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There are several connotations of leverage, but one that pertains to discussion here deals with a multiplier effect that is almost recursive (see "mathematization", below). In his book, the 'Trillion Dollar Meltdown', Charles R. Morris considers that the current crisis that may be facing the financial sector may be just an indication of more things to come.
But, of interest here, are his thoughts about why things are in such disarray. Well, Morris names three developments of the past 20 or 30 years that have been touched upon here in various posts. These are, namely, according to Morris: structured finance, expansion of derivative markets, and mathematization of trading.
All three of these relate to the issue of the appeal and problems of abstractions which have led us a jumbled up state of affairs. One has to wonder how computational froth is of any more substance than the natural type. One thing that Morris mentions is the AAA problem which rating appeared out of the air though the underlying instruments were no more than junk.
Effectiveness in capitalism and the market ontology evidently became associated with how well the Street people (gigantic bonuses) and their management (immense wealth) did. Of course, how could we blame just the finance folk who are, necessarily, removed from reality when similar problems crop up in engineering when the issues of quasi-empiricism are ignored?
Except that there is one difference. In areas where engineering deals with the critical, there are processes and policies that help ensure the general public's safety and means to support those who experience accidents.
In the financial world, there is no such science; there is motivation and creativity, where the measure seems to be greed (can "market dogmatism" ever get away from this?).
Some claim that the financial game is more a prisoner dilemma rather than zero-sum (see Fedaerated). Yet, analysis may lead one to see it more of the latter due to the advantages on the financial side (unless, there is oversight such as that being suggested recently by Paulson).
Remarks:
01/05/2015 -- Renewal, see Context line.
12/31/2013 -- A popular post.
05/02/2013 -- This has been a popular post (third most popular), of late. Perhaps, it's the growing awareness of the ever-increasing gap twixt the haves and those without. The post ought to be re-done using insights gained over the past six years. It seems like a life-time ago. Well, the theme of the blog needs to look at lessons from the past (such as, we not learning Anselm's message). Too, money does not solve existential problems. Never has. And, one does not need a pot load to figure that out. Too, playing games with other people's money and lives ought to be a given (ah, smarts or not - the most popular post).
09/29/2011 -- The question remains. Even with 'financial engineering' what is the science behind finance? Gaming, only? Who has the basic ontology (other than wealth for the few)?
04/04/2011 -- The M & Ms are apropos. Need to look at some background.
02/26/2011 -- When this was written, I was still incredulous (shocked) at the idiocy (which abounded beyond limit, and was held by supposedly smart people) that we can just wish 'value' out of nothing. Of course, that value did come from something: the sacrifice of the people by fat cats (need to think of a more appropriate characterization).
11/22/2010 -- Tranching, under the guise of securitization? Silly games.
11/02/2010 -- Two years later, the message is the same, except some changes have occurred. Of real note is that the jobless rate is high; out-housing really set up for that. Also, we need to re-look at that learned from the 'vons' guys, Ludwig and Friedrich. See Near Zero.
10/11/2009 -- Discussion has gone over to FED-aerated. Note the 10/11/2009 Remarks about the Business Week article on India's progress' inhibitors. 'Near zero' recognizes that some always suffer more than others, especially in win-win situations, as the whole notion of characterization minimizes visceral reactions by diminishing the real in favor of the abstracted (ah, the modern world, you say?).
06/17/2009 -- Michael Milken says that structure counts (see WSJ article). Remember, the theme here is that a lot of securitization is bunk, many times. Sheesh, talk about a perpetual motion machine, always moving monies from the pockets of the hapless to that of the fat cats.
12/18/2008 -- Leveraging, in and of itself, is not bad.
10/26/2008 -- Yes, things fell apart for several reasons: fiction, leverage, and more.
Modified: 01/05/2015
06/17/2009 -- Michael Milken says that structure counts (see WSJ article). Remember, the theme here is that a lot of securitization is bunk, many times. Sheesh, talk about a perpetual motion machine, always moving monies from the pockets of the hapless to that of the fat cats.
12/18/2008 -- Leveraging, in and of itself, is not bad.
10/26/2008 -- Yes, things fell apart for several reasons: fiction, leverage, and more.
Modified: 01/05/2015
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