8 ms·

The problem is finance is so unnecessarily complex I have no idea what's going on.

by crimsonalucard 7y ago

rco8786 7y ago
Finance is necessarily complex.
- crimsonalucard 7y ago
  No. You are completely and utterly wrong. This is definitive and final. It is very very naive to say that all the complexity in finance is necessary. It is not. Not. at. all. We are human and as such we build many things that are needlessly complex. Much of out software suffers from such baggage. If humans can cause such systems to be overly complex, then humans can cause such a thing to happen in the finance industry as well. You see overcomplexity in all systems that are typically built by more than one human from tax law to software all the way to: finance. You will note that such complexity in the things humans construct is especially prevalent in things that are abstracted away from the physical world as the physical world is bound by laws that place a huge energy cost on what a person can create. When things are abstract that cost is a magnitude lower. Software and finance are vicious examples that utterly annihilate your statement.
  - arcticbull 7y ago
    This also feels very much like the software engineer's desire to rewrite something they don't understand because they're sure that it's easier to rewrite than to understand. This stems from a lack of understanding that you yourself identify.
    - crimsonalucard2 7y ago
      I agree with you completely. I feel that if we rewrite the finance system we'll end up with a different mess. I'm only pointing to a problem not offering a solution. It's all adhoc design with no theory. If finance consisted of a bunch of axioms and theorems then we could find a algorithm that can optimize such a system. However finance like software is in the domain of design. As such we construct and create such systems with no quantitative formula for creating better systems or even defining what a better system is... What formula can quantitatively measure how much better capitalism is vs. communism? Or Vice versa. None. So you, are basically fully correct. A rewrite without formal theory on what is a better "finance" is like throwing darts blind folded. We only know the previous iteration didn't work, and we have no idea if the new design will function. In terms of probability, likely it will be nowhere near the perfection we strive for.
      - arcticbull 7y ago
        I'm suggesting if you studied finance you may have a different opinion. I haven't so I can't say for sure, of course, but it's hard to point in at a complex system from the outside and demand change without understanding it in the first place. It's like me walking into an operating room and demanding we "restart medicine" because it's "too complex." I'm not a doctor, who am I to say?
        crimsonalucard3 7y ago
        A Fair point. I'd prefer if arguments run on their own logical merits rather than my credentials. That being said I have studied extensively the anthropology, history and origins of finance. I have also studied economics. I have not studied advanced accounting, how to read a finance statement or tax law. I would say from this perspective I don't know finance but from other perspectives I know it well enough to comment on things finance guys just don't know about.
        crimsonalucard 7y ago
        A Fair point. I'd prefer if arguments run on their own logical merits rather than my credentials. That being said I have studied extensively the anthropology, history and origins of finance. I have also studied economics. I have not studied advanced accounting, how to read a finance statement or tax law. I would say from this perspective I don't know finance but from other perspectives I know it well enough to comment on things finance guys just don't know about. Also I never commented on "restarting finance." I said no such thing. I commented on high level issues that are obvious like over complexity. That being said you can very well comment on aspects of medicine even though you aren't an expert. Medical costs and quality are out of control in the united states. Surely as a consumer of medicine you can comment on it even though you're not an expert. Would you leave all the "experts" to exclusively control the costs? Well doing so results in the broken medical system we have in the United States today. A three day hospital stay in the US costs 30,000k. Medical experts charge you this because they know the cost better. Is it logical to defer to them? No. Not being an expert on something does not preclude your judgement from being correct. You also have the advantage of not being as biased as the expert.
  - petersellers 7y ago
    No offense, but that is a lot of words typed out that do absolutely nothing to actually refute the point of the person you are replying to.
    - crimsonalucard 7y ago
      None taken. The person I am trying to refute also didn't offer anything substantial either. I'm not a finance guy because it's complex so I can't point to specific examples of things that are unnecessary. What I can point to is that when humans create systems that abstract we tend to make things unnecessarily complex. Our software is a perfect example. Statistically if most of the software we create suffers from this phenomenon how likely is it that our finance (which is also a very abstract system) suffers from it as well? Answer: Very likely. If you want specific examples. The sub prime mortgage crisis was caused by a finance concept called a CDO that was so complex people could hide garbage assets away from view. Tax law (which is also a part of finance) is so complex corporations can find unintended loopholes that benefit them and harm the economy.
