David X. Li

Was it Venus or Faber who invented the pencil? I know, neither. Nobody knows. But what a great invention! How many ideas, opinions, learned facts, etc., were shared because of the pencil? Unlike the pencil, we know who invented the Gaussian copula function. It was David X. Li. The Gaussian copula function is the mathematical formula that credit rating agencies started using to assign investment risk to various financial derivative products, soon after Li invented it in 2000. By the time the derivative bubble broke 8 years later, the notional value of worldwide derivative contracts had ballooned to about 650 trillion dollars. But did the bubble break? No. Today, there is even more money in derivatives than there was then. The current notional value of the world's derivative contracts is 10-11 times the dollar value of the TOTAL world economy. How can this be? The answer is that it can't be, at least, not in the long run. The bubble will swell until it pops again. Next time, the voting public won't allow another bailout. Prices will inflate rapidly. Will it be the end of the fiat dollar? Maybe.