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.
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