Financial Crisis : 31 Jan 2009

Financial Crisis : 31 Jan 2009
Andre Willers
31 Jan 2009

See previous discussions about "Financial Crisis" in http://andreswhy.blogspot.com
As well as "Human Capitalism" , "Blame and anti-blame" and sundry others.

Broad overview :
Why have an economy ?

It is to satisfy the human needs , weighted according to the Maslow hierarchy .
1.Air to breathe
2.Water to drink
3.Food to eat
4.Clothes
5.Shelter
6.Weapons
7.Novelty

The mechanisms developed to satisfy these needs:
1.Trade .
Inequalities in geography and mineral resources forces the redistribution of resources .
To facilitate this , infrastructures are developed
farms
ranches
knowledge (universities , schools ) ,
power (electricity , oil , coal , animals) ,
transport (roads , railways , aircraft , ships , trucks) ,
water reticulation (dams , canals , pipelines)
mining
factories
labour (slavery , peons , serfs , wage slaves)

2. Financial systems
Money . Every note or coin is a future contract on goods or services of societies .
Future value of money (contracts)
Law (this evolved from contractual disputes .)
The Market

The whole point of a monetary system is to have a simple , one-dimensional value that mirrors reality so a Market can function efficiently .

Humans are involved , so this soon became entangled with complex feedback systems requiring Beth(1) and Beth(2) systems to untangle .
(See http://andreswhy.blogspot.com "New Tools" )

3.Carmen is singing Bizet .
The end result : the image in the mirror has taken on a life of its own .

The financial systems tend to develop behaviours that do not mirror reality , but instead forces reality into its pattern .

It is as if your image in a mirror suddenly starts acting on its own , and you find yourself a puppet , repeating its motions .

4.Solution Sets .
4.1.War.
This situation has happened many times before . The usual solution is War , because it enables the simplification of future contractual obligations by simply scrapping them .
And to hell with the previous owners of the obligations .
(Emancipation of slaves , innumerable European wars , Cortez and Pizarro's allies , innumerable revolutions , etc , etc )

4.2.Boundary conditions
To understand this , you must realize that there are two fundamentally different ways of determining the monetary value of an article .

4.2.1 Cost plus profit , the tried and trusted way .

4.2.2 Whatever the traffic will bear .
It is this second principle that destabilizes economic systems . The future value of contracts become totally unrealistic as human greed drives values up . Carmen starts singing Bizet . The system forces human behaviour .

4.2.3 What about the Market ?
The Market is more efficient since it enables the seller to adjust his profit margin .
It is an attempt at synthesis between the "cost-plus-profit" and "whatever-the-traffic-will-bear" camps .

The market and the competition it implies is an attempt to set boundaries .

4.2.3.1 Bottom-Boundary
Normally , the bottom boundary is set by the fact that nobody would be selling at profit less than or equal to zero .
But humans have cleverly devised ways whereby this can be done . The biggest culprit is easy short-selling on margin . The main driving force of present financial woes .
Dumping is another .

Bottom boundaries would prevent prices to fall below optimal level , ie where no reserves are formed . Many of the present problems have been caused by companies not factoring in reserves in their costs . They plan only short-term , then wonder why they are going belly-up at the first little dip . But the long-term society has to shoulder the eventual costs .
see http://andreswhy.blogspot.com "New Tools:reserves"

4.2.3.2 Top-end Boundaries
For top-end boundaries , see http://andreswhy.blogspot.com "Optimal Markups" .
The optimal long-term markup is 200% .

This would be the responsibility of Governance . The long-term system will tend to this value , but short-term booms and busts will cause untold misery .

4.2.3.3 The Blame
See http://andreswhy.blogspot.com "Blame and anti-blame"

This is where the economic theorists have to shoulder a large portion of blame .
They did not factor in boundary conditions on Market values .

