ABSTRACT
But what do they know (referring to big bankers and Wall Street executives)? The answer, as far as I can tell, is: not much.
Paul Krugman, economics Nobel laureate, January 15, 2010
I am writing this chapter1 a year to two years after the “great economic meltdown of 2008.” In 2008 I would not have thought it necessary to write this chapter, especially in the elementary form it has taken. However, over two years have passed, the “recession has been declared over2”; federal legislation has become law which claims to reform the U.S. financial system;3 yet basic flaws at the heart of the crisis have not been honestly addressed by the people entrusted by society with the power to do so, e.g., our government and our financial industry. Some of these flaws are most easily described using mathematics, and it is on these aspects of the crisis I will concentrate. The good news is that given the immensity of the problems being discussed, the mathematical structures involved are very simple! The bad news is that this chapter is likely to remain timely for a long time to come. In any event, the mathematical structures I am about to discuss which have economic importance are timeless.
