Fraud and truth

Minsky's ideas seem to indicate that fraud was inevitable.

It goes like this. We have something of substance (which money, currently, is not) about which we want to establish trade (in a general sense). Then, through progressive means, we turn out to have a market system that is highfalutin and computer driven.

Well, one natural outcome is hedging which plays on marginal changes, that is, hedging is related to something as is acceleration to velocity. So, then we get speculation as the next step. Well, using the geometric metaphor, we get to the change in acceleration. Guess what this is called? Jerk! (see Note 1, 3rd derivative related to motion)

Ah, that is rich!! The speculator as a potential jerk; you see, we cannot disallow this necessary practice; we can make it more insightful, honest, and of real power. But, speculation ought to be linked to hypothesis testing, a necessary component of advanced thinking (not happy talking).

Anyway, we have then a natural leap to higher dimensional entities, of which 'ponzi-ness' can be attributed to the first step. Except, there is a better concept which we'll get to (in time).

The argument is that there is an inherent instability involved, so the consequence would be our expectation of bubbles. Well, that is only partly true, as plenty of folks do not partake in mania.

Somehow, we've let a favored few (supposed the best and brightest -sheesh, give me a break) monkey about and screw up the works for the rest of us.

We'll be following this argument further is search of possible damping means.

Remarks:

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

04/03/2011 -- Tis tranche and trash.

03/22/2011 -- It's spring, and the garble uses gambling metaphors.

09/13/2009 -- Will look further into the necessity of the sandbox.

08/20/2009 -- Note 1: 'Derivative(s)' has been used a few times in the posts. The context may imply the usage, hopefully. But, in general, we're talking two types. 1) from finance, where 'derived from' is the proper interpretation (or as one may surmise from posts here and elsewhere, something from nothing). 2) the usual mathematical variety.

07/23/2009 -- After the bust and the rebound, toxic assets are still a problem due to tranche realities.

12/17/2008 -- We'll use made-off in lieu of ponzi, henceforth.

12/13/2008 -- Recent revelations suggest that fraud types are of several types.

10/26/2008 -- That the gaming is insane goes without mention, except many expect otherwise (old Marx had it somewhat right, fictitious capital). So, not only is there the Minsky issue, we have abuse of mathematics. Very interesting, indeed.

Modified: 05/25/2011

Nose again

Well, Goldman Sachs latest move changes the game for us, too. You see, the financial world has been selling gold-plated crap for awhile. But, then, that game has been going on for awhile.

So, with GS asking us (the American taxpayer) for help, we can no longer sit idle. Not that we've been idle, it's just that it is very hard to argue with success. And, GS was the golden boy of the era that just past.

What Nose is needed for the future? That'll unfold here. How many years? Not important, as we're talking the basis for the coming generations.

So, expect Nose to be more active.

Remarks:

01/27/2009 -- Now a new day and way to consider these matters.

Modified: 01/27/2009

Swarm proof

We can probably see that the computer has added a certain type of proof to the list. That is, operationally, we do not have to go all the way to a formal mathematical proof, in many cases. We had this in the past, but modern methods speed things up, allow greater access to data, and enable lightening fast calculations.

Though, we'll also see the continuing upward pace of papers dealing with specific proofs.

What does the title mean? Well, the web business model has spawned all sorts of uses of mathematics that goes against the grain. That is, marketers use methods to raise sales. Well, if it works, then that's nice. Try to explain things, though, and that is more difficult.

One consequence for the marketer would be angry users who don' t like being targeted.

But, that misuse pales in comparison to some others, like too heavy use of modeling for systems and their components versus real testing (to be defined further).

• Aside: Actually, the worse case is some minds, like those at Harvard Business School, making such intense use of regression. What? Teach managers a little mathematics, and they're Einsteins? Yes, a whole generation of supposedly bright people have led us down the path to 'perdition' while at the same time making oodles of bucks. Oh, Lord!!! Deliver us!! (We intend to go on about this at length as the financial types are visible nowadays; yet, engineers, you too have been amiss; perhaps, the first part of the 21st century can shore up 20th century failings).

But, we can call the operational proof that is suggested by the marketeers (of all sorts, on the web) a 'swarm' proof bowing to the work related to the wisdom of crowds (put link here).

In a sense, one could use the concept for analyzing current events. For instance, could one ask if a modern program was 'swarm' related (both in the interest of the airlines (who are those who put their earned bucks out) and the public (whose initial bucks, albeit smaller by entity, are in the game, too)? This is only partly related to the internet (mind you, discussion of the program goes way back on the web, only, of late, accelerating to break-neck speed).