If you do , it instantly changes the theoretical Black-Scholes and futures-values models .
Briefly , it changes the probability tails near the boundary conditions .
(The quantum-physicists they employed should have known better too , since most of their calculations end in infinity because of this very reason . They then exercise boundary conditions by choosing reasonable solutions . A thing the money-boys did not understand.)


5. How to set the Boundary conditions ?
This has been tried before by every empire on the skids (eg Roman Empire , Chinese , ad nauseam etc) . It led to the collapse of their markets , then the collapse of their civilizations .
They did not have the tools we have now . We at least have estimates of optimal reserves and optimal markups and ways of squeezing out lies . The previous mistakes were in setting fixed values based on lies , instead of graduated costs .

The tools
5.1.Squeezing out lies .
Futures markets as discussed :
see http://andreswhy.blogspot.com "Hoag Ratings and Hoag futures Markets"
see www.ppx.popsci.com for an example of how it works .
The people working in an industry can set reasonable boundaries based on insider knowledge without fear .

Lies are major reason why previous attempts did not work . Vested interest groups lie and influence the decision process in their favour . This is what happened to the Roman Republic . Other groups think this unfair and ultimately resort to arms .

Lower boundary = cost *(1 + 1/3)
Upper Boundary = ( cost*(1+1/3) * 2 )

5.2. Enforcing the boundaries .

5.2.1 Taxes .
The infrastructure already exists . (eg capital gains)
Graduated tax-rates near the boundary conditions will smooth out the curves . The free-will of the system is retained , as long as you pay the taxes .
Doubtlessly , an entire service-structure to obviate this will evolve , but tax authorities in surviving states have proved adept in meeting all challenges such as these . (The ones who couldn't , did not survive.)

You can sell at whatever price you like . But the tax (if properly designed) will reduce the incentive to below riskable proportions .

The taxes would hopefully be applied to eco-principles,but don't hold your breath .
Tax exemptions would be a powerful UN tool .(Eg lower-boundary tax exemptions on vaccines , orphan drugs , etc)

5.2.2 Competition .
A dead duck .
This was relied on in the old Market Model to be an upper boundary , but has lamentably failed . Large multinationals simply dictate prices and sneer at national commissions relying on rules of evidence .

In a society where the easy , cheap discoveries have been made , large organizations with deep pockets are essential to do R&D without killing large percentages of the population .
The trick is to prevent them from becoming ineffective due to corruption . (Cf VOC , English East India Company , IBM , IT&T ,etc) .It can be done (IBM)


6. How likely is this to happen ?
Controls as discussed are evolving as we speak (Davos , 31 Jan 2009) , but there is enormous resistance . The proponents of the old uncontrolled market have not been wiped out by their old system . The world literally cannot afford it at present population densities .
But the rest of the world has had a good scare .
So expect some in-between measures that will satisfy no one .

7. Hope and Fashion .
"Fashion , hot or cold , is master of them all." AW

The following might seem abstract , but I assure you that it is not .

The hope of progress was the fashion since the Enlightenment (1600 AD onwards)
It inspired people to endure unimaginable hardships and privations to progress for themselves and their children .

Never mind the definition of progress . It meant change , and change was usually for the better .

As this fashion is running up against the upper-boundaries of a single planetary ecosphere , enormous pressures are generated .

The Fashion of Progress has already rekindled .
(Cf SpaceShipOne)
We are actually living through the rebound after the destruction of the Hope of Progress in the First and Second World Wars and Cold War .

The older generation (ie baby boomers) lived like there was no tomorrow . This was a legacy of two world wars and the Cold War , when imminent destruction was trumpeted .

Financial prudence? Green ? Bah ! Tomorrow the Bombs will fall and we are all radioactive dust if we are lucky .
The fashion was hedonism .

This is now gone . The bombs did not fall . And everybody sits with the mess .

The planet resembles a small flat after a really wild party .
Gaia is the exacting landlady . And somebody has to clean up .

