably, voices in the US have been looking around for others to share the blame.
Coupled with an inherent anti-China bias in Washington and the mainstream US media, they have now found the perfect country and a specific Chinese face to pin the blame on.
The macroeconomic argument that the crisis is fundamentally caused by extreme imbalances between countries like China, with massive reserves, and the US, with huge deficits and debts, is not without merit. But to apportion blame, the chain of causality has to be short and specific to be convincing, whereas big-picture macroeconomics picks out only general and systemic issues. Still, this doesn't stop many US and British pundits from blaming China for having helped cause the collapse.
The specific Chinese face they have put on a punch bag belongs to David Li Xianglin, a mainland star mathematician and financial engineer who worked for Barclays and JPMorgan Chase. In a now widely cited article in Wired magazine, Dr Li has been called the man who invented 'the formula that killed Wall Street' and '[the one] who devastated the global economy'.
So what is this formula of mass destruction? It's known as a Gaussian copula function. It underpins the designs, pricing and risk assessments of infamous instruments such as credit default swaps and mortgage-backed collateralised debt obligations - in other words, all the toxic assets that have brought many of the great names in US banking, insurance and investment banking to their knees.
Dr Li, who was trained at several Canadian universities, published the formula in an academic journal in 2000. Traders and financial engineers in New York and London took the formula, created the greatest bond market in history, made ridiculous amounts of money and, in the end, brought down the whole world with them.
But can we blame Dr Li for the collapse? I asked a retired physicist friend, who has also spent years in the private sector, to study Dr Li's technical work and render a judgment.
