Credit Crunch: New from Kelloggs.

[glenatron]

I don't understand the whole "markets" thing, or why "the markets" should be allowed to decide things. To me that seems like leaving really important decisions to a roulette wheel or the patterns formed when you scatter billiard balls around the table and then start knocking them into each other as hard as you can.

Nothing I can see about the way the global markets behave has any hint of rationality about it, in fact there's not a lot of evidence of anything but greed and panic, neither of which seems to be motivated by anything aside from supposition, like watching a shoal of fish wheeling this way and that, scattering and regrouping. It's hypnotic, but that doesn't mean I'd want to stake my wellbeing on it.

One story I noticed in passing suggested that a lot of problems lately have been related to automated buying and selling systems designed to react quickly to new trends and changes and buy and sell accordingly. Presumably, as they are being used, these work quite well in regular conditions but right now they're tending to pick up on slight changes and start automatic panic-selling, and of course when one set of software does it all the others follow. Consequently small fluctuations and drops are being amplified by these panic machines into large fluctuations and particularly large drops. The possibility for feedback loops and cascade failures in a complex system like that is really quite impressive.

The thing I do find interesting about this is that I'm not sure that there will be a depression now. It seems more likely to me that things are going to momentarily be priced at something a little closer to what they are worth. The big bubble around property, the fundamental idea that prices will always rise, so it's alright to sell dodgy mortgages because even if you have to take the house back it will still be a valuable asset, seems to have created a whole lot of money that only ever existed in the dreams of financiers. It only existed at all because people believed in it. Then things start to wobble and suddenly not only does the value of those assets fall but people start to question their belief and so the imaginary money begins to evapourate. It's like the markets are some kind of dreamspace that exists only in the minds of believers and the computer systems that connect them, full of lights and colour, but essentially meaningless. And this neon dream is what should be allowed to decide so many critical things about our lives and our futures?

Comments

[life-of-tom.livejournal.com]

I think that presumed growth thing is one of the great fallacies of our time, actually. A while back in a feedback/brainstorming/give the staff little bits of card to write suggestions on so it makes them feel involved in management decisions session that my MegaGloboFinanceCorp employers (who I might refer to accurately as Caledonian Bereaved Ladies) put me through, my boss mentioned that they assume 10% growth in terms of business each year as part of their investment model. The idea that you'd be able to increase your market share by that much, or that people would become more assiduous savers towards retirement, EACH YEAR, is frankly ludicrous.

I didn't know that about the programming patterns. That's hella crazy. That's like letting Skynet be in charge of the world's financial markets.

[life-of-tom.livejournal.com]

Oh, and another thing, if I was an islamic terrorist, I wouldn't be thinking about hijacking planes and flying them into whatever the new equivalent of the World Trade Centre is any more, I'd be telling my impressionable young men to go learn how to program. That's ridiculously risky.

[glenatron.livejournal.com]

Of course, with the islamic rules on usury being what they are, the islamists are having a field day right now.

[glenatron.livejournal.com]

Where does all this growth come from? How can demand always rise? It doesn't make sense.

The conclusion I'm leaning towards is that economics isn't a science so much as a religion.

[life-of-tom.livejournal.com]

It needs to always rise so that people can be seen to be successes. Maintaining things as they are is seen as a management failure.

I would also maintain that psychology more important than maths when you're looking at economics.

[ciderclaus.livejournal.com]

The automated trading systems are designed to be really clever, though as you've pointed out they have a massive flaw in them. Essentially if you have ten decision makers, number one thinks stock x will rise, stock y will fall and stock z will remain staionary. No one else will work this out stock I'm going to buy, sell and hold acordingly. The other nine work things out exactly the same and come to the same conclusions. The entire market then moves in the same way, meaning every thing moves left when it should move right.

[glenatron.livejournal.com]

In a stable market they seem to work out fine, but when things get a little choppy I'm not sure how great they are as autopilots...

[spoon-doom.livejournal.com]

Automatic trading systems. If you did this in an online game you would get banned, but in real life it's ok. There's somethign wrong there.

[glenatron.livejournal.com]

Very good point.

[z111.livejournal.com]

sounds right to me