      - petersellers 7y ago
        Well to be fair, the person who responded to you gave just as much substance as you did in your initial post. It just sounds like you are stretching a bit - you've admitted that you're not a finance guy so it seems likely that you don't fully understand the reasons for why financial systems might be as complex as they are. Sure, there probably are some areas that could be structured more efficiently (guessing here) but it also seems just as likely that there are many areas that are complex but for good reason.
        crimsonalucard2 7y ago
        If you studied the history of finance. Financial instruments are invented adhoc. They are not made or created as part of a grand design. For example the theory on how banking came about or how we use paper cash to represent wealth was literally an organic concept that slowly came to be over time. People needed to store grain, so someone formed a grain storage business that gave out paper certificates as proof of storage... people started trading those certificates as if it was cash... the storage business owner realized he could just print out those certificates and loan it out... hence the creation of banking and loaning... That's the basic idea behind how banking formed organically. It is complex not by design but by evolution. If you studied machine learning and genetic algorithms you'll know that natural selection and random walk does not always lead to the most optimal minimum and your walk will spend a lot of time wandering the entire space of possibilities before converging on a possible sub optimal solution. Finance is such a walk. Random designs eliminated by natural selection. We are more than likely in the middle of this random walk heading towards a solution that like all of our software is more than likely a sub optimal minimum. Nobody needs to understand finance completely to know this. They just need an understanding of the properties of the real world in general. Finance IS overly complex you and I don't need to be experts in finance to know this.
  - guerrilla 7y ago
    > If humans can cause such systems to be overly complex, then humans can cause such a thing to happen in the finance industry as well. This is fallacious. Just because something can be so doesn't mean that it is so. I agree with your position but your reasoning is horrible.
    - crimsonalucard 7y ago
      It sounds like an implication based off of an axiom but it is not. It is a implication using probability. I just glossed over it. Here's a better way to word it. IF humans create many forms complex and abstract systems which is basically a bunch of rules and concepts put together into a category called software... and if most of these systems end up being over-complex.... Then if we do the same thing of creating a bunch of abstract rules and concepts into a system and give it a different name... lets call it "finance" then by probability the same thing will likely happen again. There, let me know if you get it. Apologies for being vague. Basically humans tend to create overcomplicated systems when given an abstract universe to play with, finance and software are both such an abstraction. It is both an intuitive property and a statistical one as I have shown above.
      - guerrilla 7y ago
        There's nothing to get here. > most of these systems end up being over-complex You've provided no evidence for this, and I give you the entirety of mathematics as a counterexample considering it is a quantifiably as simple as possible at every step.
        crimsonalucard2 7y ago
        I can't give you exact evidence for over-complexity as the way we're using it in this topic is sort of hand wavy and not formally defined. Mathematics is different. It is axiomatic and exact. In the world of proofs and logic, I wouldn't call anything overly complex. Theorems are necessities that arise from axioms. There's even debate on whether or not these systems are actually designed. Maybe they're existing properties of the world that are discovered and therefore outside of the topic of this conversation as we're mostly referring to systems created by people. Either way, I'm talking about the worlds outside of mathematics and logic. Science, statistics and design. This world is rife with over-complexity. I can't prove it, but it should be intuitive. If your a normal person you can most likely think of many, many examples where systems created by people are seemingly over-complex. If you can imagine this, then I would say for this informal dialogue that is pretty good evidence for the case that overly-complex systems are abundant.
  - seibelj 7y ago
    You have posted a nice example of how computer scientists become good at programming and then think they are good at other things. Quoting from Rational Wiki: > Kurzweil has an unfortunate tendency to think that being brilliant at computer science means every other specialty can be treated as a special case of computer science. He thinks that the genome contains all the information needed to grow a brain, therefore it is a problem of Kolmogorov complexity and computer science, therefore we will be able to simulate one on computers by 2030. Experts on the evolution of brains think Kurzweil does not understand biology and thinks the genome works like a blueprint, whereas most qualified biologists think the right analogy is a recipe that takes as a starting assumption the informational content of the rest of life on Earth. In the case of the human brain, it literally cannot physically develop correctly except in the presence of a human culture (e.g., see Feral child). This leads to a certain exasperation on the part of those who actually know what they're talking about. https://rationalwiki.org/wiki/Ray_Kurzweil https://rationalwiki.org/wiki/Ray_Kurzweil
    - crimsonalucard 7y ago
      Man. When did I say I was good at finance? I literally said I don't understand it. I don't understand tax law either, but I don't have to understand tax law to know that it is so complicated that corporations have found loop holes they can use to exploit it. Literally tell me how this is wrong.
