If statistics gives you a headache, just watch the video and skip to the next post.
https://www.youtube.com/watch?v=c7AihnLbw1EI get a headache too ;-)
The Thought for the Day
"This emerging nonlinear structure forces the system to take, or "collapse" to, one of
its multiple possible realisations, which means that those realisations, actually and
unceasingly replacing one another in a dynamically random, or "chaotic," order are
dynamically symmetric among them, while they always differ in their detailed, partially
irregular structure."
[Universal Symmetry of Complexity and its Manifestations at Different Levels of World Dynamics
Kirilyuk, 2004.]
Picking up from my earlier post:
Haldane comments that "To provide some context, assuming a normal distribution,
a 7.26-sigma daily loss would be expected to occur once every 13.7 billion
or so years. That is roughly the estimated age of the Universe."
How inconvenient. Because when we decide to replace normal, Gaussian, with the
power law relationship, we immediately have a problem. Unless restrictions
are placed on the model, the area under the power law curve can be infinite.
Fortunately, power law relationships are common in nature, are well documented,
and hence some comparisons can be drawn with recent experience in the financial
systems. Most systems that offer exponential growth can be expected to exhibit
other features of power law relationships, including emerging nonlinearities.
The Sand Pile is perhaps the (deceptively) simplest system to understand. Sand
flows at a constant rate onto a pile. The subsequent avalanches that occur fit
a power law relationship. The longer the interval between collapses, the bigger
the expected collapse. Avalanche always happens.
In general, all forms of debt exhibit exponential growth, and unless there is
evidence that financial systems are exceptions to universal laws, the longer the
interval, the greater the expectation of a collapse. Note that interests vested
in financial systems have an incentive to promote the idea that their debt can
never fail, that their "money" is sound but the others cannot be trusted.
I've read that AAA rated debt carries an expectation of a default every 10,000 years.
Really? I'd be pushed to accept 100 years just based on past civil and world wars,
nuclear proliferation, and the tendency for reserve currencies to have a lifespan
of less than 200 years. Throw in Unrestricted Banking, Problem Banking, uncertainties
around Climate Change, Peak Cheap Oil, Limits to Growth, and 30 years seems to me to
be a believable figure. I picked that figure out of my arse, BTW. (The technique was a
trade secret of the Anglo Irish Bank prior to 2009.) There's more on this later.
Next up - Dexia Bank Failure - 6 October 2011
http://www.bbc.co.uk/news/business-15180153"In spite of all this, Dexia passed July's banking stress tests carried out by the
European Banking Authority. This happened because the bank had a core tier one capital
ratio of 10.3%. The measure weighs up a bank's top-notch assets against its more risky
holdings and is used to gauge its financial strength. Dexia's score put it well above
the 6% threshold demanded for a clear pass. So on 15 July, the bank issued a press
release headlined "2011 EU-wide stress test results: no need for Dexia to raise
additional capital"."
Well, that escalated quickly. Fortunately, or unfortunately, Dexia was unable to
print its own banknotes, ran out of credit, so got put on the naughty step, and some
stuff got pushed into a "bad" bank. The privilege of printing Euro Notes belongs to
the European Nation States, who each have the right to print the notes, and then add
an identifying character to the serial numbers, and all under the control of the ECB.
And the meaning of "objective", and "probability" is ?
http://www.zerohedge.com/news/2015-09-03/central-banker-urges-lying-public-about-bank-health"The optimal level of 'informativeness' ... depends on the objective probability that
the banking sector is vulnerable," authors Wolfgang Gick, from the Free University of
Bozen, and Thilo Pausch, an economist with the Bundesbank, wrote.
Anyone still believe? Anyone think the problems of 2008-2009 are gone forever? Anyone?