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My dad always wanted me to be a finance geek Funny - my family had similar ideas. I went off and did computing instead, landed in finance by ridiculous acciden

by cturner 18y ago

My dad always wanted me to be a finance geek Funny - my family had similar ideas. I went off and did computing instead, landed in finance by ridiculous accident and only realised years later that I'd wound up doing something quite close to those plans. When 'managing' is valued higher than creation, we have problems. Big problems. Managing is creation. If you find a creative way to do a neat hedge that solves risk problems for a bunch of customers who have farms and manufacturing plants and workforces distributed over different currencies you've created value because they can spend their time doing what they're good at instead of stressing about how they're going to meet pay in the Swiss division because the Euro has strengthened. This aids open trade which itself supports specialisation. Financial flexibility is ridiculously important. A case in point: when I moved to London I needed to pay a deposit on a flat. Unfortunately I had no bank account set up, and no pounds to my name. When my father had the same issue forty years ago he had to go to great inconvenience and cost arranging an unsecured short-term loan to cover himself. He was aided because of family links between the people he borrowed from and friends in his own country. Whereas I just put the transaction on my credit card and the problem went away. Less management fee, no credit checks (on that part of the transaction), zero hassle. When I was contracting over here years ago I didn't even bother getting local currency, I just lived off the card. Internationally recognised short term credit isn't even a status symbol these days - it's a commodity item. There is a popular idea that unless something is physical and produced with sweaty work it doesn't have value. Manufacturing is considered to be inherently better than office work. Farming is the holiest pursuit of all. It's all a fallacy. See Galbraith, _The Age of Uncertainty_ for a more thorough treatment.

pxlpshr 18y ago
If you find a creative way to do a neat hedge that solves risk problems for a bunch of customers... I definitely understand where you're coming from but "creative financial instruments" sounds awfully familiar. And hedge funds closed doors at record rates in Dec. 08. Computer models will only get you so far when COMPLEX (read: disguised) financial instruments rely on past history, not future performance. The idea that one can CREATE LASTING VALUE through exploits, arbitrage, and 'creativity' in bloodlines as important as the financial markets seems reckless. There is a popular idea that unless something is physical and produced with sweaty work it doesn't have value. That's not the argument I was making, and I agree with your counter-point.
- cturner 18y ago
  Computer models will only get you so far when complex financial instruments rely on past history, not future performance. I think that sentence captures the main point of this crisis. I am concerned that current money arrangements have an inevitability built into them that a prolonged boom will create a bubbles based on highly leveraged circumstances with lots of counterparty risk. One thing you could do would be to outlaw fractional reserve banking altogether (make banks actually store what they say they have) but I'm not sure that the benefit would be worth the cost and expect it will fail anyway - if the system becomes too much of a harness then people will just operate outside of it. Regular downturns is the only thing I can think of to keep things sensible. Without them the dynamic chases the sensible people out of banking. (I don't hold with the theory that the current crisis is a result of banking liberalisation decisions by the US gvt - the US regulators relaxed the rules to stop US banking from being outplayed by the Europeans who were already consolidating.)
- anamax 18y ago
  > Computer models will only get you so far when COMPLEX (read: disguised) financial instruments rely on past history, not future performance. What do you have that relies on future performance? (Actually, there are many contracts, such as "10% of next year's revenue, rely on future performance in a pedantic sense, but I take the above to be something different because there are plenty of computer models that satisfy the pedantic definition used in this comment.)
  - pxlpshr 18y ago
    What do you have that relies on future performance? It's not a matter of what's available but rather how one treats risk. I expect experts to have more sensibility than to bet the entire financial well-being of a company, employees, and public investors when dealing with 'invented' high-risk assets just because a computer said "Okay". Less than a decade ago everyone was freaking about because banking software might cause a financial melt thanks to a Y2K bug, little did we know the real impending crash was user-error. :) Just a thought.
    - 18y ago

by cturner 18y ago

pxlpshr 18y ago

If you find a creative way to do a neat hedge that solves risk problems for a bunch of customers... I definitely understand where you're coming from but "creative financial instruments" sounds awfully familiar. And hedge funds closed doors at record rates in Dec. 08. Computer models will only get you so far when COMPLEX (read: disguised) financial instruments rely on past history, not future performance. The idea that one can CREATE LASTING VALUE through exploits, arbitrage, and 'creativity' in bloodlines as important as the financial markets seems reckless. There is a popular idea that unless something is physical and produced with sweaty work it doesn't have value. That's not the argument I was making, and I agree with your counter-point.

cturner 18y ago
Computer models will only get you so far when complex financial instruments rely on past history, not future performance. I think that sentence captures the main point of this crisis. I am concerned that current money arrangements have an inevitability built into them that a prolonged boom will create a bubbles based on highly leveraged circumstances with lots of counterparty risk. One thing you could do would be to outlaw fractional reserve banking altogether (make banks actually store what they say they have) but I'm not sure that the benefit would be worth the cost and expect it will fail anyway - if the system becomes too much of a harness then people will just operate outside of it. Regular downturns is the only thing I can think of to keep things sensible. Without them the dynamic chases the sensible people out of banking. (I don't hold with the theory that the current crisis is a result of banking liberalisation decisions by the US gvt - the US regulators relaxed the rules to stop US banking from being outplayed by the Europeans who were already consolidating.)
anamax 18y ago
> Computer models will only get you so far when COMPLEX (read: disguised) financial instruments rely on past history, not future performance. What do you have that relies on future performance? (Actually, there are many contracts, such as "10% of next year's revenue, rely on future performance in a pedantic sense, but I take the above to be something different because there are plenty of computer models that satisfy the pedantic definition used in this comment.)
- pxlpshr 18y ago
  What do you have that relies on future performance? It's not a matter of what's available but rather how one treats risk. I expect experts to have more sensibility than to bet the entire financial well-being of a company, employees, and public investors when dealing with 'invented' high-risk assets just because a computer said "Okay". Less than a decade ago everyone was freaking about because banking software might cause a financial melt thanks to a Y2K bug, little did we know the real impending crash was user-error. :) Just a thought.
  - 18y ago