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Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy - Eric Janszen

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  • #76
    Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy - Eric Janszen

    Originally posted by Lukester View Post
    Came across this quote today and thought of your comments here *T*. Thanks again for interjecting some senior arguments on a topic I've long intuited was a good deal more complex than the putative "rationalists" so peremptorily insist. It's not the disagreement that gets under my skin - disagreement is a wonderful thing - it is the peremptory self assurance of the dismissals which lends an unattractive complexion to any supposedly genuinely inquiring discourse. The idea that markets really do have a structure is intriguing almost in proportion to the extent that it regularly finds ridicule.
    Lukester, have you ever heard of the old saying: "Talk about the pot calling the kettle black"? But I have to admire your turn of phrase...

    Work of Benoit Mandelbrot acknowledged - by Anatole Kaletsky

    "Bit by bit, from a bad seed a big but sickly tree is built with glue, nails, screws and scaffolding. Conventional economics assumes the financial system is a linear, continuous, rational machine and these false assumptions are built into the risk models used by many of the world's banks. As a result, the odds of financial ruin in a free global market economy have been grossly underestimated.

    By using such methods there is no limit to how bad a bank's losses can get. Its own bankruptcy is the least of the worries; it will default on its obligations to other banks - and so the losses will spread from one inter-linked financial house to another. Only forceful action by regulators to put a firewall round the sickest firms will stop the crisis spreading. But bad news tends to come in flocks and a bank that weathers one crisis may not survive a second or a third." "

    This uncannily precise description of the present crisis above was not written by an economist. While some economists had warned for years about global trade imbalances, escalating house prices, of excessive consumer borrowing, none of them remotely foresaw the truly unprecedented feature of the present crisis: the total breakdown of financial markets caused by the unforced blunders by investors and banks.

    Modern economists were inherently incapable of understanding such a problem because they assumed that investors were ‘rational’ and markets ‘efficient’. "These assumptions led inevitably to disaster once they were blown apart. The author who came so close to understanding the true causes of the present crisis was not an economist but a mathematician.

    "Benoīt Mandelbrot, a towering figure of 20th-century science, who invented fractal geometry and pioneered the mathematical analysis of chaos and complex systems, wrote the above words six years ago in his book
    The Misbehaviour of Markets. Mandelbrot's ideas found fruitful applications in the study of earthquakes, weather, galaxies and biological systems from the 1960s onward, but the field that originally inspired his ideas turns out, in this very readable book, to have been finance and economics.

    Yet 40 years of effort by Mandelbrot to interest economists in the new mathematical methods, which appear to work far better in modelling extreme movements in financial markets than the conventional methods based on statistically ‘normal’ distributions, have been either ridiculed or ignored."
    My problem here is twofold; Anatole Kaletsky has very consistently shown a classic economists false idea of what has happened in financial markets. He simply does not understand what has occurred. For example, it is very clear that he had no idea about the leverage going on, right beneath his proverbial nose. As a result he has been flailing about like a man drowning, grasping at straws for want of a solution.

    My second reservation relates to my own thinking, that we have been "sold a pup" by the FIRE economy by being led into thinking that we have been operating within a capitalist system. That introduces the thought that, as with a computer, input junk and all you get at the other end is more of the same.

    No, I am not depreciating Mandelbrot, but if we base his thinking on the self same misunderstanding about the nature of capitalism, we end up in the same mess; junk in junk out.

    In my opinion, the problem is not the nature of the "market" for that is a classic red herring, it is our misunderstanding of the true nature of a feudal mercantile economy.



    • #77
      Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy - Eric Janszen

      Originally posted by Chris Coles View Post
      Ah! Yes, but the successful man has made it a matter of importance that they have gleaned as much information, from as many sources as possible, to allow them to make a considered decision.
      Then fnding it unnessary and too expensive to purchase tea they seek the augur of insight...and read the skid marks of their shorts.


      • #78
        Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

        Brucec42 -

        My comment was lighthearted, but if you do wish to offer a serious rebuttal and you do seem to be serious here, may I make a suggestion? Employing this labored a caricature of your options (the "so many methods" cartoon list illustrated below) does not make a strong argument. More constructively why don't you reply to *T*'s posts on the question rather than mine? I notice you guys all seem to have steered a "wide berth" around his replies?

        Originally Posted by *T*
        I've given a strong argument and references elsewhere on these pages. ... See Mandelbrot's thesis for example. A pariah in Economics for his heresy ... he pretty much invented a whole new area of mathematics (fractals). ... The existence of a business cycle also implies long-range order. Minsky talked about expectations informing buying decisions. Soros also refutes the idea of an efficient market. ... My own opinion is that the use of credit in markets is what gives it these dynamics and price history. ... If the markets have no long-range order, you could make billions in the options markets. ... And whenever I say this, NO ONE has disagreed. So I issue the challenge, where am I wrong?

        Originally posted by brucec42 View Post
        Well, there are only so many methods to choose from when making investment choices;

        1. Subscribing to someone's website who uses technical analysis and bases the probability of market changes on purely historical data, the shape of particular squiggly lines, and the concept that markets are perfect, yet for only $19.95 or $49.95 a month they will share their sure fire weath strategy with me rather than simply placing all their money in futures contracts and becoming a billionaire in the next year.

        2. Throwing stones on a table and interpreting what they augur for the future,

        3. using a ouija board,

        4. consulting Simon the "mentalist",

        5. Reading tea leaves,

        6. Trusting in magic beans

        7. Spending hours researching the economy and using knowledge and fundamental analysis harvested by others over countless hours to try to predict the very unpredictable reactions of the market and government and try to beat them to a particular spot.

        Unfortunately technical analysis was the least persuasive.