      - Excel_Wizard 7y ago
        >The problem is finance is so unnecessarily complex I have no idea what's going on. You're not wrong but you're not making any measurable claims. If you want to understand what complexity is "necessary" you should define necessary a bit better for the purpose of discussion. If necessary means "required for the individual stakeholders in the financial enterprise to achieve their goals" that is a productive starting point. If necessary means "required so people are happy" that is a quagmire.
        crimsonalucard 7y ago
  - wenc 7y ago
    > No. You are completely and utterly wrong. This is definitive and final. One of the properties of complex systems [1] is emergent properties; the individuals may be simple but when they interact with other individuals, the overall system exhibits behavior that may no longer be simple due to the permutations and stochasticity. There is a complexity that is inherent. In complex systems, the whole is not the sum of its parts. Take 2 people who trade with each other (barter). The interaction is fairly simple. Now blow that up to a village. And then to a city. Then to a megacity. And suppose the individuals are more or less autonomous (we call this freedom). And they react to things differently (feedback). And then add randomness and variation. Now you have an complex economy. Then they want to do things bigger than any individual is able to pay for, so the stock market came about. Then add the effect of the environment which can harm many facets of human endeavor, now people want insurance against crop failure, shipwrecks, etc. Now you have derivatives (though arguably the world hobbled along just fine without derivatives for a while). Complexity in finance like other things has two components: irreducible complexity and reducible complexity. If I had to guess (and I could be wrong), I would say the irreducible complexity part of finance is much bigger than the reducible complexity. Not to say there isn't any reducible complexity -- exotic derivatives etc. are a product of pure financial engineering and one wonders if we could do without these. But many parts of the finance system are necessary complexity, or at least necessary to power the modern economy. Else, we'd be stuck in the early agrarian world. [1] https://en.wikipedia.org/wiki/Complex_system https://en.wikipedia.org/wiki/Complex_system
    - crimsonalucard2 7y ago
      Sure, for anything to even exist there must be a certain level of complexity. But the OP's claim of necessarily complex is wrong. My claim of overly complex is correct. The spectrum of under complexity and over complexity spans an entire gradient similar to a number line. While Necessarily complexity sits on a single zero dimensional point on that number line. Referencing this number line, By probability Overly complex and underly complex is infinitely more likely than necessarily complex. Literally GE is using complexity of their accounting statements to hide fraud. That is a case of over complexity in the world of finance. That is not a necessity. You cannot get more definitive than this. That's why I was able to use such hard language because it's literally completely true.
  - Gibbon1 7y ago
    I want to say don't feel bad about being dogpiled here. Any time you find an in ordinate amount of reflexive blow back like this it means one thing, you've struck a nerve. That itself is interesting. I'll make a point about technological complexity. It's not necessarily a uniform good. Financial engineering enabled by computers has allowed the finance industry (spit) to grow threefold in 40 years. That's of course very nice for people in that industry. For instance the finance code monkeys that are angry and downv0ting you have done extremely well. A point, remove computers and computer machinery and the finance industry from US GDP and growth is zero to negative over those same 40 years. So that complexity has enable a large transfer of wealth from the productive parts of the economy to finance. But the total benefit is negative. And for some sectors massively so.
    - pas 7y ago
      Struck a nerve, or just the Dunning-Kruger effect struck. I'm not a finance code money, never was, not aspiring to be either. The simple fact that these high-end/custom/complex finance products/services are not cheap but people buy them means that it provides value to some rich investment people. (And they usually know what makes them money.) Computers made everything grow since there are computers. Every company uses spreadsheets, uses or subcontracts the use of tax, payroll, healthcare/benefits and accounting software. Email, telephones (modern telephony is completely computerized), and so on (basically everything nowadays depend in its current form on chips and electricity). Finance was simply one of the most well suited aspects of the business world to benefit from computerization. So it grew a lot. But naturally we're nowhere near the "end of automation". Software is eating the world, but quite slowly, because the world is complex - as you said, however modeling it and putting some tracking indexes on it and quoting a price can be done well. (This is what MSCI do for example. Benchmark indexes are very crude but generally useful things - and their purpose is exactly to paper over the complexity of real life, of "real industry" for business analysis purposes.)
