The Complexity Machine

The conversation with Elizabeth Warren at last week’s event was timely and full of smart, pithy analysis, you should watch the whole thing.

There was however, one part of the conversation that really struck me, as Professor Warren laid out a term I had not heard before and seemed to provide and excellent summation of how and why we got to be where we are today in relation to the financial crisis and the need for improved regulation and consumer protection, she talked about the development of “the complexity machine.”

As Professor Warren described it, “the complexity machine” is the process whereby financial service providers realized that increased layers of complexity made their market less transparent and more profitable. By obscuring information the complexity machine skews the market away from the consumer (who is now unable to make the most rational choice) and increases profits for the providers. As profits grow the complexity machine crept into more and more markets and products, until ultimately it became too complex for even the people running the system.

In Professor Warren’s eyes the Consumer Financial Protection Agency is a simple response to restore simplicity to the financial services industry and empower families by putting some clarity back into the marketplace.

That’s about as good and straightforward a description of the financial crisis as I’ve heard anywhere. Here’s Professor Warren on “the complexity machine.”