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Op-Ed: AI and finance — Colliding tyrannies or an upside nobody saw?

Financial AI could be used for something other than destroying the world.  

The transformation of the world’s data servers to become AI-ready is well underway — © AFP Mohd RASFAN
The transformation of the world’s data servers to become AI-ready is well underway — © AFP Mohd RASFAN

It would be fair to say that of all unpopular highly distrusted things in the news, AI and Finance are probably top of the list. It’s hardly unexpected that AI sales pitches would head straight to the finance sector. Not everyone’s happy about that. Predictions of doom are pretty common.

…But why? This is the same finance sector that destroyed the American middle class in 2008 and made the current housing and rental disasters unavoidable. It doesn’t need any help, surely?

Of course not. This is about making money. You know, that much-loved sole reason for the existence of humanity? Yeah, that one.

This AI spiel is a pitch to the big money, and it’s rather patronizing in some ways. The equation that new tech equates to big money is now a traditional mindset. Finance is now getting hit continuously with the AI hype. The big money doesn’t seem to know what it thinks.

There’s a reason for that. The pitch is very lame in many ways.

“AI can be used for managing and stock and property markets, financial analyses, predictive financial planning, and the usual market astrology,” they say.

So can an abacus and a semi-conscious person…

Interpretation of financial data can be very demanding. AI has the processing power to do all that in real-time. What’s questionable is its ability to get it right.

There are some obvious possible values. AI can run any number of scenarios for a portfolio of assets.  At the buy and sell level, these would be relatively trustworthy in normal circumstances. That’s not quite good enough for a stampede to AI.

The existing buy-and-sell stock programs are simple but efficient. “Buy at $1, sell at $2, or sell when the unit value goes down and before it hits $1.10 or whatever.” (That’s an oversimplified version of the basics.) You don’t really need AI to do that sort of trading. There’s more to markets than margin-dwelling. Including major possible risks.

Now consider a higher level of AI managing a portfolio of private assets. If the AI is supposed to increase the total value of the entire portfolio, it may not buy and sell like that. The $1 stock may go down to 70c, and the AI might well wear the losses, acceptable or otherwise while increasing the net value of the portfolio.

Now try the same scenario on a real estate property portfolio, the futures market, derivatives, or anything else. See any possible hiccups? All of these scenarios need complex integrated parameters.

It’s not impossible; it’s just extremely tricky and potentially expensive. It requires a level of expertise and market knowledge. You could (and probably should) wind up with “niche” finance AI specializations.   

This is where the generalist idea of AI in finance is way too simplistic and can’t work. Can AI interpret financial news affecting assets and make the right moves? Probably not, yet.

Finance is being sold as a Golden Asset. Big on talk, with no credentials beyond the basics.

The unseen upside to financial AI is pretty interesting.

Ironically, AI does have an immediate use in finance, despite the hype. The biggest options are anti-fraud and financial crime. Worldwide, the finance sector spends billions in self-defense against money laundering, sanctions-breaking, and the world’s many other parasitic pastimes.  

A network of blockchain, AI, and forensic oversight won’t miss much in this environment. Even those mysteriously disappearing and rebirthed assets can be tracked from start to finish. You’d get a map of dubious transactions at the very least. You also have automatic transparency with the blockchain.

You can also do your compliance with much less cost and fuss. A system like that can isolate suspicious transactions and run a “financial genealogy” on their operators. Enforcement could have a long audit and evidence trail built in.

…But what happens to those dear sweet fraudulent filth, you sob into your chat show microphone?

We’ll see. Wanna buy some popcorn?  

Financial AI could be used for something other than destroying the world.  


The opinions expressed in this Op-Ed are those of the author. They do not purport to reflect the opinions or views of the Digital Journal or its members.

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Written By

Editor-at-Large based in Sydney, Australia.

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