- vageli 7y ago
  Is it really though? I can understand aspects of nature being necessarily complex, but a human invention's complexity seems almost arbitrary and something to be solved for. Like, mathematics is necessarily complex because it describes the universe. Could you speak more to the necessity of the complexity of finance?
  - crimsonalucard2 7y ago
    I'm not the OP but I have an answer. Here me out, I'll start off with some seemingly irrelevant details than bring the whole thing full circle. I start off with a system that is even more complex than finance: Nature. Nature is complex due to natural selection. Random mutations occur and nature selects the mutations that aid with survival. If you iterate over this process over a long period of time you can have systems that are incredibly complex. Note that natural selection can function at a higher level of abstraction as well. Not just at the biological level, but at the ecosystem level as well. Ecosystems that overload or are unbalanced are killed off. It's not a coincidence that most ecosystems still around in the world today are running in a steady state of equilibrium. We can bring natural selection to an even higher level of abstraction and consider human civilization. Only the rules, cultures and behaviors that aid with the survival of the civilization live on to form even more complex systems of civilization. The global civilization that enshrouds the world today is the result of such evolution. Which brings of full circle to FINANCE. The components rules and systems of finance are not some grand design deliberately created by an architect. The concepts you see today were formed organically and under the restrictions of natural selection. Take banking. The theory is banking formed when people needed a place to store an abundant resource like grain. A business owner opened a grain shop and gave out paper certificates that represented grain storage. The certificates soon became so abundant that people basically began trading the certificates as cash, hence the formation of paper money. The storage owners realizing this now realize they can print these certificates out of thin air and loan it out to people. Hence the creation of loans and mortgages... You can see how finance forms organically and the concepts that work continue to thrive while the systems that break are eliminated by natural selection. Like biology over time this leads to more and more complex systems that somehow just work. This is the origin of complexity in finance. You will note that like biology such complexity is completely random and unnecessary like the platypus, the kiwi or the kangaroo. Finance is littered with things like the kangaroo. Don't ask a finance guy why finance is complex. This question is better served to you by an anthropologist or a historian. The finance guy is concerned with how to out compete the other finance guy, he is not concerned with the how and the why behind the entire system.

The problem is finance is so unnecessarily complex I have no idea what's going on.

rco8786 7y ago

Finance is necessarily complex.

crimsonalucard 7y ago
No. You are completely and utterly wrong. This is definitive and final. It is very very naive to say that all the complexity in finance is necessary. It is not. Not. at. all. We are human and as such we build many things that are needlessly complex. Much of out software suffers from such baggage. If humans can cause such systems to be overly complex, then humans can cause such a thing to happen in the finance industry as well. You see overcomplexity in all systems that are typically built by more than one human from tax law to software all the way to: finance. You will note that such complexity in the things humans construct is especially prevalent in things that are abstracted away from the physical world as the physical world is bound by laws that place a huge energy cost on what a person can create. When things are abstract that cost is a magnitude lower. Software and finance are vicious examples that utterly annihilate your statement.
- arcticbull 7y ago
  This also feels very much like the software engineer's desire to rewrite something they don't understand because they're sure that it's easier to rewrite than to understand. This stems from a lack of understanding that you yourself identify.
  - crimsonalucard2 7y ago
    I agree with you completely. I feel that if we rewrite the finance system we'll end up with a different mess. I'm only pointing to a problem not offering a solution. It's all adhoc design with no theory. If finance consisted of a bunch of axioms and theorems then we could find a algorithm that can optimize such a system. However finance like software is in the domain of design. As such we construct and create such systems with no quantitative formula for creating better systems or even defining what a better system is... What formula can quantitatively measure how much better capitalism is vs. communism? Or Vice versa. None. So you, are basically fully correct. A rewrite without formal theory on what is a better "finance" is like throwing darts blind folded. We only know the previous iteration didn't work, and we have no idea if the new design will function. In terms of probability, likely it will be nowhere near the perfection we strive for.
    - arcticbull 7y ago
      I'm suggesting if you studied finance you may have a different opinion. I haven't so I can't say for sure, of course, but it's hard to point in at a complex system from the outside and demand change without understanding it in the first place. It's like me walking into an operating room and demanding we "restart medicine" because it's "too complex." I'm not a doctor, who am I to say?
