Saturday, January 2, 2010

Money and value

Moral: Wherein we consider some of the consequences of using fiat money.

--- Foreword:

These consequences are strange, indeed. But, first, why is our money fiat? Well, consider that we have a system that is based on hot-air; that is, it looks to one guy's words as having meaning whose value considered by some as coming from an oracle. Talk about irrationality. So, what we see is that this gab standard leads to strangeness, a mindless form of gaming.

And, the notion of casino capitalism came about to depict the current state of affairs where daily a lot of energy, and money, goes into playing the 'market' game, for the most part for no real consequence, except the visceral reactions of the participants, whether as a winner or loser. We know that there are winners and losers since near zero is the actual situational outcome, folks.

--- Word:

Since we're after the year's cusp, let's look at three stories, of the past year.
  • Mr. Woods allows us some data to consider. It is reported that shareholders of his sponsors have lost $12B (thereabouts) in the past month or so.
  • Marilyn and Investopedia, and probably others, tried to explain to people where the value went that was absent from the markets, as they are defined currently, at the bottom which was the March, 2009 timeframe. Ah, it vanished, they claim. Well, if they are right, the hot air came back quickly.
  • The AP reports that 150 (thereabouts) schemes (Made-off type) were uncovered in 2009 which is about four times the usual. Ah, why are these so easy to pull off?
Taking the first and second stories, we have to know that there is value behind those trades. That $12B did not disappear but went over to over assets. How does that movement, with those few (comparatively, that is, not across the board), differ from other downturns?

One thing missing is any type of accounting that would tie trades to something real which is due to the nature of the system. That is problems of a systemic nature.

We'll be going into this further later.

Now, that third story tells us about schemes which only reflect the large problems of the financial system (happy talking and its ilk).

Only part of the problem can be attributed to options, and similar, trading (CBOE can be partly justified), as there can be a basis determined for some speculation. That is, the type related to the originator of a commodity (the producer) has real value (as long as it isn't done by a jerk).

Also, some of the problem can be attributed to people who want the quick bucks, the greedy and the perpetual marks. But, just as we saw with the old guy, now in jail, it is more than that. As, computation, and accounting, allow these easy manipulations which ought to tell us something.

One thing to consider is Markov's contribution, though he is not to blame. Andrey showed us how we can ditch the past. That is, we can apply a pseudo-Now framework, yet it's not Zen. Andrey didn't show us that we can ignore value (especially the inherent and intrinsic (traditional connotations, mostly) as only that which someone will pay.

We'll go into this further, too. It's nice that the Quants ran after their attempt at taming stochastic (or supposed) entities. As said earlier: That the quants have run off after their stochastic taming attempts we'll be looking at further. That CAE folks have broken the rules of map/territory differentiation is another variation of mis-handling of that which this sequence denotes.

--- Afterword:

Error'd ways can be found on all sides as we'll continue to see. Who is without error?

Actually, we mainly, it seems, can just minimize pain since these issues rest on an undecidable foundation which means that the best that we can due is be quasi-empirical.

But, that is no excuse to allow the 'fat cats' and 'greedy' of each generation to run rampant over the innumerant, the sickly, and the frail.


01/26/2013 -- Updated stale pointers. Too, the subject is still of interest.

02/01/2011 -- The chimera shines.

05/03/2010 -- NYT article on the subject. Paper on wealth and savings.

01/06/2010 -- Poor Ben, getting grief and criticism.

Modified: 01/26/2013

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