Saturday, December 13, 2008

Crooked games

Well, it has been said here that there's not too fine of a line between finance and fiction. Usually, that was meant in the context of stupidity as manifested in leveraging or in computing idiocy.

Well, folks, there is a mathematical view that uses fiction in a serious manner. All of our views of life and things rest upon a perceptual and conceptual foundation. Whose nose really knows?

So, now we have this guy, on the Street for years, saying that he's pulled a ponzi. Now, his ponzi is not the hapless type that Minsky talked about: to wit, hedging leads to speculation leads to 'ponzi' almost by necessity.

No, the recent revelation showed a game that was out and out fraud (see "Is the Madoff Scandal the Story of the Year?"). Notice that many financial types thought that there was some sort of illicit stuff going on, yet they did not look into it or they invested (well, what are spoils for if not for the taking?).

So, we have to ask: how much of the market structure is now fraudulent or what other shoes will drop? Well, we asked before, but initiatives like SOX were supposed to help matters.

By the way, up close and personal, the blogger's friend, this year, showed a bank that their 'finger on the scale' calculations resulted in underpaying customers (this has been going on for a couple of years). The bank threw the blogger's friend out the door (Madoff threw out those who questioned his returns), granted with checks covering all his accounts but some of the instruments had not matured.

Appeal to the governments (state and national, oh yes, the OCC - see regulators in the USA Today list) showed that the regulatory agencies are essentially complicit with perpetrators, basically through not following up. Of course, they do have an excuse of having been decimated over the years. Too, the current administration carried on the theme of screwing the public so that the fat cats' pockets can balloon without bounds.

Finance, as a metaphor, is like the circulation system where it moves monetary value (the blood). Yet, we have allowed it in the western world to be the playground of those who cannot keep their fingers out of the pot.

Let's automate the thing and have oversight from everyone. Technology can allow this; truth engineering would be one facilitator of scrutiny. How else to remove the crooked games?

So, we'll have to list things: opaque wishes (like the hedge funds), elitism (as shown by Madoff's crowd of pushers), derivatives (using calculus to show the silliness), ...


05/17/2011 -- Hedge funds need some of our attention.

08/27/2009 -- Madoff exemplifies (albeit somewhat indirectly) systemic risk.

08/24/2009 -- Last year, Ben blinked and panicked. He frantically pulled out all stops as if with no thought for tomorrow. Now, he has no use for 'mea culpa' big daddy that he is. Ben, start to unwind now. The Vienna School's view that these things are undecidable (which is a computational issue) is right on.

04/17/2009 -- Minsky and the facts of ephemeral value are a couple of topics on the list.

03/11/2009 -- We also need to look at accounting's role messing up affairs.

01/26/2009 -- We need to ask, why finance?

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

12/16/2008 -- Shoes continue to drop, but they are of several types.

Modified: 05/17/2011

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