      - crimsonalucard3 7y ago
        A Fair point. I'd prefer if arguments run on their own logical merits rather than my credentials. That being said I have studied extensively the anthropology, history and origins of finance. I have also studied economics. I have not studied advanced accounting, how to read a finance statement or tax law. I would say from this perspective I don't know finance but from other perspectives I know it well enough to comment on things finance guys just don't know about.
      - crimsonalucard 7y ago
        A Fair point. I'd prefer if arguments run on their own logical merits rather than my credentials. That being said I have studied extensively the anthropology, history and origins of finance. I have also studied economics. I have not studied advanced accounting, how to read a finance statement or tax law. I would say from this perspective I don't know finance but from other perspectives I know it well enough to comment on things finance guys just don't know about. Also I never commented on "restarting finance." I said no such thing. I commented on high level issues that are obvious like over complexity. That being said you can very well comment on aspects of medicine even though you aren't an expert. Medical costs and quality are out of control in the united states. Surely as a consumer of medicine you can comment on it even though you're not an expert. Would you leave all the "experts" to exclusively control the costs? Well doing so results in the broken medical system we have in the United States today. A three day hospital stay in the US costs 30,000k. Medical experts charge you this because they know the cost better. Is it logical to defer to them? No. Not being an expert on something does not preclude your judgement from being correct. You also have the advantage of not being as biased as the expert.
- petersellers 7y ago
  No offense, but that is a lot of words typed out that do absolutely nothing to actually refute the point of the person you are replying to.
  - crimsonalucard 7y ago
    None taken. The person I am trying to refute also didn't offer anything substantial either. I'm not a finance guy because it's complex so I can't point to specific examples of things that are unnecessary. What I can point to is that when humans create systems that abstract we tend to make things unnecessarily complex. Our software is a perfect example. Statistically if most of the software we create suffers from this phenomenon how likely is it that our finance (which is also a very abstract system) suffers from it as well? Answer: Very likely. If you want specific examples. The sub prime mortgage crisis was caused by a finance concept called a CDO that was so complex people could hide garbage assets away from view. Tax law (which is also a part of finance) is so complex corporations can find unintended loopholes that benefit them and harm the economy.
    - petersellers 7y ago
      Well to be fair, the person who responded to you gave just as much substance as you did in your initial post. It just sounds like you are stretching a bit - you've admitted that you're not a finance guy so it seems likely that you don't fully understand the reasons for why financial systems might be as complex as they are. Sure, there probably are some areas that could be structured more efficiently (guessing here) but it also seems just as likely that there are many areas that are complex but for good reason.
      - crimsonalucard2 7y ago
        If you studied the history of finance. Financial instruments are invented adhoc. They are not made or created as part of a grand design. For example the theory on how banking came about or how we use paper cash to represent wealth was literally an organic concept that slowly came to be over time. People needed to store grain, so someone formed a grain storage business that gave out paper certificates as proof of storage... people started trading those certificates as if it was cash... the storage business owner realized he could just print out those certificates and loan it out... hence the creation of banking and loaning... That's the basic idea behind how banking formed organically. It is complex not by design but by evolution. If you studied machine learning and genetic algorithms you'll know that natural selection and random walk does not always lead to the most optimal minimum and your walk will spend a lot of time wandering the entire space of possibilities before converging on a possible sub optimal solution. Finance is such a walk. Random designs eliminated by natural selection. We are more than likely in the middle of this random walk heading towards a solution that like all of our software is more than likely a sub optimal minimum. Nobody needs to understand finance completely to know this. They just need an understanding of the properties of the real world in general. Finance IS overly complex you and I don't need to be experts in finance to know this.
- guerrilla 7y ago
  > If humans can cause such systems to be overly complex, then humans can cause such a thing to happen in the finance industry as well. This is fallacious. Just because something can be so doesn't mean that it is so. I agree with your position but your reasoning is horrible.
  - crimsonalucard 7y ago
    It sounds like an implication based off of an axiom but it is not. It is a implication using probability. I just glossed over it. Here's a better way to word it. IF humans create many forms complex and abstract systems which is basically a bunch of rules and concepts put together into a category called software... and if most of these systems end up being over-complex.... Then if we do the same thing of creating a bunch of abstract rules and concepts into a system and give it a different name... lets call it "finance" then by probability the same thing will likely happen again. There, let me know if you get it. Apologies for being vague. Basically humans tend to create overcomplicated systems when given an abstract universe to play with, finance and software are both such an abstraction. It is both an intuitive property and a statistical one as I have shown above.
