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Why is finance so complex? (2011)

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Re: Why is finance so complex? (2011)

#51

Post by coderzach »

alextgordon wrote: post #44
bluedevil2k wrote: post #42

Earlier quoted context omitted.

You need a mortgage because you don't have $400,000 in cash sitting around. You need insurance because you don't have the personal finances to adequately cover the risk of "life"

If we live in a democracy, and money is backed by the state, why do we have to pay interest to profit-making banks and insurance companies? Giving out mortgages is not difficult. You just have to be a bank. Not only that but 2007 showed that profit-making banks are even worse than a reasonable person, or precocious five year old, would be at deciding who should be given a mortgage. Mortgages are a necessary part of s…

So you want to collect enough taxes to have the government provide zero interest mortgages. Does that mean everyone gets a mortgage, regardless of creditworthiness? You want me to pay for other people's mortgages, when they won't even give me one?

Re: Why is finance so complex? (2011)

#52

Post by coderzach »

denim_chicken wrote: post #45
bluedevil2k wrote: post #42

Earlier quoted context omitted.

You need a mortgage because you don't have $400,000 in cash sitting around. You need insurance because you don't have the personal finances to adequately cover the risk of "life"

> You need a mortgage because you don't have $400,000 in cash sitting around. And a large part of why housing costs $400,000 in the first place is due to the availability of mortgages. Mortgages gave themselves a reason to exist.

Not really. Land, Materials, and a team of carpenters/electricians/roofers/hvac/painters for 3-6 months ends up at around 400k. It's not really that crazy. If you paid them all programmer salaries, you'd never get a house for under 1mm.

Re: Why is finance so complex? (2011)

#53

Post by kazagistar »

obrero wrote: post #19
h8trswana8 wrote: post #14

The world of finance makes these aspects of your life function: * Allows you to get a mortgage * Allows you to protect yourself with health/car/life/home/title/etc insurance * Pays for your highways/stadiums/schools and other public works * Protects your deposits * Pays for your retirement * Funds the college fund that paid for your school * ... Or the student loans that allowed you to attend school * Supports the gl…

> Like a software system, it's extremely naive to think that complexity is a sign that a system is rotten. The reality is, the derivatives market is larger than the actual market. More capital is invested in calls guessing if Google is going up than is actually invested in Google. This is a sign something is rotten. This article from 2008 has a lot of interesting data from after the subprime crash ( http://monthlyrev…

Out of curiosity, where does the capital sit when it is "invested in derivatives"?

Re: Why is finance so complex? (2011)

#54

Post by bmelton »

alextgordon wrote: post #44
bluedevil2k wrote: post #42

Earlier quoted context omitted.

You need a mortgage because you don't have $400,000 in cash sitting around. You need insurance because you don't have the personal finances to adequately cover the risk of "life"

If we live in a democracy, and money is backed by the state, why do we have to pay interest to profit-making banks and insurance companies? Giving out mortgages is not difficult. You just have to be a bank. Not only that but 2007 showed that profit-making banks are even worse than a reasonable person, or precocious five year old, would be at deciding who should be given a mortgage. Mortgages are a necessary part of s…

Even if the banks weren't trying to make a profit, you'd still have to pay interest as loan-making is inherently risky enough that at some point, somebody has to cover the costs of those who default.

Re: Why is finance so complex? (2011)

#55

Post by Lorento »

pessimizer wrote: post #11
slg wrote: post #8

>The core purpose of status quo finance is to coax people into accepting risks that they would not, if fully informed, consent to bear. That is a pretty loaded statement. That would be like saying the core purpose of the software industry is to destroy jobs and in turn collect part of the salary that those jobs previously paid. It might technically be true, but it is twisting things to make them sound intentionally e…

But it's actually true. I've personally had the experience (as a freelancer) of watching people that I had just recently met be laid off because of what I was being generously paid to do. I did not like it. I could at least comfort myself by the fact that what I was doing was actually useful (and creating efficiencies that destroyed jobs), whereas concealing risk is actively deceitful and destructive.