Now, truth engineering is to help define proof types, their use, and their risks. Not to tread on creativity but to foster proper use. 'Risk' and its management is a new science; that those there may have hubris (or is it just the manager's interpretation that is at fault?) ought to give them, and us, some pause (nods to old William F. Buckley).

Remarks:

04/03/2011 -- Need to look at some background issues.

09/12/2009 -- Sandbox was used without definition. Let's discuss that concept.

09/11/2009 -- We have an Econoblog. Also, schools ought to have better roles in financial engineering. Where else to have the necessary sandboxes?

06/06/2009 -- Concept will be re-addressed in terms of the basics.

05/27/2009 -- Even behavioral methods as this need that topsy-turvy be addressed more fully in both an epistemologic and an operational sense.

01/27/2009 -- Now a new day and way to consider these matters.

Modified: 04/04/2011

The times

Reuters reports on Sunday dealt very closely with what we have been discussing.

Then, yesterday's news had it splattered everywhere. The failures continue.

Well, the causes are varied, but the culpability of the Fed (and the economic community) cannot be denied. Alan says that we can't see crap until it happens. Ben continues in that vein. So, then, the taxpayers have to clean up the mess, ex post facto.

Look, it's not that difficult, folks.

- put money on some real basis (remove the gab standard) and minimize the political aspect (yes, this is possible)
- financial instruments need to be scrutinized (including testing in a sandbox) in a worldview that understands why we have, and can know our, limits (quasi-empirical arguments are apropos)
- rearrange the thinking about the (supposed) mathematical support for this craziness (it's pseudo-math running amok)
- oh, by the way, tie computational modeling into truth engineering (I'm not after riches, folks)
- the basis for the future ought to prime in the economy, even over-lording what leads to greed, namely private profit maximization (Minsky's hierarchy is apropos). Besides, it's near-zero sum. Those whose arguments are for non-zero sum need to get their heads out of their illusion.
- establish some means to ensure that financials are tied to intrinsics (to be defined, but Buffet's attitude toward what he invests in is, in part, an example)

Remarks:

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?).

09/12/2009 -- Sandbox was used without definition. Let's discuss that concept.

09/25/2008 -- A concept that can bridge the waters and allow a larger set of associations is 'fraud power' in reference to modern financial methods.

Modified: 10/11/2009

Doers and speculators

There are probably other ways to partition this thing, however we'll start with what the title says, as promised. You see, we're looking at what has gone down the past few decades such that we see larger accumulations of wealth in the hand of a smaller set than before. At the same time, the set of those without has grown substantially. So, we may start with one partition and move around to others as needed for the discussion.

What is a doer? Well, there was an earlier example of grain futures. The 'doer' class would cover a spectrum, from those providing seed, to the grower, to those who make use of the grain; even those who eat the grain would be in the class. Now, within the class there may be a way to measure the extent of membership (this extent may have some intrinsic value - that we will consider - yes, even in this day and age). The doer is trying to make his daily bread.

The speculator deals only with abstractions and the monetary associations thereof. We have to be careful here, as the doers will have their set of abstractions too. For instance, a grower (even as a doer, using acceptable levels of hedging) would deal with an abstract model related to decisions when trying to discern some choice in a 'futures' situation. Perhaps, there ought to be a different term used here; we'll consider that a research topic. But, the speculator has his daily bread; he's after the whole pie.

In the meantime, the use of 'abstraction' (probably in the extreme sense of 'abstract' nonsense - apologies to the category theorists) is apropos. The speculator has no intrinsic interest in the grain against which he or she may be gaming; this applies across the board as grain is only being used for example here; any other commodity would come into play.

And, the speculator would not have to be easily characterized by some prototypical notions, such as we see with the day trader. In general, it would be some 'big pocket' position; yet, what we have seen is that the 'gaming' allows privileges to the speculator that prevent in-the-large maximization across the whole. Oh, what the hell does that mean?

We'll look at that further next time; but, for now, let's just consider that the doers work with things that improve our lives through direct effort or through their efforts with others. What do the speculators bring except grief?

Remarks:

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.

05/05/2011 -- Another round.

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

01/22/2009 -- This topic is related to people matters which can get more attention now.

10/04/2008 -- One differentiating feature might be that speculators get bailed out. The doers get trampled.

Modified: 03/25/2013