Showing posts with label too big to fail. Show all posts
Showing posts with label too big to fail. Show all posts
Wednesday, November 2, 2011
Corzine - BICs - Impressions - What is acceptable - Rent Seeking
Everybody seems to be sporting about the latest travails of Mr. Corzine, but many if not most (or virtually all) of those who seem to be moralizing now surf or have surfed the same rent seeking privileges that have little to do with actual competence. Every now and then, the bubble pops, a few unlucky bad ones pay for all the systemic sins, but the system itself perdures, with incremental adjustment here and there.
True change, whether in politics, social values or rules for economic entitlement come only after a forceful clash in which absurd existing rules or laws may be trampled in the process for a fairer order to emerge.
The present crisis continues its slow bleed because that necessary purifying process did not occur. Even after the comparatively milder dot-com bubble popped, the clean up was more extensive and more were held accountable.
Despite all the gospel to the contrary, it can be uncommonly difficult for the uncompromising innovator that the system proclaims to value above all to be heard. This seems truer if such innovations precisely pertain to the core issues that have put the system to its knees.
We persist in looking for solutions where we are least likely to find them even though the historic record is unambiguous that lasting solutions to systemic problems more often than not come from outsiders. Up to now the system has failed to look/consider or even acknowledge solutions proposed by outsiders. One of the problems exarcerbating our socio-economic issues is that the existing power structure is poisoned by a system of "normative meritocracy" blinded by a codified system of merit that tend to undervalues when it does not simply obliterate all other forms of emerging and more relevant competencies.
Democracy in politics, branded academic credentials, peer review and other idealistically sounding principles collude to create dystopian realities for true innovators whose ideas and works can actually benefit the greater good.
BICs in the many ignored ideas and works it leads and spread throughout this blog can only be seen as an ultimate example of a flawed system of incentives and punishments. See also: US Patent No. 7,933,824 .
References:
US Patent No. 7,933,824.
NYT Editorial Nov 2, 2011: Mr. Corzine's Big Bet
NY Times- Nocera: Corzine Crashes like It's 2008
WSJ: Corzine Agonistes
Others Pay Price for Corzine’s Risky Revenge: William D. Cohan
Douthat: Our reckless meritocracy
Thursday, May 6, 2010
Derivatives Clearinghouses Are No Magic Bullet. Really ?
See: http://online.wsj.com/article/SB10001424052748703871904575216251915383146.html
Derivatives Clearinghouses Are No Magic Bullet. Really? but not for the reason this guy gives...and he is a professor at some big Ivy league School!
I read this article with a certain sense of bemusement at the level of ignorance the author therein demonstrated. He seems to have no understanding of issues of 2-timing, N-timing in bilateral netting agreements. The issues he worries about would be addresses in centralized or interconnected hierarchical clearing system as explained in my knol and powerpoint/ youtube presentation
References:
The Holistic Theorem
http://online.wsj.com/article/SB10001424052748703871904575216251915383146.html
Derivatives Clearinghouses Are No Magic Bullet. Really? but not for the reason this guy gives...and he is a professor at some big Ivy league School!
I read this article with a certain sense of bemusement at the level of ignorance the author therein demonstrated. He seems to have no understanding of issues of 2-timing, N-timing in bilateral netting agreements. The issues he worries about would be addresses in centralized or interconnected hierarchical clearing system as explained in my knol and powerpoint/ youtube presentation
References:
The Holistic Theorem
http://online.wsj.com/article/SB10001424052748703871904575216251915383146.html
Saturday, April 3, 2010
On Financial Reform :Regulation Vs. Size of Banks, A false dichotomy?
The debated on financial reform as summarized by Krugman in his latest piece in the NYT seems to have boiled down to the Volker position of limiting the size of financial institutions so that they do not reach a too big to fail size or the position of Krugman of tight and generalized regulation of Banks and shadow banks.
It seems to me that both analysis miss the simple but central ingredient needed to secure the financial system while not impending economic growth and that is a centralized clearing of all trades. Centralized clearing by nature remove a lot of the incentives in the buildup of too big to fail financial entities, it brings a level of transparency that all times gives regulator a clear picture of the dangers in the positions taken by financial/ economic actors.
A simple example to illustrate the power of centralized counterparty on trades. When you go online to buy an item or at the to a store and you use a credit card, that transaction is facilitated and secured by the existence of a centralized counterparty who keeps track of your assets and liabilities and authorize the transaction only when you have enough credit. No party to the transaction takes credit risk on the other and the system is robust. If the same worked among financial trading institutions the same efficiency and security would be gained, eliminating much of the systemic risks that are the source of current concerns.
See:
http://www.nytimes.com/2010/04/02/opinion/02krugman.html?src=me&ref=general
The Holistic Theorem
It seems to me that both analysis miss the simple but central ingredient needed to secure the financial system while not impending economic growth and that is a centralized clearing of all trades. Centralized clearing by nature remove a lot of the incentives in the buildup of too big to fail financial entities, it brings a level of transparency that all times gives regulator a clear picture of the dangers in the positions taken by financial/ economic actors.
A simple example to illustrate the power of centralized counterparty on trades. When you go online to buy an item or at the to a store and you use a credit card, that transaction is facilitated and secured by the existence of a centralized counterparty who keeps track of your assets and liabilities and authorize the transaction only when you have enough credit. No party to the transaction takes credit risk on the other and the system is robust. If the same worked among financial trading institutions the same efficiency and security would be gained, eliminating much of the systemic risks that are the source of current concerns.
See:
http://www.nytimes.com/2010/04/02/opinion/02krugman.html?src=me&ref=general
The Holistic Theorem
Wednesday, May 20, 2009
Most-Popular Lists Breed More Popularity - WSJ.com
Most-Popular Lists Breed More Popularity - WSJ.com
This article documents the self reinforcing phenomenon of popularity lists. The more an article is listed as popular, the more it becomes popular. It is the same dynamic that leads to the formation of too big to fail entities as described in the presentation below.
Uploaded on authorSTREAM by kongtcheu
Awereness of this bias should lead to antitrust type policies to correct it where it affects decision making with potentially dangerous consequences such as in the insurance industry.
This article documents the self reinforcing phenomenon of popularity lists. The more an article is listed as popular, the more it becomes popular. It is the same dynamic that leads to the formation of too big to fail entities as described in the presentation below.
Uploaded on authorSTREAM by kongtcheu
Awereness of this bias should lead to antitrust type policies to correct it where it affects decision making with potentially dangerous consequences such as in the insurance industry.
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