Thursday, September 25, 2008

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.


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

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