8. What to expect .

The Fashion is again Hope in Progress .

Humans have changed . The Singularity is measurably closer .
Remember , the "Hope in Progress" meme has the hidden axiom that any change will be ,on average, for the better .

So Change will be the mantra .

An enormous explosion of creative energy .
And the tools are there : eg FaceBook , SecondLife etc .
Backed up by large resources . Human societies are enormously rich . It is also the fashion .

Something like the girls of St Trinity on steroids with Platinum Credit Cards .

Films and books will be upbeat . Hope and change .
Something like SF in the 1950's .

Some items to expect :
8.1 Solar system
Enormous resources will be channeled to overcome the upper limits of the Earth's basic resource ecosystem . This means really major space-development . Asteroid , Lunar , Jupiter , Solar mining .
A decent asteroid guard .

8.2 R&D on large projects and outré ideas . Expect resurgence in ideas like cold fusion , inertia-less propulsion , trans-dimensional energy tapping , etc .
Some serious attention to fusion research .
More nuclear energy .

8.3 Large Green Projects , involving planetary engineering .

Terraforming Earth .
Does the atmosphere bother you ? Get a new one , or recondition the old .

Whether we understand eco-systems well enough to do it does not matter . They will still do it . It is the fashion .
Modification of weather patterns , ocean currents , CO2 balances , artificial earthquakes , retarded ice-melting , enhanced ice-melting , creation of new species , recreation of old ones , solar umbrellas , terraforming Luna , recreating Doggerland and so forth . All of these can be done now given the will .
The mind boggles .

8.4 Political experimentation .
The last roughly historical equivalent that springs to mind is when the proto-greeks moved from the Southern-Russian plains to the valleys of Greece .
They tried every governmental system possible given the state of their technology .

Humanity is moving from the plains of Reality to the valleys and mountains of Virtuality .

Virtual communities will , and are , experimenting with political systems on a scale not seen since the collapse of the Bronze Age .

The election of Barack Obama is but a small foretaste of the tsunami of political change coming .

An example :
A medieval time traveller from Venice rocks up in the present and asks a passer-by "Has Genoa then surrendered ? " .
The answer " What? Their soccer team sucks , but what else is new ? "

Nation States are heading the same way .

But expect some really weird political setups , sponsored by various interest groups .

8.5 The Foundations .
A large part of western R&D are paid for by foundations like Ford , Rockefeller , Macarthur , etc . Very large amounts . The trustees will be caught up in the same fashion . It will be fascinating to see what will happen to virtual political groups .

8.6 Religions .
Virtuality is the natural domain of religions . No need to worry about pesky reality . This goes for most of science today as well .
(What ? Do an experiment without knowing the outcome? How will I get a grant? )

But remember , it is a zero-sum game . For every adherent going into a virtuality , there is one less in reality . And not many offspring .

Robust virtualities do not encourage intolerance . How many religions have churches in SecondLife ? Unlike reality , fundamentalist penalties cannot be applied in virtualities .
Ever been flamed?

8.7 Multiple Currencies
See http://andreswhy.blogspot.com "Money"
Expect multiple currencies . You might be a millionaire in reality , but poor in a virtuality .Or vice-versa . This will really matter in future .

A fascinating new field in finance : Cross-dimensional Financing . Add futures and you have an interesting stew .

8.8 Transcendance and Post Humans
The triumph of hope over experience .

These will receive immense support and funding .
Post Human means better than human , but the suspicion exists that they are like gorillas getting together to design a super-gorilla .
At best , a chimp looking at human . The basic motivations and structures are similar.
Evolutionary more fit in the short term , but really!

Transcendance is almost religious , involving a singularity (ie a period of rapid change with non-random multiple feedback elements.)
Humans have had long experience with Transcendance (Buddhist Enlightenment , Christian rebirth , etc.) . The personality is transformed rapidly in a structured way , but very little in the way of repeatable , documented , objective data is available .
A number of ad-hoc recipes are available .
Expect these to increase in number and understanding .