    - guerrilla 7y ago
      There's nothing to get here. > most of these systems end up being over-complex You've provided no evidence for this, and I give you the entirety of mathematics as a counterexample considering it is a quantifiably as simple as possible at every step.
      - crimsonalucard2 7y ago
        I can't give you exact evidence for over-complexity as the way we're using it in this topic is sort of hand wavy and not formally defined. Mathematics is different. It is axiomatic and exact. In the world of proofs and logic, I wouldn't call anything overly complex. Theorems are necessities that arise from axioms. There's even debate on whether or not these systems are actually designed. Maybe they're existing properties of the world that are discovered and therefore outside of the topic of this conversation as we're mostly referring to systems created by people. Either way, I'm talking about the worlds outside of mathematics and logic. Science, statistics and design. This world is rife with over-complexity. I can't prove it, but it should be intuitive. If your a normal person you can most likely think of many, many examples where systems created by people are seemingly over-complex. If you can imagine this, then I would say for this informal dialogue that is pretty good evidence for the case that overly-complex systems are abundant.
- seibelj 7y ago
  You have posted a nice example of how computer scientists become good at programming and then think they are good at other things. Quoting from Rational Wiki: > Kurzweil has an unfortunate tendency to think that being brilliant at computer science means every other specialty can be treated as a special case of computer science. He thinks that the genome contains all the information needed to grow a brain, therefore it is a problem of Kolmogorov complexity and computer science, therefore we will be able to simulate one on computers by 2030. Experts on the evolution of brains think Kurzweil does not understand biology and thinks the genome works like a blueprint, whereas most qualified biologists think the right analogy is a recipe that takes as a starting assumption the informational content of the rest of life on Earth. In the case of the human brain, it literally cannot physically develop correctly except in the presence of a human culture (e.g., see Feral child). This leads to a certain exasperation on the part of those who actually know what they're talking about. https://rationalwiki.org/wiki/Ray_Kurzweil https://rationalwiki.org/wiki/Ray_Kurzweil
  - crimsonalucard 7y ago
    Man. When did I say I was good at finance? I literally said I don't understand it. I don't understand tax law either, but I don't have to understand tax law to know that it is so complicated that corporations have found loop holes they can use to exploit it. Literally tell me how this is wrong.
    - Excel_Wizard 7y ago
      >The problem is finance is so unnecessarily complex I have no idea what's going on. You're not wrong but you're not making any measurable claims. If you want to understand what complexity is "necessary" you should define necessary a bit better for the purpose of discussion. If necessary means "required for the individual stakeholders in the financial enterprise to achieve their goals" that is a productive starting point. If necessary means "required so people are happy" that is a quagmire.
      - crimsonalucard 7y ago
- wenc 7y ago
  > No. You are completely and utterly wrong. This is definitive and final. One of the properties of complex systems [1] is emergent properties; the individuals may be simple but when they interact with other individuals, the overall system exhibits behavior that may no longer be simple due to the permutations and stochasticity. There is a complexity that is inherent. In complex systems, the whole is not the sum of its parts. Take 2 people who trade with each other (barter). The interaction is fairly simple. Now blow that up to a village. And then to a city. Then to a megacity. And suppose the individuals are more or less autonomous (we call this freedom). And they react to things differently (feedback). And then add randomness and variation. Now you have an complex economy. Then they want to do things bigger than any individual is able to pay for, so the stock market came about. Then add the effect of the environment which can harm many facets of human endeavor, now people want insurance against crop failure, shipwrecks, etc. Now you have derivatives (though arguably the world hobbled along just fine without derivatives for a while). Complexity in finance like other things has two components: irreducible complexity and reducible complexity. If I had to guess (and I could be wrong), I would say the irreducible complexity part of finance is much bigger than the reducible complexity. Not to say there isn't any reducible complexity -- exotic derivatives etc. are a product of pure financial engineering and one wonders if we could do without these. But many parts of the finance system are necessary complexity, or at least necessary to power the modern economy. Else, we'd be stuck in the early agrarian world. [1] https://en.wikipedia.org/wiki/Complex_system https://en.wikipedia.org/wiki/Complex_system
  - crimsonalucard2 7y ago
    Sure, for anything to even exist there must be a certain level of complexity. But the OP's claim of necessarily complex is wrong. My claim of overly complex is correct. The spectrum of under complexity and over complexity spans an entire gradient similar to a number line. While Necessarily complexity sits on a single zero dimensional point on that number line. Referencing this number line, By probability Overly complex and underly complex is infinitely more likely than necessarily complex. Literally GE is using complexity of their accounting statements to hide fraud. That is a case of over complexity in the world of finance. That is not a necessity. You cannot get more definitive than this. That's why I was able to use such hard language because it's literally completely true.
