Bacterial survival strategies could teach bankers how to avoid
10 May 2010
If we want to drive maximum growth, encourage innovation and
protect the economy from disasters, we will have to learn from lowly
bacteria and put in place robust regulatory systems, says Dr
Harvey Rubin, a professor of medicine, biochemistry and
computer science, at the University of Pennsylvania, and Founder and
Director of the Institute for Strategic Threat Analysis and Response.
The fate of financial-regulation reform before Congress hinges on
the role of regulation in the marketplace. Adam Smith wrote in his
Wealth of Nations, "The proposal of any new law or regulation of
commerce ... ought always to be listened to with great precaution,
and ought never to be adopted till after having been long and
carefully examined, not only with the most scrupulous, but with the
most suspicious attention."
Nevertheless, we argue that systems found in nature offer a most
cogent counterexample to this avoidance of regulations. Consider for
example, the world of microorganisms. Bacteria are far from being
tiny, vulnerable creatures; they have robust, adaptive regulatory
systems that they use to optimize their growth given any external
and internal set of conditions. They adapt to the composition of the
growth media, temperature, acidity and salinity of the environment;
they survive in the presence of damaging radiation, toxins or
antibiotics, and they even resist attack by other organisms.
The remarkably successful bacterial strategy depends on the
smooth running of its internal regulatory systems. Regulation in
bacteria, which leads to optimal growth, critically depends on the
integration of information that the organism gathers from the
external environment and from its own cellular metabolic state.
The organism processes the information by carrying out complex
biochemical reactions and sends processed molecules to the
components of the organism that need it. Not every component of the
organism needs every bit of information for the system to work
optimally. In fact, quite the opposite is true. Nature is
parsimonious with its transactions and its regulation. In addition
to optimizing growth, regulation allows remarkable innovation to
emerge through selection for fitness in an evolutionary sense.
In making the claim that solutions to the financial crisis can be
found in nature, we note the similarities of the architectures of
financial systems and biological systems, hopefully without
succumbing to the myth of metaphors.
Financial systems are composed of institutions — commercial and
investment banks, savings and loans, mutual funds, hedge funds,
pension funds, finance companies, insurance companies, non-financial
corporations to name a few. The institutions create products or
instruments — mortgages, cash or synthetic collateralized debt
obligations, other structured asset-backed securities, insurance,
money markets, mutual funds. Consumers and other institutions buy
and trade these products, funds flow throughout the system and, in
principle, growth occurs.
The equivalent of institutions in biological systems are
pathways, which are families of enzymes and reactions that are
linked together to perform the necessary functions of the system.
The genetic and biochemical pathways, like the financial
institutions create products — molecules such as nucleic acids,
proteins, lipids, metabolites, toxins. The organism utilizes these
products and new growth occurs — in a regulated, controlled fashion.
Bacteria even have a hedging mechanism where a small fraction of
the colony bet against good times ahead by slowing down their
metabolism just in case the colony encounters a nasty environment
full of antibiotics or not enough growth media. These few taking the
short position will then change direction at some time in the future
and start to grow. If the environment does not sour, then these few
"short" bacteria will suffer because they will not maximize their
individual growth nor will they contribute to the growth of the
If, however, the environment does go south, these few
bacteria are the heroes of the firm — actually the colony — because
they survive to repopulate the organization. The last thing bacteria
want to do is outgrow its nutrients or fail to adjust to a threat.
Voila! Draw your own conclusions regarding any perceived Wall Street
In both the financial and bacterial systems, commitment to growth
does not come without risks and exposures. In financial systems, for
example, a counter party may not meet its obligations, similarly,
certain key metabolites may be unavailable in bacterial systems.
Financial instruments may lose value because of price fluctuations
in the external markets; similarly the external media may at any
moment literally dry up in bacterial systems.
Operational risks such as technological failure or human error in
financial systems find equivalents in damaged DNA or proteins in
bacteria. Lack of liquidity in financial markets corresponds to the
loss of the bacterial central energy molecule, ATP. Organisms even
have the equivalent of banks theoretically too big to fail; these
are proteins that are absolutely essential for growth such as
enzymes that synthesize its genome.
Predictions about how bacteria respond to these risks and
exposures can be made using information concerning the networks of
genes, proteins and metabolites. Similarly, complex questions that
arise in financial systems can be answered only with access to
extensive information such as quantity and amounts of trades, gross
and net leverage ratios and off-balance-sheet leverage ratios and
parties involved in portfolio selection processes or potential
conflict of economic interests.
The current SEC claims for relief against Goldman Sachs and its
employee, Fabrice Tourre, are based on violations of Section
17(a)(1), (2) and (3) of the Exchange Act and Section 10(b) and Rule
10-b(5) of the Exchange Act. Both claims refer to (a) schemes or
artifices to defraud; (b) untrue statements of material facts or
omissions of material facts; and (c) transactions, practices or
courses of business which operated or would operate as a fraud or
Without prejudging the legal outcome, or post judging the
morality of actions, note that bacteria thrive because they process
and distribute reliable information — sometimes noisy, sometimes
evanescent, sometimes stochastic, but on the whole, reliable.
So, if we want to drive maximum growth, encourage innovation and
protect our colony, we will have to rise to the level of the lowly
bacteria and put in place robust regulatory systems. Bacteria had
eons to accomplish this; we will have to use our arguably
well-evolved brains to do it faster.
Dr. Harvey Rubin, a professor of medicine, biochemistry and
computer science, at the University of Pennsylvania, is Founder and
Director of the Institute for Strategic Threat Analysis and Response
(ISTAR) at Penn. A clinician and researcher, Dr Rubin also advises
numerous governmental and non-governmental agencies regarding
infectious diseases and biosecurity. Dr. Rubin's views are his alone
and may not reflect those of his employer or his colleagues.