Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Why is finance so complex? (2011)

interfluidity.com

Post reply on HN
Print view View original

111–120 of 148 posts

Re: Why is finance so complex? (2011)

#111

Post by vasilipupkin »

Spooky23 wrote: post #17
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…

All of these were done 25, 50, or 100 years ago. The basis for the mortgage industry as we know it was developed during the new deal. I need some serious convincing that the effects securitization of everything has been a net win. The markets for most of this stuff are made or directly supported by the Federal government.

securitization is just the process of transferring risk from those who think they can't hold it to those who think they are very good at holding it. It is a tool, and it is a very good tool. A shovel is a tool and if I take a shovel and kill someone with it, that doesn't make the tool itsel bad

Re: Why is finance so complex? (2011)

#112

Post by jameshart »

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.

People who can afford 400k mortgages expect to earn, over their lifetime, more than 400k. They just haven't earned it /yet/. The willingness of people to pay them over 400k for a lifetime of labor is what makes houses worth that much, not the willingness of banks to lend them that money today.

Re: Why is finance so complex? (2011)

#113

Post by iolothebard »

hiram112 wrote: post #59

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 tha…

Lmao, can't understand it so it's corrupt.

Sounds like all the people that think the same about IT. It's "magic".

Buy and read some books, it's laid out pretty clearly. If you're not sure what to read, email some of the professors in finance at the University you went to.

Re: Why is finance so complex? (2011)

#114

Post by gbog »

peterfirefly wrote: post #90
gbog wrote: post #40

Earlier quoted context omitted.

Yes. For instance, before invention of vector notation, many laws of physics were extremely complex. Before Copernicus system, describing the movements of planets was very complex too. While not hundred percent sure, it is highly possible that finance complexity will magically disappear once we get a proper model for money transactions. I certainly hope so, because a better model means more means to solve economic is…

It was still very complex after Copernicus. His system still used circular orbits and epicycles. The only real difference was that he put the sun in the middle instead of the Earth. In fact, it required more epicycles / gave more imprecise results. The real improvement came when circles were replaced with ellipses by Kepler. That wasn't entirely accurate, either, but replacing the ideal circles with the law of Gravit…

Ok, maybe it was Kepler, but the argument still holds: something that we believe is extremely complex could very much become much simpler and obvious in the future. This would require changing the place of the "center". Maybe it mean that money is not what we believe it is, or that banks should not be big companies but some fluid, or that wealth is not really transmitted during a transaction, or whatever. Finance is dangerously complex and may not have to be like that. Every timesomeone explains stock options to me I understand for ten minutes and then forget is definition. This means the model didn't stick, for me at least. (Good mathematical models are very sticky, told once about it one well never forget) So it's a mess and it's worth trying something else.

Re: Why is finance so complex? (2011)

#115

Post by tedunangst »

hiram112 wrote: post #59

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 tha…

Stop quoting lies. http://www.monticello.org/site/jefferson/private-banks-quota...

Re: Why is finance so complex? (2011)

#116

Post by Sone7 »

iolothebard wrote: post #113
hiram112 wrote: post #59

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 tha…

Lmao, can't understand it so it's corrupt. Sounds like all the people that think the same about IT. It's "magic". Buy and read some books, it's laid out pretty clearly. If you're not sure what to read, email some of the professors in finance at the University you went to.

I'm curious what makes you so sure you really understand it? It seems to me that when wealth is being concentrated more and more into the hands of the wealthiest all over the world, there is something deeply wrong with the financial industry and its textbooks.

Re: Why is finance so complex? (2011)

#117

Post by ZenoArrow »

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…

Bingo. Cut out the middle man, or at least make the middle man not-for-profit. Prices would drop and nothing of value would be lost.

Re: Why is finance so complex? (2011)

#118

Post by ZenoArrow »

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.

I prefer the suggestion of Positive Money ( http://positivemoney.org ), which is that bank accounts are split by savings and investments. Savings would just keep your money safe (no interest), investments would have a potential return but also carry the risk of a loss. It'd be up to you how you wanted to split your money between savings and investments.

The bank that is the closest to this model (that I know of) is Mondo (due to be launching soon). Along with it's other innovations, it plans to allow you to invest money via Funding Circle for a potential return:

http://www.thememo.com/2015/06/25/meet-mondo-the-app-thats-g...

This is a smart idea on a couple of levels, it mitigates against the risk of bank runs and it provides a better return than many high street banks offer (the current average return rate from Funding Circle is 6.6%):

https://www.fundingcircle.com/statistics

Re: Why is finance so complex? (2011)

#119

Post by Apaec »

Ntrails wrote: post #107
nisa wrote: post #22

Earlier quoted context omitted.

*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…

>The Linux kernel is quite complex but each part of it is well understood and there are a lot mechanisms in software to reduce complexity. Well understood by experts, as is the appropriate section of the financial system. You chose to learn about the kernel, someone else chose to learn about asset backed securities. The guy who learned about Bach probably considers both to be very complex.

I have to say that the complexity of finance is more like the artificial complexity of Java EE, a regular developer can get a grasp of the Linux kernel by reading "Operating System Concepts", finance is more like a AbstractSingletonProxyFactoryBean.

Re: Why is finance so complex? (2011)

#120

Post by ZenoArrow »

britknight wrote: post #38
avmich wrote: post #21

Earlier quoted context omitted.

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…

> I thought my taxes pay for that :) . Do you mean "finances" as "machinery which helps moving money"? I think there are several definitions there. You are correct in that the money used to build highways etc. does start as your tax dollars. However, I would imagine that it is then held (and allowed to appreciate) in the form of a reasonably liquid portfolio of cash, bonds, and equities. I suppose you could technical…

> "You are correct in that the money used to build highways etc. does start as your tax dollars."

Taxes are not the only way that governments get money. Sales of government bonds are likely to generate a large portion of capital behind infrastructure projects.

Post reply on HN