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> 3. You can't increase security or reduce risk, by layer abstractions on top of other things, in this case, the euro. That is pretty demonstrably false. A loc

by darawk 10y ago

> 3. You can't increase security or reduce risk, by layer abstractions on top of other things, in this case, the euro. That is pretty demonstrably false. A lock is a layer of abstraction on top of metal. That can increase security and reduce risk. More directly to your point, a set of investments that are, on their own, extremely risky can be set off against one another (i.e. hedged) in such a way as to make the whole far less risky. The idea that you cannot create a low-risk high security product on top of high-risk low-security substrates is simply false.

RichardHeart 10y ago
Nope. Depends on what kind of security you are looking for. Which door is more likely to reliably allow me to enter my home? 1. No door. 2. A door with N locks in parallel. 3. A door with N locks in series. As N increases, or goes serial instead of parallel, my ability to enter my own home reliably decreases. Consequently, assuming so side channel attacks (windows or other doors) the chance that other people can't get in also increases. Understanding that adding variables in serial in order to fuel your car reduces the chance you can successfully fuel your car is easy. Understanding that when the internet goes down, you won't get gas is easy to understand. Hedges aren't what they're cracked up to be. 1. What happens when your hedge counterpart fails? (check out credit default swaps, or trades that can't execute, or limit down markets, etc etc, bad oracles (credit rating agencies..)) All hedges require a counterparty. Counterparties fail. Even when they don't fail, they become corrupted by bad oracles. You can't create reliability by wiring variables in series. You can create "security" at the cost of reliablity. How much cash has been lost in "smart" contracts, vs stupid safes per capita.
- darawk 10y ago
  None of that is correct. 'Series' or 'parallel' are the wrong way to think about things. If you buy 100 shares of AAPL and then you buy a put on SPY, that position is objectively lower risk than the unhedged AAPL position. Your point about counterparties is irrelevant, as I didn't claim that a hedge causes risk to go to zero - merely that it reduces it. It is possible for two risky things to cancel one another (or some components of one another, as in the AAPL/SPY example, the SPY put hedges AAPL's beta).
golergka 10y ago
> A lock is a layer of abstraction on top of metal. That can increase security and reduce risk. Metal door welded shut is more secure than a door closed with a metal lock. Harder to use though. But surely more secure.

by darawk 10y ago

RichardHeart 10y ago

Nope. Depends on what kind of security you are looking for. Which door is more likely to reliably allow me to enter my home? 1. No door. 2. A door with N locks in parallel. 3. A door with N locks in series. As N increases, or goes serial instead of parallel, my ability to enter my own home reliably decreases. Consequently, assuming so side channel attacks (windows or other doors) the chance that other people can't get in also increases. Understanding that adding variables in serial in order to fuel your car reduces the chance you can successfully fuel your car is easy. Understanding that when the internet goes down, you won't get gas is easy to understand. Hedges aren't what they're cracked up to be. 1. What happens when your hedge counterpart fails? (check out credit default swaps, or trades that can't execute, or limit down markets, etc etc, bad oracles (credit rating agencies..)) All hedges require a counterparty. Counterparties fail. Even when they don't fail, they become corrupted by bad oracles. You can't create reliability by wiring variables in series. You can create "security" at the cost of reliablity. How much cash has been lost in "smart" contracts, vs stupid safes per capita.

darawk 10y ago
None of that is correct. 'Series' or 'parallel' are the wrong way to think about things. If you buy 100 shares of AAPL and then you buy a put on SPY, that position is objectively lower risk than the unhedged AAPL position. Your point about counterparties is irrelevant, as I didn't claim that a hedge causes risk to go to zero - merely that it reduces it. It is possible for two risky things to cancel one another (or some components of one another, as in the AAPL/SPY example, the SPY put hedges AAPL's beta).

golergka 10y ago

> A lock is a layer of abstraction on top of metal. That can increase security and reduce risk. Metal door welded shut is more secure than a door closed with a metal lock. Harder to use though. But surely more secure.