Taking it to the streets! by Jonathan J. Dickau
I share in much of the discontent of the folks who 'Occupy Wall Street,' and many other locations around America today. But I wish there was a clearer sense of exactly what the protesters feel is wrong, and what they think might be better alternatives, than what I have seen in media coverage. I am hoping these mass gatherings will be a catalyst for positive change and improved circumstances for the average person, as we really need to turn things around and make things better, but I think that requires both a sense of great purpose, and that the kind of change people are hoping for is clearly stated. Just lashing out, by playing the blame game, perpetuates and justifies the Wall Street folks' sense of "us against them' thinking, by giving them a good reason to hate other people. But this protest -- which now has spread to cities all around the country -- is a remarkable opportunity for a great purpose to be served, if the right message comes out of it. It could bring meaningful change, but the public needs to understand what it is all about, and to get that message clearly, rather than imagining all that's happening is a bunch of young people milling about, who are demonstrating that they can whine and complain loudly.
Unfortunately; what the media shows is mainly that the protesters are upset with the finance sector and with corporations, and angry about the current state of affairs. But getting the right message across is crucial to meaningful change. While I appreciate the fact that celebrities can bring attention to a cause; I think the suggestion made by Roseanne Barr (decapitation), echoing the discontent of the protesters with Wall Street and Finance folks, did far more harm than good. It would not help anything for a lynch mob mentality to prevail, when what's needed is more sensibility, or fairness. Of course, the American people have a reason to be upset about the sorry state of the economy, and angry at the people who were rewarded -- in effect -- for taking the rest of us to the cleaners. A lot of people have seen through the lies that make the playing field unleveled and keep things from being handled fairly; but many folks who are in a position to know, and who know better, are keeping their mouths shut -- so as not to offend their superiors. Now too many of those people have already lost their jobs, while others who recently completed their education now can't get a job, so growing numbers are out in the streets protesting. However; they need to send others a clear message! I think it's time for someone to point out that the Emperor has no clothes.
You see; once the truth is out, and enough people know that certain falsehoods will no longer be ignored or tolerated, some of those who lied to keep their jobs will find that their lying has cost them a job instead. One way we can expose the lies is by fixing some of the bad Math used in the world of Finance. Simply put; much of that Math is extremely outdated and ill-equipped to deal with the rapidity and complexity of variations possible in modern stock and commodity exchanges, but there have been many advances in Mathematics which could improve Financial Math fundamentally -- increasing its power to make predictions and estimate risk accurately -- while making it inherently more transparent. If we fix the Math, it will be much harder for crooked people to get away with financial murder, but certain basic assumptions need to change, for that to happen. Perhaps the most important thing to change is the assumption that the folks who control the wealth are more intelligent than the rest of us, because they are financially successful. There are plenty of other ways to get rich, especially if you can fool people into believing you know better ways to make money than they do, but some people really are more intelligent, and they see through the ruse.
Had people heeded Benoit Mandelbrot's book on the (mis)behavior of markets, the crash in the Fall of 2008 might never have happened. He cautioned us about specific errors of judgment that are common in the world of financial Math, but should be avoided. Unfortunately this did not keep folks from believing in a bit of mathematical sleight of hand called the Gaussian Copula Function, by which someone named David X. Li knit together two well-known risk estimation formulas to create the basis for CDOs -- which are otherwise known as derivatives. Although the statement that risk which can be accurately predicted and thus contained is the same as no risk seems plausible, it is a lie. There is a fatal flaw in the Math as well. Li's equation assumes that certain variables will always act like a see-saw, so that if one goes up the other goes down. But when the housing market and the liquidity of the banks both went down, the real risk of a bursting bubble was seen. The idea that a risk-free investment instrument had been created was shown to be a lie. But the lies created, or covered over by bad Math in the world of Finance, are many indeed. The fallacies at work in the world of high finance reach deep into the core of Economics. And worst of all; the people in charge don't want to be told how to fix things or that there are better ways to do things, according to folks I know who have worked for Wall Street firms.
Part of the problem, according to one person I spoke with, is that before the finance sector began using mathematics sophisticated enough to do the job, some people would need to go back to school for another year or two of Mathematics. Of course, this seems silly to Wall Street folks. If all of the outsiders already believe you are an expert, why bother taking Math classes? If you can keep up appearances, by lying about how much you do and don't know, you can keep on making money -- by fooling others out of theirs -- even when markets go down. But, at some point, such a lie becomes a deliberate and malicious act of deception, a con job. Fortunately; for those who do understand higher Math, or have read the books by Mandelbrot and others, it's easy to see that the old school approach to Economics and Finance is rife with lies, half-truths, and mistaken assumptions. And some of these fallacies are easy to spot without any knowledge of advanced Math, or any specialized training in the subject of Economics. The tricky piece of this story is that some of the most obvious deceptions have come to be presented in a way that makes them appear quite plausible, or even logical, which makes them easy to accept. However; this appearance of reasonability gives the crooks and liars a wall to hide behind.
