Links 10/16/08


  1. doc holiday

    I'm shooting for my blogging Opus magnum (BOM) here, so don't anyone get pissed off, I'm working on the guitar solo, and I'm too tired to proof read…

    Re: "As numerous observers has rightly pointed out, we face a great deleveraging — a tsunami of debt is being sucked out of the financial system, as confidence in counterparties implodes.
    But that's just the gloss of financial mechanics."

    > I like to think of this Great Depression-like synthetic derivative mess we are in today, in terms of financial termites who have gathered together into colonies, where they happily reside under Wall Street.

    These types of metaphors require Wikipedia interactivity, so let me set the stage: Termites, like financial engineers, thrive in, "decentralized, self-organised systems using swarm intelligence and use this cooperation to exploit food sources and environments that could not be available to any single insect acting alone."

    > This group activity below ground, reminds of a different type of self-organizing activity overhead: … "when you see geese flying south for the winter
    in their characteristic V-formation, consider what science has
    discovered about this arrangement:
    As each bird moves its wings,
    it creates a slight uplift for the bird following immediately behind.
    In fact, because of this V-formation, the flock as a whole
    enjoys a flying range of at least seventy one percent
    greater than would be possible
    if each bird flew alone."

    > I'm searching for a common DNA link for the collapse of capitalism and connections to organizational structures. Thus, termites represent individual efforts which are collectively destructive, i.e, there are thousands of financial derivative deals under the surface, made by thousands of individuals, who work away undetected and unregulated — making efficient progress, which has resulted in the destruction of the whole financial system. The individual tunnels and paths have merged into a network of weakness that has collapsed from its own weight, its own mis-management.

    Wall Street has essentially collapsed into a deep well-like tunnel which is the cumulative result of years of structural decay. The decay in this case, is based on the forward swap futures, CDS, CMO, credit-linked, index backed magic show which is the equivalent process of a termite colony that blindly eats its way through an infrastructure. The metaphor of parasites or cancer also come to mind, as entities that make disorder out of human order. The destruction and decay of DNA or any matter is a process of entropy: "It is a measure of the randomness of molecules in a system and is central to the second law of thermodynamics and the fundamental thermodynamic relation, which deal with physical processes and whether they occur spontaneously. Spontaneous changes, in isolated systems, occur with an increase in entropy. "

    > The process of decay has an end result of fragmentation, separation and decomposition, but survival is the main component of DNA, so what is next, in the evolution of capitalism? The casino is burning, but can Rome may still be saved?

    Within some insect colonies, there is a process referred to as trophallaxis: "individual colony members store food in their crops and regularly exchange it with other colony members and larvae to form a sort of "communal stomach" for the colony."

    This communal trait of sharing is also found with bats; "A potential example of reciprocal altruism is blood-sharing in the vampire bat, in which bats feed regurgitated blood to those who have not collected much blood themselves knowing that they themselves may someday benefit from this same donation; cheaters are remembered by the colony and ousted from this collaboration."

    > The point here is to think about the process of collapse, but to also see the opportunity in rebuilding a stronger structure for the future. It seems obvious to me, that in order to gain confidence in this system, our collective colony, our society, can't allow the termites that are the nuclear engineers of this chernobyl reactor to remain at the controls, while the authorities remain passed out. It is unfair to society to allow contaminated termites like Paulson to run back and forth between the meltdown, while spreading radiation to innocent bystanders. There must be a process to separate the toxic waste from the untainted materials that do more harm than good: "The Prudent Man Rule directs trustees "to observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested"."

    > Umair refers to, "an era where our economic institutions are fast becoming value destruction machines", thus IMHO, I think it's critical to realize that the termite-like workers who brought us to this point, are the individual CEO workers who did not work as a unit to share the resources of the system. The value of shared information was destroyed by a colony that focused on individual greed. Thus, the inability of individuals to be accountable and to take into account the collective nature of their group actions resulted in total failure for the system. The risk models, business plans and objectives of Wall Street have been a chaotic interlacing and intermingling of debt that was not connected to capital and the result is a decoupled financial network that has no value.

    > The financial engineering system Wall Street created, was a system that failed to model its own failure, i.e, the systemic collapse was never anticipated, because the focus for model building was a narrow tunnel vision focus which was fueled by the addictive pattern of insatiable non-stop greed, which burned like desire, for these parasites.

    See: Those with myopia see nearby objects clearly but distant objects appear blurred.

    See Also, From Godel: "Gödel's first incompleteness theorem, perhaps the single most celebrated result in mathematical logic, states that:
    Any effectively generated theory capable of expressing elementary arithmetic cannot be both consistent and complete. In particular, for any consistent, effectively generated formal theory that proves certain basic arithmetic truths, there is an arithmetical statement that is true, but not provable in the theory.
    The resulting true but unprovable statement is often referred to as "the Gödel sentence" for the theory, although there are infinitely many other statements in the theory that share with the Gödel sentence the property of being true but not provable from the theory."

  2. Anonymous

    I don’t know if this is important or not, but was combing through the ECB weekly financial release. The large jumps in section 2.1, 2.2 and 2.3 under liabilities sure seem to be very telling – a push to liquidity. Can anyone shed further light on this and for every euro that banks deposit with the ECB, does the lending capacity to businesses, people etc decline by 1/reserve ratio?

  3. Terminal

    3 Month Libor – OIS spreads increased markedly overnight across the board for the Dollar, Euro, and Sterling.
    Not a good sign that the massive addition of liquidity is yet working as intended.

    The South Korean currency fell 9.7% overnight. An encore of the ‘97 Asian crisis is now a real possibility to be added to the mix.

  4. Chris

    This little Shetland pony has left what looks like a clear track through the fresh snow running in a smooth arc from the top right corner by those dark woods to the foreground.

    The pony had a reason for what it did covering all that ground. I think the reason might be hope more than just friendliness.

    It is asking the person who encouraged it to cross the snow “what have you got for me” “is it some of the good stuff, or another one of those tricks you humans play around with to get us dumb animals to do what you want?”

    So this gives us a restatement of you can take a horse to water but can’t make it drink.

    Though this time it looks like the pony would be willing to eat if there was anything solid, and is surrounded by life-giving water but in a form which it might not recognize as beneficial.

    So there’s a reminder here of Frost’s “miles to go and promises to keep” but in a bit of a different way than presented in the poem “Stopping by Woods on a Snowy Evening”

    “My little horse must think it queer
    To stop without a farmhouse near…

    …He gives his harness bells a shake
    To ask if there has been some mistake.”

    Indeed, one might well ask. If only we all knew the answer to that one, what virtual divinities we would turn out to be and how worthy of the admiration of such a snow-bound pony, and whatever it represents!

  5. gaius marius

    yves — re: gasparino — i have no knowledge of citadel, but we’re invested in highland and they are liquidating the fund.

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