Monday, 16 September 2013

Finance Crisis Granularity and Psychology

There are pundits who claimed to have forseen the finance crisis of 2008, but realistically the same as the internet bubble and not the least  the great depression in its time, realistically it is only with hindsight that it became an obvious catastrophe waiting to happen.

What is the problem which cannot be cured? At the core of this is that there is a high degree of granularity- different transaction orientated processes and employees. No one person or institution could see the bigger picture, the wood for the trees. Some macro economists could do the sums and say that western society had loaned itself too much money, even without the need to delve into the transactions at the bottom of the house of cards, the sub prime mortgage fiasco. That only served to precipitate the down fall, any flap of a butterfly's wing in the system could have shaken it down.

The fact is that no one person, be them chancellor or proffessor, and no one institution can understand enough of the "markets" at any one time to predict where it is going. Economists should admit to being like the native American tribe who saw themselves as travelling backwards through life, with their faces only exposed to that which had been experienced. All in front of them, was mystery they were blind to.

In legislating then the issues revolve around this transaction oriented granularity: the tiny fiefdoms of stocks, derivatives, commodities and the more complex financial mechanisms which are the rot in the whole system. You cannot make one set of rules which fits all, and cog in the machine will defend itself against new laws which they see as unduly straining their resources and making them less competitive.

In economics classes, talking about the gold standard was either taken in kind of being prehistoric, an extinct dinosaur of early global economics, or as a bit of a naieve joke for children's hour. However it was seriously suggested by some prominent economists as a cure to the finance crisis, and actual bone of confidence for banks and countries to hold as their bedrock of fluidity. A lot of money moved into precious metals at the finance crisis only to find demand was also eroded in value and being victims of that "listen with mother" law of economics.

Governments are being scared off further legislation than in fact a simple extension of the gold standard principle of limiting money supply and loaning to a credit limit which has some relation to a liquidatable value. For each powerful transactional level in the great casino, there is a lobby firm and owned politicians and political parties. Each clips round its territory and hopes that legislation wont affect their little value chain while sound and prudent financial management happens at national bank and government level.

So that is the nature of the beast perhaps: it is a medusa which has no single purpose, no collective conscious, no single direction and is only seen as cohesive by each head behaving in a similarily grabbing way, dragging the physical body of wall street and the city of Westminster with them. If you cut off one head, the others will round on you afraid they will be next.

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