Tuesday, June 16, 2015

Fooled By Random Idiots.

"The Hidden Role of Greedy Dumbfucks in Life and The Markets"

Unfortunately, asinine levels of risk and leverage based upon extreme greed, in no way constitute a "random" event. The inevitable is not random.

Minsky Financial Instability Hypothesis / Commonsense:
"Over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge [conservatively financed] units to a structure in which there is large weight to units engaged in speculative and Ponzi finance...Consequently, units with cash flow shortfalls will be forced to try to make position by selling out position. This is likely to lead to a collapse of asset values."

...Followed by a free bail-out, encouraging much greater risk-taking w/taxpayer money, culminating in a far more devastating collapse. Rioting. Anarchy. Etc.

A real Black Swan Event. And me, 1971.

The "Black Swan" Fooled-by-overpaid-serial-idiots model:
Under this model, borrowing ludicrous amounts of money to "solve" a prior debt crisis, in no way increases the odds of financial collapse. This is the assumption we live under i.e. that systemic risks are extremely low:

The Minsky / Commonsense Model
According to this model, the odds of a financial crisis approach 100% given enough time elapsed and money borrowed. This is the reality we live under i.e. risks have never been higher:

Unfortunately, under the second model, most of Wall Street wouldn't exist, nor would their campaign contributions to game show hosts in Washington.

And the irony that Wall Street hijacked Taleb's excoriating markets thesis as an excuse to onboard risk, can't be overlooked. Black Swan theory is just another PhD bag of bullshit, employing statistical models that have to assume that all risks are random, or else they no longer work. Abandoning that assumption would put a lot of mathematicians out of a job on Wall Street.

Because investment Finance isn't a science it's just legalized gambling with other people's money. Legitimized by PhDs and Nobel Prizes. Smoke and mirrors.