Wednesday, April 7, 2010

Complexity and Doom...

Greetings good citizen,

Even the simplest of things can be 'complicated' if you mess around with them enough...which is to point out that much of what is complicated started off as a simple, straight-forward idea.

The 'complications' arise when it is to someone's benefit to 'add' 'conditionalities' to an otherwise simple concept. He problem with adding these 'exceptions' is that sometimes it destabilizes an otherwise sound construct.

And we soon find ourselves faced with the circumstances explored in tonight's offering

[Purloined from: Some Assembly Required]

Complexity and doom
Apr 4, 2010 18:59 EDT
banking | economics | eschatology

Clay Shirky is talking about media, but might as well be talking about finance:

Complex societies collapse because, when some stress comes, those societies have become too inflexible to respond. In retrospect, this can seem mystifying. Why didn’t these societies just re-tool in less complex ways? The answer Tainter gives is the simplest one: When societies fail to respond to reduced circumstances through orderly downsizing, it isn’t because they don’t want to, it’s because they can’t.

In such systems, there is no way to make things a little bit simpler – the whole edifice becomes a huge, interlocking system not readily amenable to change. Tainter doesn’t regard the sudden decoherence of these societies as either a tragedy or a mistake.

—”[U]nder a situation of declining marginal returns collapse may be the most appropriate response”, to use his pitiless phrase. Furthermore, even when moderate adjustments could be made, they tend to be resisted, because any simplification discomfits elites. [The changes that made the whole edifice unstable were originally put there to benefit the elite...just saying.]

Meanwhile, Steve Waldman makes the case that banks are far too complex, these days, for notions of “capital” to mean anything any more. What we need, he says, is to get simpler: “we are doomed,” he says, “unless and until we simplify the structure of the banks.” [How unfortunate is it that 'old fashioned' methods of producing profits no longer suffice for our modern day rentiers?]

Which, if true, is to say that we are doomed. We have reached a level of institutional complexity which renders radical simplification impossible, short of outright collapse. We can see this even in relatively simple structures like that of U.S. financial regulators: such things are much easier to create than to abolish, and so they tend to multiply. But it’s even more true of finance more generally. The world’s biggest banks must become much simpler; the world’s biggest banks won’t become much simpler. The conclusion is not a pretty one.

Perhaps more interesting than this conundrum of 'unsimplifiable' complexity is the horrifying reality behind 'why' this is so.

Do you know 'why' banks can't revert to their old business model, good citizen?

Perhaps I should ask if you 'think' you know why? (no irony should be lost on the fact that the answer to this question is heavily tainted by the respondent's 'political leanings'.)

The 'simplified' answer (because it explains most of, but not all, of the problem) is there is too much money chasing too little 'return'.

When 'Financial Engineering' overtook the true Productive Economy, the time bomb started ticking towards the inevitable 'meltdown'.

What do we see repeated here good citizen? The, er, 'unwillingness' of the, er, 'investors' to settle for more realistic returns...SO, since nobody is interested in being, er, 'practical' there is only one option remaining...'ka-boom!'.

And he's right, there won't be any 'simplifying' so the 'end result' is pre-ordained to be 'destruction'.

Happy Happy, Joy Joy!

You still don't look Happy, Do it again!

Um, there's plenty here to chew on good citizen but I won't 'beat you over the head with it.

Thanks for letting me inside your head,


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