The crash of 2008: A mathematician's view
December 9, 2008Markets need regulation to stay stable. We have had thirty years of financial deregulation. Now we are seeing chickens coming home to roost. This is the key argument of Professor Nick Bingham, a mathematician at Imperial College London, in an article published today in Significance, the magazine of the Royal Statistical Society.
There is no such thing as laying off risk if no one is able to insure it. Big new risks were taken in extending mortgages to far more people than could handle them, in the search for new markets and new profits. Attempts to insure these by securitisation – aptly described in this case as putting good and bad risks into a blender and selling off the results to whoever would buy them – gave us toxic debt, in vast quantities.
"Once the scale of the problem was unmistakably clear from corporate failure of big names in the financial world, banks stopped lending to each other," says Bingham. "They couldn't quantify their own exposure to toxic debt – much of it off balance sheet – so couldn't trust other banks to be able to quantify theirs. This led to a collapse of confidence, and the credit crunch, which turned a problem in the specialised world of exotic financial derivatives into a crisis in the real world. Once the problem became systemic, government had to step in to bail the system out with vast quantities of public money."
Professor Bingham suggests that to learn more and predict financial future, we should look to our past, likening the current crisis to the 'Tulip Mania' in the Netherlands in 1636 where huge prices were paid for futures in tulips, which then turned out to be as worthless as sub-prime mortgages today.
Even Alan Greenspan, the long-serving former chairman of the US Federal Reserve, admits that mistakes were made in the past. To avoid repeating these mistakes, we need to learn from them. This needs a new mind-set, new policies, and much more proactive regulation.
Bankers complain that the risk models they used predicted problems as dramatic as today's only every few centuries. "This is like talking about the details of how to steer a boat on a river," says Bingham, "what matters there is whether or not the river is going to go over a waterfall, like the Niagara Falls."
Source: Wiley
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That said if the morons in Executive positions are going to beg the Fed for money and lay off Americans in favor of cheap overseas labor then I personally feel they are due a overhaul. Since the options are rather limited and I don't believe most Americans have the mettle for a real revolution, lazy cows, then the only remaining solution is the government steping in to fix things. Is the Fed Qualified to direct multi trillion dollar industries? No, probably not, but they could hardly do worse than the monkeys who were trying to do so until now.
Only if there are enough players present the system as a whole stays healthy. There has to be room for those who make bad decisions to fail without creating a domino effect threatening entire industry which forces a taxpayer bailout.
If you start off with a lie, you won't get very far. The sub-prime lending crisis got it's start when Democrat legislators forced banks to loan to people they knew were a credit risk. It was further exacerbated when folks like Barney Frank refused to modify those rules to prevent the very crash we are dealing with.
Same with the auto industry. Forcing manufacturers to make cars no one wants won't get the industry out of this slump.
Healthy economies are cyclic. These cycles are normal and predictable. Only when government starts mucking with things do we get boom/bust catastrophes like this.
It would seem that partisan minded rhetoric wins over rationality and facts. Given that many of us will one day be elderly to the point that we can no longer work it would make sense to have financial markets that are somewhat predictable.
This is not what we have today, Wall Street long ago became populated by individuals who aren't interested in building our economy but instead by extracting money from the financial system by swindles that are legal. To do this they have lobbied the government to change regulations or enact regulations that ALLOW specific activities. These permissive regulations are still regulations, only they are designed to allow Wall Street entities legal opportunities to give themselves YOUR MONEY.
The average Wall Street "fund manager" earns over $20 MILLION dollars per year.
We desperately need oversight of all financial institutions, especially Banks and Wall Street. We need regulations that are designed to protect the HEALTH of our financial systems and prevent ABUSE. This has not been the case with the last few administrations whose job it is to ENFORCE the law.
Regulating something you don't understand is another. Especially when politics gets involved.
Prepare to be assimilated by the BOG. Resistance to Obamination is futile. BOG Brother is watching - Obey!
Do we really want people who couldn't produce a NASA hammer for under $600 to be in charge of our Markets, 401ks, and the auto industry?
In private markets for autos, health care, etc... if someone fails to produce, or produces a bad product, you can file a lawsuit or criminal charges. Who do you sue when it's the government?
http://www.physor...302.html
Why Life Originated (And Why it Continues)
Conservation of energy in non-linear mechanisms
is crucial, & that appears to include our brains too.
Huge spiritual questions arise with what made the Sun?
However, after there is energy and matter,
concentrated in suns, that can bounce off
of the surface of nearby planets, then ...
we have more & more non-linear functions
of life and consciousness, which are the
reality of meaning and purpose in life.
Any different human ecology now includes
the degree of conscious awareness that
we may have of how it actually works.
My bla, bla, blah about "paths of least resistance,"
is that they necessarily are paths of least morality.
Organizing resistance to change paths of least resistance
is something that should be done within thermodynamics.
Since it actually explains what already exists at present,
that is also the unitary mechanism of social structures,
that indicate the theory of what real evolution may be.
Government regulations are full of paradoxes.
The de facto regulation is done by
the best organized criminal gangs.
More of my kind of comments on $
"Some Monetary System articles"
http://www.mariju...rum.html
So this "crash" is totally a engineered phenomenon.
Regulation is just a discussion point to keep you distracted from the real issue.
WHAT?!!!! TULIP FUTURES?! HAHAHAHAHA
Currency is not supposed ot last more than 50 or 60 years without a complete overhaul of the system and "balancing of the books". The US started the current currency system during the Nixon era and surprise, here we are facing a potentially huge economic meltdown due to unreal levels of inflation.
Without a rather drastic change to our currency system the US will turn into Italy. Home of the severly undervalued Lyra.
Wheel barrow full of hundreds to buy bread anyone?
We can't regulate to prevent every kind of mania. What we can do is use the information we got from this ressession and apply it so that this specific kind of thing never happens again. We may well have a fishing boat mania in a decade or two, but if we get the right legislation going now, it won't be another housing mania or credit mania.
for anybody who didnt ge the memo this crisis was
ingeneered by the bankesters behind the federal reserve who run the world, to achive more consolidation, more power more control,
has nothing to do with mathemtics or freemarket
engeered by design just the great dpresion
Name one thing that the government does better than private industry.
Spend other people's money?
Procrastinate? Bureaocracy? Placate to the general public? Lie to the people? Butt into people business? Pyrric victories? Write technical requirements that no one can meet? Make token gestures?
Of course none of these inspire much confidence in their ability to do anything productive.
Space exploration, law enforcement, war, scientific research in any area that has no immediate commercial application, building public infrastructure, regulating the electrical grid(the self-regulated alternative is the incestous mess that spawned Enron)...
There's no comparison so it wouldn't really be "better" but that's 1 for you.
Again, no basis for comparison, but there's 2 for you.
Nope, contractors have been found to be far better at war than the government is.
That's a really long qualifier and I'm going to say no to this one as well. Look at what Dow has come out with alone. That and if I really wanted to get into semantics I could say that it may be federally funded but it's the private institutions that perform the work.
The majority of this is contracted out. Otherwise the Army core of engineers or the GSA would have to be 5x the size they currently are.
I can't speak to this one as I don't have enough info. Most electrical grids don't appear to be regulated beyond the transmission tax, b ut as I said, I have ignorance in this one. So that's 2 definites and a maybe.
Out of the many thousands of things the government does there are 3 that we can say are performed better, but that's only because if you're the only one doing something, that automatically makes you the best at it.