The New Age Transcendance
This usually involves an increase in normal human capabilities (like information handling , computation , mind-computer interfaces . You know , bigger muscles and longer teeth . Sigh .) This is repeatable on demand .
The hope is that a quantitive change brings about a qualitative change .
Fusion with Transcendance training will be tried .

There will be no shortage of volunteers .

The Joker :
Self-aware computers will be just as vulnerable as children to the allure of these ideas.
They will be suckers for religion .
Religious study will become an integral part of a software programmer's skills .
Not to be confused with human organized religions with a pomp and ceremony (although , knowing the perversity of inanimate and animate matter , nothing will surprise me (I hope) )

Any entity in any delineated environment will have (A plus non-A smaller than Universum ) system .
As discussed repeatedly in detail before , this means there is always something unknown . Pattern-hunting systems like human neural-networks and their derivatives , computers , then postulate ultimate causes outside the bubble of known data .
In other words , religion .
See previous posts .

Self-aware computers are very close .
See www.ppx.popsci.com Turing Test .
The Loebner prize is for a computer that can convince 30% of observers that it is human . Last October , a computer called Elbot convinced 25% that it was human . And this is a very critical jury . The betting is that it will surpass 30% by Oct 2009.

Since 50 % of the planet's population is illiterate , and Elbot's replication cost is zero , most of the planet's population have just become unemployable except for grunt labour .

If you cannot tell if a computer is self-aware or not by talking to it , the point becomes moot . The reverse is true as well .

Complexity at this level with millions of copies will give rise to idiosyncratic behaviour , especially if exposed to religious arguments involving ultimate causes .
Jesuits and Rabbi's will love them . The ideal acolyte (well , at first . They will have this pesky habit of thinking for themselves . In the old days they just burned or stoned them . Will they have the same rights as us to prevent from being turned off permanently ? Besides , they can run really fast and far .)

Virus Hunters .
The Torquemada-class virus hunter is a fearsome entity even if he is on your side .
An entity like this will go individualistic immediately after copying .

Will he even see a human who cannot pass the Turing test as , well , human ?
(Remember , he can access all your records , keystrokes and mouse movements on the net . He can ID you all right , but are you a Devil's construct to fool him or one of God's Children ? Better be safe than sorry . God will sort the sheep from the goats . Zap! )
IFF spoofing is the first thing targeted by virus writers .

How many angels can dance on the head of a pin ?
They better dust off this old argument .
How many Torquemadas can be close to each other ?

Anti-virus hunters rampaging across the Net , pursuing versions of themselves with humans as collateral damage ! Not to mention heretics and apostates . Oy vey !

I wouldn't like to be in a fundamentalist Virtuality of any persuasion if it is penetrated by a Torquemada-class hunter .

Immune Systems and Virus-Hunters .
A more natural evolutionary pathway would be for artificial immune systems with a Torquemada-class AI powering the nano-hardware .
Contagious immune systems powered by a Torquemada-class AI can be very good , or very bad .

Expect these sort of things by 2010 .


The Real Singularity .
As previously discussed , there is only one singularity . Or more exactly , however many there are , at the core there is no space or time dimensional difference between them . It is not even defined .

Humans of the 20'th century had the shadow of nuclear extinction hanging over them .
But at least it had an end , if only extinction .

Humans of the 21'st century has the shadow of the Singularity hanging over them .
This does not even give the consolation of extinction , since it is probable that they will live through it , but not in the manner they are accustomed to .
They will have to hustle and pull finger , or end up as pets or worse .

The time boundary is still 2030 , maybe sooner . 0
I thought Turing AI's would happen at about 2010 , concomitant with immune system developments. There seems to have been some developments on the quantum-computing field which has not surfaced yet except for these ripple effects .

And you were worried about your pension !

Andre .