One big lie in the world of finance is what Alfred North Whitehead called the 'fallacy of misplaced concreteness' or reification -- where abstract entities are treated like things erroneously. If you've ever heard about a stock having momentum, you know what I am talking about. A stock is not like a ball, which is massive and solid -- with a definite trajectory when set in motion. It is inherently unpredictable, and varies in weight or value. The numerical value of a particular stock rises and falls with each exchange, and only after a certain number of exchanges take place can one discern its motion or its average direction over time. It has been said that economists display a kind of 'Physics envy' by co-opting some of the Math which came out of the physical sciences. But basing Economics on Classical Physics is just plain wrong! Market systems are far more like Quantum Mechanics, where there is a certain amount of built-in and unavoidable uncertainty, and where the exact value of certain observables is unknown and unknowable -- except through interactions which also serve as measurements. Things assume a particular value, in the Stock Market, only when a trade is executed. There always has to be both a buyer and a seller, and they must always agree on an exact sale price, so their interaction sets the value of that stock -- which was free to float until they reach a point of agreement.
There is a fairly well-developed body of mathematical knowledge which has come to be employed in Quantum Physics and elsewhere, that is well-suited for the job of modeling modern market systems accurately. There are also plenty of individuals who are skilled in the maths required to develop those models, including a fair number of out-of-work scientists who would be happy to find work that pays well. We need Math designed to handle the specific kinds of complexity we find in today's financial markets, and that Math exists now! What has been learned in Mathematics since Economics was first developed provides an impressive set of tools we can use in developing better mathematical models. However; that knowledge is not being put to use, and it can't help us manage things better until we do actually use it. Perhaps some of what has been learned in Chaos Theory could help us to set things up in a way where it would be easy to keep things from ever getting chaotic, so we never have to worry about market crashes again. Imagine that! But such a scheme could only work if it was adopted fairly broadly, or by some of the larger financial markets. Once a more intelligent system is put into place, by key players, its advantages would become apparent so rapidly that we'd have others adopting it quickly -- just to keep up.
My prediction is that when a better financial system is put in place, we will see a general uptick in the economy, as it will favor a win-win scenario over one where there always have to be losers for somebody to win. Our current system encourages people on Wall Street and elsewhere to create losers in order to win financial gains, because the fact that some folks have been given free rein to trash the finances of others -- who in many cases did nothing wrong -- amounts to a kind of sanction for their bad behavior. So it may be right to target the folks on Wall Street who have been waging financial warfare against the rest of us, in order to increase their own wealth, but we must also target the system which enables and encourages that kind of legalized thievery. We must acknowledge that our own government and other governing bodies around the world helped establish that system. However, rather than trying to take down the existing system; we need to create a better one, a system that is inherently transparent and unbiased -- which will reward prudent investors. The goal is not to abolish the free market economy, but rather to assure that there really is such a thing as a free market, instead of the badly rigged system in place today.
You see; only when it becomes clear to those in power that most people see through the lies, and that folks now want a system which is intelligent and fair, will they have to provide that -- in order to remain in power. But the prevailing mood or mentality needs to shift somewhat, in order for such a change to take place. The mentality prevailing in the world of Finance today is harmful and toxic to the general economy, but it could also derail or prevent needed change. And the inertia of this attitude is every bit as great a problem as anything I've discussed so far. A recent Swiss study focused on brokers and traders, comparing them with known psychopaths, and the outcome was rather disturbing. One might expect seasoned traders to beat the average, and easily outperform psychopaths, when placed in a game scenario where the goal is to maximize financial gain. But the researchers found the opposite was true. Moreover; the behavior of brokers and traders was found to be "more reckless and manipulative than that of psychopaths," according to an article in Der Spiegel, with their apparent intent being to defeat the opponent, rather than to maximize personal or collective gain. This suggests that some of the folks we trust with our money are not qualified to play the money game as well as they claim, or as we might imagine. Worse still; their effectiveness drops in a situation where maximizing both individual and collective gain is the goal. It would seem that the inequities in the system have shaped their personality in such a way that -- if the system was made fair -- they would perform poorly.
This does not mean that we should hesitate to make needed changes. Nor should we tolerate lies and enable devious people's bad behavior, just because that has been 'business as usual' for so long. The change can come gently, and in an orderly fashion, but it must happen at some point -- unless we want frequent market crashes and a dismally slow economy to be the new 'normal.' The majority of human beings can't live with that, so it is understandable that folks have taken to the streets in protest. You may not see my face down on Wall Street. But I know I have friends, or friends of friends, who have joined the ranks of protesters at some point over the past few weeks. I suspect that; if enough 'friends of' are added, most of the people reading this article could say they know somebody, or know someone who knows somebody (and so on), who has participated in one of the protests -- that I understand have now expanded to 70 cities or more. That indicates a lot of unrest and dissatisfaction with the current order of things. What began as a kind of experiment by the folks at Adbusters has become a full-fledged movement. So I hope someone is listening to my rant, as we already know that there is reason for dissatisfaction, but protesting alone won't get the job done. Even the Adbusters' original 'call to arms' suggested that people needed to gather with a clear intent and a definite purpose, but so far a unified and coherent message has yet to emerge. I will continue to hope that this happens.