The Age of Hazardous Immorality will end with a big fucking bang. A society that doesn't learn from its mistakes gets buried by its mistakes...
I just read this article called the "Biggest Energy Trading Disaster in History". It's literally just an anecdote out of Taleb's book "Fooled by Randomness". Basically it all comes down to human nature, combined with speculation aka. gambling, and incentives. It's always a latent disaster waiting to happen. In story after story, Taleb describes mostly young traders who hit upon a string of successful trades, who then parlay their gains into one massive bet that their now invincible confidence has assured them can't lose. And then it all blows up in their face and they go back to bagging groceries. Add in the fact that it's a documented reality that "tail risks" i.e. the risk of a statistically large move in the markets - are systematically underpriced.
What is a "statistically large move?" It All Comes Down to Timeframe
In a given second of a given minute of a given day of any year, the odds of a currency crisis are practically zero. However, over the course of a decade the odds of a currency crisis somewhere in the world, are essentially 100%. Herein lies the problem, "risk" as it's defined in financial markets is priced based upon short-term intervals i.e. the odds of what will happen this moment, assuming that every moment is uniquely independent of every other moment. It's the same as knowing that an earthquake occurs roughly every 100 years in a given region e.g. the San Andreas Fault, and then assuming that the probability of an earthquake is the same in the first year as it is in the 99th i.e. only by ignoring the accumulation of risk in the meantime.
The Age of Hazardous Immorality Will end With a Big Fucking Bang
All of this is what makes today's set-up so lethal. It's been five years since anything "untoward" has occurred, and in the meantime, one year-end bonus after another has been collected by trading desks encouraged to take ever-larger risks with other people's money - the other aspect of this fiasco that is constantly overlooked. That means that speculators everywhere have been well conditioned and well incentivized to make ever bolder bets, despite the fact that risks have been accumulating day in and day out for five years straight. It's all the inevitable outcome of what happens when a society no longer forces accountability amongst those who can do the greatest damage.
[July 20th, 2014] Dodd-Frank turns four, but nothing fundamental (in banking) has changed
[July 20th, 2014] Dodd-Frank turns four, but nothing fundamental (in banking) has changed
