Saturday, January 12, 2008

Truth, fiction, and finance

Fiction is a respected genre of literature, yet we use the word, sometimes pejoratively, to characterize non-truthness.

Finance deals with money. That some parts of finance approach fiction is troublesome (see Business Week, Jan7, about the Bear flu), yet some might actually want that as a means to line their pocket (and we cannot just blame Ponzi). Finance, unlike building a plane, has a problem in that evaluations deal with nothing real (thanks to decisions in the 20th century). Therefore, expertise, opinion, and other human traits are the main devices. Yet, some types of 'empirical' effort are possible and essential, such as verifying that a borrower has a good potential for repaying.

Engineers, at least, can go up against nature and the real world with their ideas. Yet, finance has been adopting scientists in its modeling; one wonders if these new players, who were supposedly well-grounded, have let froth grow between their ears; but, hey, who cares if you're making millions?

A WSJ article (1/10/08, David Wessel, "How to Unbreak the Banks") touches on this subject which is near and dear to truth engineering. In fact, Wessel addresses computer modeling and risk analysis as two major culprits. Wessel also points a finger at the Basel agreements as they leave too much leeway in leveraging (techniques for the few to bilk the many) among other things.

Truth engineering sees it as a generational issue, cultural rather than biological. That is, the advent of the computer's ubiquity and usefulness has turned things topsy-turvy (Chaitin) and brought to fore the importance of those concepts first approached by Wigner and others under the umbrella of quasi-empirical issues. Yet, we have major operational differences through time with generations; the younger only have their limited experience to control their enthusiastic use of new stuff; the older haven't kept pace with changes (not true in general, as the writer of this blog is of the generation now approaching comparatively advanced age).

So, such statements, by the WSJ, denoting insight into the bases of some problems are encouraging.

We can use issues related to both finance and engineering to understand and to apply truth engineering.


05/25/2011 -- Lemons problem, dark pools, ... Oh, so much to look at!

04/19/2011 -- We have to get back to the basics.

11/04/2010 -- Big Ben is still putting us at risk and trashing the savers.

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?).

05/27/2009 -- That we have topsy-turvy needs to be addressed more fully in both an epistemologic and an operational sense.

12/18/2008 -- Leveraging, in and of itself, is not bad.

10/21/2008 -- Yes, it's time to re-look at this theme.

10/20/08 -- It got even worse throughout the year, from Ben's blink, through spitting in the face of savers, to bailouts (what?) of those touting capitalism.

03/14/08 -- Lots of water under the bridge, yet the financial games continue. A whole lot of industry and resources have gone into the infrastructure for finance. That these would inflate the gaming aspect is natural consequence.

01/18/08 --- We'll need to look again at three ways to evaluate in more detail. These are market (which goes beyond the gaming that we have seen), model (a necessity, though wizards of mathematics and computation can be problematic without the quasi-empirical framework), and myth (that is, myth may be a function along the belief axis).

01/17/08 --- Some call for more openness, yet effort is required to know.

01/16/08 --- Stories from yesterday relate to this theme. Many argue that the market (whatever that is) is not zero-sum. That's saying that the system is open. To what? Shenanigans?

Granted the advances in handling abstractions (the gift of the 19th century) and the ubiquity and power of the computer (the gift of the 20th century) have opened the door. To date, the old human traits (gifts of nature, etc.) have come to fore, namely greed and others.

If there is a market, and if it is built upon mathematics and computation, then the 'value' ought to have a broader basis than we see with pocket lining, one upmanship (unless, of course, we allow gaming in a controlled fashion), etc.

Modified: 05/25/2011

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