How to forecast a financial crisis

As memories of the 2007-2009 financial crisis recede, scientists are becoming increasingly vocal in their criticism of traditional economists for failing to predict that upheaval – or the current global debt overload.

At a meeting in London this month, three leading financial scientists advocated fundamental reforms to lay the foundations for what Philip Treleaven, director of the financial computing centre at University College London, calls a “new economics based on computing and science”.

Key to a scientific understanding of the global economy is better access to and analysis of vast amounts of financial data. These data need to be tackled with new models, based on computing techniques such as data mining, non-linear dynamics, simulation-based analysis, statistical physics and machine learning.

“Everything needs to be rebuilt on the basis of observations alone, without any of the assumptions of classical economics,” says Edward Tsang, director of the centre for computational finance and economic agents at the University of Essex.

The most useful outcome from this analysis would be the financial equivalent of a weather-forecasting system, warning of crises in time to head them off. “If we had had a financial forecasting system four or five years ago, we would have been able to detect that Lehman was in a dangerous situation before it collapsed,” Treleaven says.

How much would a financial-storm-warning system cost? “We could build something miraculous with $1bn,” says Richard Olsen, a visiting professor at Essex University. “But we could do something useful with $20m.”

In the absence of global action, Treleaven says the UK could set an example to the rest of the world if the Financial Services Authority set up a local financial forecasting system. “But this requires Britain’s banks and other financial institutions to get a better grip on what level of risk they are carrying.”

Many observers believe that the growth of computer-based trading on foreign exchange and share markets has increased instability, but Olsen, who has built up a financial trading and research company in Zurich, takes the opposite view. He believes that the instabilities result from constraints on full-blooded computer trading – and global finance would become more stable if speed and volume were greatly increased.

“If you take the circulation of blood in a healthy human body as a model, the financial markets need to increase their speed of circulation by a factor of about 2,000,” Olsen adds.

Treleaven is not convinced by Olsen’s argument but would like to build a computer model of the global financial system to find out.


Why hominids became upstanding citizens

Evolutionary biologists love to speculate about how and why particular human characteristics evolved in our ancestors.

The latest study, published in Current Biology, looks at why early hominids started to walk on two legs. It concludes that this helped them to grab and carry as much food as possible.

Researchers from Cambridge and Kyoto universities investigated bipedalism in modern chimpanzees as they competed for food. The findings suggest that chimps switch from walking on four to two limbs when they need to monopolise a scarce resource; standing on two legs frees up their hands to carry more.

Although fossil evidence does not make it clear when hominids started to walk mainly – rather than occasionally – on two legs, many palaeontologists believe climate changes, which reduced forest cover and forced our ancestors to move longer distances across open terrain, played a role.

To cope, the hominids would have spent more time walking on two legs while carrying food, leading to anatomical changes that in turn became the subject of natural selection.

William McGrew of Cambridge says: “Bipedality as the key human adaptation may be an evolutionary product of this strategy persisting over time. Ultimately, it set our ancestors on a separate evolutionary path.”

The study focused on chimps in Bossou Forest, Guinea. In the first part, the researchers analysed the apes’ behaviour gathering nuts. When rare coula nuts were available, the chimps were much more likely to move on two legs than when they only had access to common oil palm nuts.

The second part of the study looked at chimps’ crop-raiding parties. Again, bipedal movement occurred more often when they competed for scarce resources.


Of mice and microscopes

The picture above looks like a child’s drawing of flowers – or perhaps slices through sticks of rock or some other coloured sweets. But they are actually magnified slices through the tails of mouse sperm, photographed as part of a study into the genetic mechanisms that sperm cells use to protect their genome from damaging DNA rearrangements.

An electron microscope at the European Molecular Biology Laboratory in Heidelberg, Germany took the image, to which false colour has been added.

Each “flower” is a cross-section through the tail that a sperm cell waves to swim towards its target, a mouse egg.

The pictures illustrate the mechanism behind the swimming technique of mammalian sperm. Two central tubes, called microtubules, are surrounded by a ring of nine other (slightly smaller) microtubule pairs.

With the help of specialist “motor” proteins, these microtubules slide up and down, making the tail beat and enabling the sperm to swim.

Charlotta Funaya, a research technician at EMBL, took the image while comparing sperm formation in healthy and genetically altered mice.

She was struck by the beauty of the image, which is magnified 46,000 times. “This particular image didn’t really serve a scientific purpose,” she says: “I took it because it looked pretty.”


Signs of heart attack may be in your blood

A blood test could predict who is likely to have an imminent heart attack, US researchers say. They have discovered “biomarkers” in people who have just suffered a heart attack – and believe these would have been detectable in the patients before the event.

The study, led by Scripps Translational Science Institute in San Diego, analysed blood from 50 people in hospital emergency rooms. The researchers found that circulating endothelial cells from heart attack patients were abnormally large and misshapen and often appeared with multiple nuclei – strikingly different from those in healthy controls.

“With some additional validation, the hope is to have this test developed for commercial use in next year or two,” says Raghava Gollapudi of Sharp HealthCare, one of the companies that took part in the study published in the journal Science Translational Medicine. “This would be an ideal test to perform in an emergency room to determine if a patient is on the cusp of a heart attack or about to experience one in the next couple of weeks.”

However some independent cardiologists warn against expecting too much. “The jury is still out on whether this approach will truly be able to identify patients before they have a heart attack,” says Tim Chico of Sheffield University in the UK. “If the circulating cells can be detected weeks before a heart attack, then this would be very exciting. As we understand more about what these cells are telling us it will become clearer whether we can use them as a useful test.”

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