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In software, we can generally agree that too many layers of abstraction introduces many issues since it is difficult to ensure each layer is perfect. For this i
by lazypenguin 7y ago
In software, we can generally agree that too many layers of abstraction introduces many issues since it is difficult to ensure each layer is perfect. For this imperfection we often pay a price: performance, maintainability, etc. However I think that often this imperfection is unintended and is a consequence of trying to make things better.
In the finance world, and particularly with mortgages, there are similarly many layers of abstraction but each layer has an imperfection built in: money.
Your mortgage, after its gone through all these layers and after everyone had extracted their pound of flesh from its value along the way ends up looking nothing like the original product. It might end up as a resecuritized security based on only the interest portion of a pool of loans or some other abomination. Just like a JavaScript application is a completely different beast from the the x86 asm executing on your CPU.
However, in software these layers exist to try to make things better. In the finance world these layers exist to only make money. To extract value from one place and move it to another. These layers don’t need to exist in this form but they do because they make people money. This is the lie.
Despite this, we can’t just remove all these layers at once but maybe we can remove one layer. Just like you wouldn’t rewrite your nodejs server in asm but might drop down to Go or something.
Alternatively you can say, “hey I don’t need this website so badly so I’m just going to not build it” and not play. Or maybe you have the time and inclination to build it “from scratch” from assembly.
Starting with a plot of land and only the money in your pocket reminds me of the true hacker spirit! :)
- berbec 7y agoThis brought all my thoughts on the absurdity of the debt system out in a clear and understandable light. Thank you for expressing what I could not put into words. I wish I had sockpuppets to upvote you extra.
- throwaway35784 7y agoIt almost made me cry to read that. You get it. You exactly get it. Thank you for writing that because it helps to keep me motivated. It's really hard.
- smabie 7y agoLayers exist in finance for the same reason layers exist in programming: because value is being provided. Or, at least, that’s what the Efficient Market Hypothesis would say. Maybe you can’t see the value as an outsider, but you know, Chesterton’s Fence. Only when you see the value of the current system should you be allowed to change it. Using the example of mortgage backed securities, they were created to solve real problems. Mortgages carried risk, were too unique. Also money had a hard time reaching those who needed mortgages. Most mortgage providers were local and often there were too many people who wanted mortgages and not enough money, or the other way around. By packaging mortgages together, you could reduce risk and sell traunches nationwide. TLDR: understanding is a prerequisite of change. And just like software, if you can’t find a reason for why something exists you should probably look harder. More likely than not, you are the one who doesn’t understand, not the person who created the thing in the first place.
- lazypenguin 7y agoI traded CMO derivatives for several years at a broker dealer that specialized in MBS and other fixed income products. I’m intimately familiar with the system and stand by my analogy.
- smabie 7y agoI work as a derivative quant/trader in EM (mostly fx swaps and such) and think that the broker-dealers I transact with provide value. Otherwise, obviously, I wouldn’t need them! This may be a little controversial, but in most cases, being paid means you provide value. And when this isn’t true, it almost always has to do with government regulation. Anyways, while I don’t have any experience with MBSs, you were probably providing value even if you didn’t think so.
- throwaway35784 7y agoLayers of understanding. That's what we are talking about. How many Layers must be understood to know something is broken? Or what's broke about it? It's broke. I know that. I don't think continuing down a broken path is gonna fix it.