Wall Street Unoccupied as 200,000 Job Cuts Bring ‘Darkest Days’. Schadenfreude, especially considering:
The 1% are the very best destroyers of wealth the world has ever seen
Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress
But the level of dislocation is disconcerting, especially as it continues to demonstrate how jobless this “recovery”" really is – even the bankers are out of work.
From http://feedproxy.google.com/~r/Technoccult/~3/hUNlGE2aFB8/
Wall Street Unoccupied as 200,000 Job Cuts Bring ‘Darkest Days’. Schadenfreude, especially considering:
The 1% are the very best destroyers of wealth the world has ever seen
Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress
But the level of dislocation is disconcerting, especially as it continues to demonstrate how jobless this “recovery”" really is – even the bankers are out of work.
From http://feedproxy.google.com/~r/Technoccult/~3/hUNlGE2aFB8/
Great new interview with Nassim Taleb by one of his former teachers at Wharton:
Taleb: The events in the Middle East are not black swans. They were predictable to those who know the region well. At most, they were gray swans or perhaps white swans. One of the lessons of “Wild vs. Mild Randomness,” my chapter with Benoit Mandelbrot in your book, is what happens before you go into a period of wild randomness. You will find a long quiet period that is punctuated with absolute total turmoil…. In The Black Swan, I discussed Saudi Arabia as a prime case of the calm before the storm and the Great Moderation [the perceived end of economic volatility due to the creation of 20th century banking laws] in the same breath. I was comparing Italy with Saudi Arabia. Italy is an example of mild randomness in comparison with Saudi Arabia and Syria, which are examples of wild randomness. Italy has had 60 changes in regime in the post-war era, but they are inconsequential…. It is a prime example of noise. It’s very Italian and so it’s elegant noise, but it’s noise nonetheless. In contrast, Saudi Arabia and Syria have had the same regime in place for 40 some years. You may think it is stability, but it’s not. Once you remove the lid, the thing explodes.
The same kind of thing happens in finance. Take the portfolio of banks. The environment seemed very placid — the Great Moderation — and then the thing explodes.
Herring: I would agree that people knew the Middle East was very vulnerable to turmoil because of the demographics, a very young population, and widespread unemployment, the dissatisfaction with the distribution of income and with regimes that were getting geriatric. But knowing how it would unfold and knowing that somebody immolating themselves in a market in Tunisia would lead to this widespread discontent — and we still don’t know how it will end — is a really remarkable occurrence that I think would be very difficult to predict in any way.
Taleb: Definitely, and it actually taught us to try not to predict the catalyst, which is the most foolish thing in the world, but to try to identify areas of vulnerability. [It's] like saying a bridge is fragile. I can’t predict which truck is going to break it, so I have to look at it more in a structural form — what physicists call the percolation approach. You study the terrain. You don’t study the components. You see in finance, we study the random walk. Physicists study percolation. They study the terrain — not a drunk person walking around — but the evolution of the terrain itself. Everything is dynamic. That is percolation.
And then you learn not to try to predict which truck is going to break that bridge. But you just look at bridges and say, “Oh, this bridge doesn’t have a great foundation. This other one does. And this one needs to be reinforced.” We can do a lot with the notion of robustness.
Wharton: Nassim Taleb on Living with Black Swans
(via Chris Arkenberg)
From http://technoccult.net/archives/2011/05/14/nassim-taleb-interview-on-his-new-book-anti-fragility/
The present invention comprises a method using cellular automata to process existing trading data from traders to generate unprecedented output that improves a wide range of future financial trading decisions and alerts for both individual traders and institutions. However, the method and system of the present invention is not a predictive system based on input of market data and it is not algorithmic. Rather, the method and system instead uses cellular automata logic to mimic human trading behavior. Based on the observations of human trading behavior decisions, the present invention generates an output of buy and sells decisions or simply an alert signal. This use of cellular automata as a basis for evaluating trading behavior provides a different basis for generating trading decisions and alerts and forms a new class of financial alerts over the prior art. The method of using cellular automata logic to process financial trading signals is therefore a paradigm shift in the logic behind trading decisions and alerts. It creates a new kind of technical analysis that features cellular automata interacting with human traders and data.
Free Patents Online: Patent Filing for Cellular Automata Financial Trading Method and System
(via Wade)
See also:
Predicting the Future with Twitter
I interviewed one of the developers behind Bitcoin for ReadWriteWeb:
Bitcoin is an open source, peer-to-peer electronic currency created by Satoshi Nakamoto and maintained by a small team of developers. As part of what’s turning into an ongoing series on the distributed Web, I talked to contributor Gavin Andresen about how the software works. This is a technical overview. If you’re interested in an economic or political look at the software, you can read the Wikipedia entry or Niklas Blanchard’s essay on the project.
