Category: Banks

The financial market is designed to fail.

Looked at as a network design our financial markets are optimised for efficiency. Optimising for efficiency in the financial markets is not optional, it is the inevitable result of competitive pressure. Markets that are fast to react capture the early opportunities and transmit their risks through the network, markets networks that are slow to respond lose out on the best trades and end up with all the risk.

Perversely, the efficiency of the financial market and its various sub-networks, which are designed to transmit risk efficiently across the network, are equally efficient at transmitting failure.  We see this in operation on our news feeds as falling values roll across the world from exchange to exchange, New York to London to Tokyo responding as one. read more

Why is our economy so unstable? Why do crises overpower our best systems built by our best minds? Or, if you reject the notion of intelligent control in our economic systems, why does a highly evolved system evolve towards chaos rather than stability?

To begin to understand how these instabilities arise let us look at the most recent.

The principle cause of the 2007/8 Global Financial Crisis was deception.

It started with the US Prime market where high-risk low value assets were bundled and re-bundled to obscure their origin and then marketed as low-risk high value assets. That was as crazy as it now sounds post 2007, but there was an underlying principle behind this method that makes a claim for respectability. read more