- Gibbon1 7y ago
  I want to say don't feel bad about being dogpiled here. Any time you find an in ordinate amount of reflexive blow back like this it means one thing, you've struck a nerve. That itself is interesting. I'll make a point about technological complexity. It's not necessarily a uniform good. Financial engineering enabled by computers has allowed the finance industry (spit) to grow threefold in 40 years. That's of course very nice for people in that industry. For instance the finance code monkeys that are angry and downv0ting you have done extremely well. A point, remove computers and computer machinery and the finance industry from US GDP and growth is zero to negative over those same 40 years. So that complexity has enable a large transfer of wealth from the productive parts of the economy to finance. But the total benefit is negative. And for some sectors massively so.
  - pas 7y ago
    Struck a nerve, or just the Dunning-Kruger effect struck. I'm not a finance code money, never was, not aspiring to be either. The simple fact that these high-end/custom/complex finance products/services are not cheap but people buy them means that it provides value to some rich investment people. (And they usually know what makes them money.) Computers made everything grow since there are computers. Every company uses spreadsheets, uses or subcontracts the use of tax, payroll, healthcare/benefits and accounting software. Email, telephones (modern telephony is completely computerized), and so on (basically everything nowadays depend in its current form on chips and electricity). Finance was simply one of the most well suited aspects of the business world to benefit from computerization. So it grew a lot. But naturally we're nowhere near the "end of automation". Software is eating the world, but quite slowly, because the world is complex - as you said, however modeling it and putting some tracking indexes on it and quoting a price can be done well. (This is what MSCI do for example. Benchmark indexes are very crude but generally useful things - and their purpose is exactly to paper over the complexity of real life, of "real industry" for business analysis purposes.)
vageli 7y ago
Is it really though? I can understand aspects of nature being necessarily complex, but a human invention's complexity seems almost arbitrary and something to be solved for. Like, mathematics is necessarily complex because it describes the universe. Could you speak more to the necessity of the complexity of finance?
- crimsonalucard2 7y ago
  I'm not the OP but I have an answer. Here me out, I'll start off with some seemingly irrelevant details than bring the whole thing full circle. I start off with a system that is even more complex than finance: Nature. Nature is complex due to natural selection. Random mutations occur and nature selects the mutations that aid with survival. If you iterate over this process over a long period of time you can have systems that are incredibly complex. Note that natural selection can function at a higher level of abstraction as well. Not just at the biological level, but at the ecosystem level as well. Ecosystems that overload or are unbalanced are killed off. It's not a coincidence that most ecosystems still around in the world today are running in a steady state of equilibrium. We can bring natural selection to an even higher level of abstraction and consider human civilization. Only the rules, cultures and behaviors that aid with the survival of the civilization live on to form even more complex systems of civilization. The global civilization that enshrouds the world today is the result of such evolution. Which brings of full circle to FINANCE. The components rules and systems of finance are not some grand design deliberately created by an architect. The concepts you see today were formed organically and under the restrictions of natural selection. Take banking. The theory is banking formed when people needed a place to store an abundant resource like grain. A business owner opened a grain shop and gave out paper certificates that represented grain storage. The certificates soon became so abundant that people basically began trading the certificates as cash, hence the formation of paper money. The storage owners realizing this now realize they can print these certificates out of thin air and loan it out to people. Hence the creation of loans and mortgages... You can see how finance forms organically and the concepts that work continue to thrive while the systems that break are eliminated by natural selection. Like biology over time this leads to more and more complex systems that somehow just work. This is the origin of complexity in finance. You will note that like biology such complexity is completely random and unnecessary like the platypus, the kiwi or the kangaroo. Finance is littered with things like the kangaroo. Don't ask a finance guy why finance is complex. This question is better served to you by an anthropologist or a historian. The finance guy is concerned with how to out compete the other finance guy, he is not concerned with the how and the why behind the entire system.