Wednesday, August 20, 2008

Economic groundwork

In order to establish where things may have gone awry and why it will be necessary to look at what has gone on and from when. That is, there have been claims here of a gaming-centric ontology going bad; well, let's see what that might mean.

So, at the bottom, let's suppose that we can look at two classes of people, doers and speculators (next post). Now, the doers are those who keep the world going with their efforts; for many of these, life is a drudge with very little payback; for others who are the real cream of life (by aptitude, attitude and application), their talents get used however without sufficient reward; we could characterize this useful set (the old adage of the ant works) for a long time and with a whole bunch of words (but let's not, yet).

Those other type abounds, too, yet, the world has continued despite their machinations (speaking of the old adage, we're talking the grasshopper). You know, financiers might fall within this realm. Back at some point, one thought of financing as being involved in production or transportation or something else real. But, guess what. Around 1973, the fact that the mathematics was understood (having been created by doers, mind you) and that there were sufficient advances in the computational led to what was done at the CBOE and to provide the means to enable financial gaming to a maximum extent.

What happened? Well, option processing, essentially. Options are only one of several types of derivatives. Yet, they are a good example to analyze their problems to attempt to lay out a better framework for financial economics that would somehow inhibit forthiness and other problems.

Too, a proper viewpoint might help balance that mindset that glorifies riches (gosh, even a premier Ivy League school which started for the glorification of God [early motto: For Christ and the Church] is a player and raker) and allows the pockets of the hapless to be picked with impunity.

The exercising of an 'option' is a type of leverage; we will need to enumerate types of leverage, such as silly game 1, silly game 2, etc.

The whole notion is that economics (financial and otherwise) can get divorced from reality. Fortunately, engineering does not have this problem so much. But, when we apply engineering to finance, watch out! As Buckley, stop and think. How do we get back some realness for several reasons (such as, allowing the boomers to have a reasonable retirement)?


03/25/2013 -- The Atlantic had an article about King Abdullah II. Now, he is an example of a doer, from several angles. What I liked when I read it was that while being educated in Massachusetts, he bussed tables. What that means for those who don't know is clean up dirty dishes and such. When I, as a young man, was in the US Army, we had still had KP duty which included such types of things. Another task that ought to be tried once by everyone: cleaning the grease pit.

05/09/2011 -- Doers, reconsidered.

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

09/09/2009 -- Alan's reign will be looked at, in time.

12/18/2008 -- Things were going along so fast (the meltdown, made-off, ...) that the basic message got lost. We'll start again with a new look at leveraging.

09/14/2008 -- Minsky's hierarchy is very much apropos, here, among other things. Probably, anything beyond hedging (which is respectful, if done right) and part of speculation (perhaps, halfway along some spectrum that could very well be defined) would be consider suspect and definitely ponzi-like.

Alan's and Ben's (you guys need to rethink your position) position that we cannot see crap when it is happening (oh no, says Alan, we can only clean up after the fact) is very much indicative of how blind is their sight. The proper tools are there, folks.

Modified: 03/25/2013

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