We have travelled a long way. A look back is a good way to end a journey.
We began with a discussion of some of the concepts essential to any discussion of contemporary finance. Why do stock prices move? Do they move randomly? We discussed the fact that modern finance theory has long used the bell curve as a randomness base line.
Related to this, we said that the efficiency of markets, built as it is upon their liquidity and transparency, as well as the fact that a lot of very smart people are looking for an edge in competition with one another, is an adequate explanation for random movements, but that inefficiencies of inefficiencies of markets, which show up as skewed or otherwise non-normal curves, require other explanations.
From there we moved to the questions: how stock options derive their value? And, what are the defining facts about bonds, either corporate or sovereign? We also discussed accounting, and so the balance-sheet difference between stocks (as equity) and bonds (as debt).
In the second section, we turned to the recent history of finance capitalism, both the ways in which academia understands it and the way in which it is in fact practiced. In the matter of practice, we discussed the Clinton era crises over Mexico and East Asia, and we worked our way forward through the internet revolution, the dotcom bust, the Bush II era housing bubble and its bust, the fall of Bernard Madoff, and the rise of high-frequency trading in the markets, along with the disappearance of those colorfully jacketed old-fashioned floor traders.
Since then, the rolling crises have been those of the European sovereigns, as the continent tries awkwardly to come together as a single financial entity while several of its participant states seem poised to come apart.
A rescue package for Greece, announced by the European Financial Stability Facility in July 2011, is symptomatic of the broader rolling crisis. Though the announcement looked a lot like a dressed-up default, investors reacted with relief. Bad though it was, it still seemed to them a stumble forward rather than back.
In this third section, we have tried to extrapolate near-term future trends based upon three legacies: the nation-state form, the growth of militant Islam, the increasing significance of the blend of secularism and Islam in the nation-state of Turkey, and now the availability of alternative 9non-nation-state based) currencies. I believe an attentive reader has received a fine return on his investment in terms of the grasp of the existing and unfolding world, and I could without further ado rest my labors.
Except that I wish to express my own sense of optimism about our species. Here it is: I see the world of finance as part – an important part, though not the important part – of the continuing effort of the species to reconcile with one another, to allow one another to pursue a variety of disparate life goals without conflict. In the end this will mean, this must mean, that we or our descendants (not too far distant) will find ways of interacting that do not depend upon sovereignty, hierarchy, and command.
This is why the cryptocurrencies are so important. Each is a peer-to-peer network, where there is no central bank, nor any central computer, nor even any central cloud. There is no central anything, no chain of command, no highest link. There are peers.
I look forward to the day when humanity itself shall be one really big peer-to-peer network.