ReadWriteWeb: Interview: How Bitcoin Created a Decentralized Crypto-Currency
See also: The New Currency War
From http://feedproxy.google.com/~r/Technoccult/~3/MVTUKK0trkU/
Nassim Taleb “lowers” himself to doing journalism and writes at the Huffington Post:
The story is as follows. Last year, in Davos, during a private coffee conversation that I thought aimed at saving the world from, among other things, moral hazard, I was interrupted by Alan Blinder, a former Vice Chairman of the Federal Reserve Bank of the United States, who tried to sell me a peculiar investment product. It allowed the high net-worth investor to go around the regulations limiting deposit insurance (at the time, $100,000) and benefit from coverage for near unlimited amounts. The investor would deposit funds in any amount and Prof. Blinder’s company would break it up in smaller accounts and invest in banks, thus escaping the limit; it would look like a single account but would be insured in full. In other words, it would allow the super-rich to scam taxpayers by getting free government sponsored insurance. Yes, scam taxpayers. Legally. With the help of former civil servants who have an insider edge.
I blurted out: “isn’t this unethical?” I was told in response, “We have plenty of former regulators on the staff,” implying that what was legal was ethical.
He goes on to note:
The more complex the regulation, the more bureaucratic the network, the more a regulator who knows the loops and glitches would benefit from it later, as his regulator edge would be a convex function of his differential knowledge. This is a franchise. (Note that this franchise is not limited to finance; the car company Toyota hired former U.S. regulators and used their “expertise” to handle investigations of its car defects). [...]
The more complicated the regulation, the more prone to arbitrages by insiders. So 2,300 pages of regulation will be a gold mine for former regulators. The incentive of a regulator is to have complex regulation.
He doesn’t offer any remedy, but it does make more clear something I’ve been wondering about since I started following him: on the one hand, he calls himself a libertarian and skewers regulators, and on the other he says stuff like this:
Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them “hedging” products, and from gullible regulators who listen to economic theorists.
I’ve always wanted to ask him about this apparent contradiction: who exactly is supposed to do this banning of derivatives and why should they be trusted? This article gives some clarity: he thinks there should be rules, but they shouldn’t be overly complex, because that breed corruption.
The idea that we should have hard and fast, clear rules as opposed to “regulation” is supported by the failure of the SEC’s revision of certain firms’ debt-ratio requirements. From Reason:
In 2004, the international Committee on Banking Supervision issued Basel II, an accord on banking regulation. In its wake, the SEC revised its regulations to allow five broker-dealer firms with more than $5 billion in capital—Lehman Brothers, Bear Stearns, Merrill Lynch, Goldman Sachs, and Morgan Stanley—to participate in a voluntary program that changed the way their debt was calculated. The existing net-capital rules required firms to keep their debt-to-net capital ratios below 12-1 and to issue warnings if they started to get close to that. Under the new rules, broker dealers increased these ratios significantly. Merrill Lynch, for instance, hit 40-1. This was possible because the rule changed the formula for risk calculations and instituted more subjective, labor-intensive SEC oversight in place of hard and fast guidelines. “They constructed a mechanism that simply didn’t work,” former SEC official Lee Pickard told The New York Sun on September 18. “The SEC modification in 2004 is the primary reason for all of the losses that have occurred.”
Some I’m guessing Taleb draws a line between banning a practice and “regulating” it – and between having rules that banks must follow and “regulating” them. It’s an interesting distinction and I wonder what other self-styled libertarians would think about it.
Taleb also notes how the debate over government and regulation goes back to Ancient Greece at least – which is a discouraging reminder that almost any modern debate we have on almost any subject goes back for centuries. It’s enough to make you want to live in a bathtub and nourish yourself onions.
From http://technoccult.net/archives/2010/08/04/taleb-fed-scam/
Robert Prechter, who uses technical analysis, a theory that holds that there are mathematically computable patterns in the stock market, think’s we’re in for the “big one” in a big way:
Mr. Prechter is convinced that we have entered a market decline of staggering proportions — perhaps the biggest of the last 300 years. [...]
Originating in the writings of Ralph Nelson Elliott, an obscure accountant who found repetitive patterns, or “fractals,” in the stock market of the 1930s and ’40s, the theory suggests that an epic downswing is under way, Mr. Prechter said. But he argued that even skeptical investors should take his advice seriously. [...]
For a rough parallel, he said, go all the way back to England and the collapse of the South Sea Bubble in 1720, a crash that deterred people “from buying stocks for 100 years,” he said. This time, he said, “If I’m right, it will be such a shock that people will be telling their grandkids many years from now, ‘Don’t touch stocks.’ ”
New York Times: A Market Forecast That Says ‘Take Cover’
Related posts:
From http://feedproxy.google.com/~r/Technoccult/~3/Hus2AVwy2jU/