According to the article though, this deceitfulness is actually good, not destructive. It puts us into a more productive Nash equilibrium than we'd be if we each individually assessed the risk of our single investment and said "na, too risky".

Re: Why is finance so complex? (2011)

#56

Post by saryant »

avmich wrote: post #21
h8trswana8 wrote: post #14

The world of finance makes these aspects of your life function: * Allows you to get a mortgage * Allows you to protect yourself with health/car/life/home/title/etc insurance * Pays for your highways/stadiums/schools and other public works * Protects your deposits * Pays for your retirement * Funds the college fund that paid for your school * ... Or the student loans that allowed you to attend school * Supports the gl…

Well, there could be some counterarguments. > Allows you to get a mortgage Wonder if that was always so? Didn't people manage somehow to have a house without something which name suggests it will be paid for the whole life? > Allows you to protect yourself with health/car/life/home/title/etc insurance A casino, right? On average you lose, but for a price you buy a hedge against unforeseen? At least unforeseen for you…

> > Pays for your highways/stadiums/schools and other public works > I thought my taxes pay for that :) . Do you mean "finances" as "machinery which helps moving money"? I think there are several definitions there.

If your local municipality can go to Big Investment Bank Inc to arrange a bond issue, they can time-shift their tax receipts in order to build that new school/library/highway overpass now rather than 10 years from now.

Re: Why is finance so complex? (2011)

#57

Post by innguest »

"The study of money, above all other fields in economics, is the one in which complexity is used to disguise truth or to evade truth, not to reveal it."

John Kenneth Galbraith, Money: Whence It Came, Where It Went (1975), p. 5

Re: Why is finance so complex? (2011)

#58

Post by jsprogrammer »

bmelton wrote: post #54
alextgordon wrote: post #44

Earlier quoted context omitted.

If we live in a democracy, and money is backed by the state, why do we have to pay interest to profit-making banks and insurance companies? Giving out mortgages is not difficult. You just have to be a bank. Not only that but 2007 showed that profit-making banks are even worse than a reasonable person, or precocious five year old, would be at deciding who should be given a mortgage. Mortgages are a necessary part of s…

Even if the banks weren't trying to make a profit, you'd still have to pay interest as loan-making is inherently risky enough that at some point, somebody has to cover the costs of those who default.

Defaults exist because it is a loan-backed currency.

Re: Why is finance so complex? (2011)

#59

Post by hiram112 »

FWIW, I'm relatively quick, pick up languages (both CS and natural), frameworks, algorithms, etc. without much trouble.

But I've tried again and again to understand how our basic Federal Reserve System functions - Gov't debt, banks, reserve margins, mortgage loans, etc. etc.

I've NEVER gotten a basic "THIS IS HOW IT WORKS in 21 DAYS", Stack Exchange-type-answer. Lots of opinions...

This itself leads me to believe that Finance is corrupt.

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

T. Jefferson

Re: Why is finance so complex? (2011)

#60

Post by forrestthewoods »

nisa wrote: post #22
h8trswana8 wrote: post #14

The world of finance makes these aspects of your life function: * Allows you to get a mortgage * Allows you to protect yourself with health/car/life/home/title/etc insurance * Pays for your highways/stadiums/schools and other public works * Protects your deposits * Pays for your retirement * Funds the college fund that paid for your school * ... Or the student loans that allowed you to attend school * Supports the gl…

*If you life in a first world country and come from at least a lower-middle class background You are talking about money. Not modern wall-street finance. > huge amount of human progress is owed to modern-day financial institutions. Like synthetic credit default swaps? > Like a software system, it's extremely naive to think that complexity is a sign that a system is rotten. Complexity that can't be coped with is rotte…

"Complexity that can't be coped with is rotten!"

I respectfully disagree.

https://en.m.wikisource.org/wiki/I,_Pencil

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