Charting The Exponential Function Of Financial Complexity

Tyler Durden's picture

There is a perverse macro-level outcome from over-zealous central-planning. We have talked in the past about the greater risk of huge tail events in a controlled/normalized/planned/smoothed world, but as SocGen's Dylan Grice in an analogy to driving: "traffic lights and road signs are well intentioned, but by subtly encouraging us to lower our guard they subtly alter the fundamental algorithm dictating micro-level driving behavior." In other words, we drop our guard. With the plethora of financial market traffic light and road signs (Basel III, Solvency II, Bernanke Put) the fear is that this illusion of capital or safety has made markets more lethal (think AAA-rated bonds for a simple example). "We should be able to understand that the world isn’t risk free, can never be made risk free and that regulations which trick people into thinking it is risk free serve only to make it more dangerous." But instead, following the rule-of-Iksil (baffling with bullshit), regulators have gone the traditional route - but this time to an exponential place of craziness with Dodd-Frank - layering complexity upon complexity to give an out to those who abuse it most. Perhaps, as Grice notes, instead of focusing on 'fixing' the "crisis of capitalism", it would be more pragmatic to focus on the "crisis of dumb counterproductive intervention"?



Source: SocGen

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SilverTree's picture

I don't get it.

I guess i'll stack silver until I fully understand.

DoChenRollingBearing's picture

+ $55,000

Stack as much gold as you can get your hands on!

Remember, gold is the (one of the) only things that ALWAYS has postive marginal utility!  You are always happy when you get more.

The Monkey's picture

Does Dylan mean to imply that Grandma is taking undue risk with junk bonds? They have been steadily appreciating for almost 4 years and that fat 8% coupon pays for the cat food.

When she asks me what to do with extra cash, I simply advise her to buy the highest yielding junk. There is no risk.

NotApplicable's picture

Thank God for exponential functions! Without them, just how would we ever manage the infinite?

old naughty's picture

so, in other words, they have done it. Fool all of the sheeples all of the time.

ZeroPower's picture

I wonder, does one keep silver bars one bougt at $48 (because it was imminently going to $200 of course) at the top of the pile or at the bottom?

MillionDollarBonus_'s picture

But the crisis WAS caused by lack of government regulation. Let me explain this one more time for the libertarians who still don't get it (I apologize to those on this site who already understand the virtues of government regulations).


1. Politicians are elected by the people in order to reflect the will of the people. People are unable to express their will by themselves, so they need politicians to do it for them.


2. Politicians, driven by compassion and a selfless dedication to virtue, implement and enforce regulations to make sure that consumers are not allowed to make bad choices by forcing them against their will, not to make bad choices.


When will libertarians understand that liberals DON'T CARE about their stupid arguments!? Progressives know what they are advocating and have researched the impact of regulations extensively and scientifically, so they don't need to address the arguments of silly libertarians. 


Cognitive Dissonance's picture

Your (sarcastic) slip is showing MDB. Too funny.

Sadly I know people who think exactly as you describe.

DoChenRollingBearing's picture

CD, have you taken note of MillionDollarBogus_?

He's pretty funny too.


What is sad is that there are lots of people who think like you just wrote.  Sigh...

MeelionDollerBogus's picture

heheh MDB with just one more calorie of eeeeevil


Dr. Engali's picture


"Politicians, driven by compassion and a selfless dedication to virtue".


Where can I send the bill for one coffee filled keyboard?

allbetsoff's picture

I am assuming your post is MDB is all sarcasm... Right????

LawsofPhysics's picture

Bullshit.  Why not plot the repealing of laws as well.  Hello fuckers, how about what happened after the banksters repealed Glass-steagall.  Fuck the paper pushers.

tarsubil's picture

Isn't fraud and outright theft against the law or were those laws repealed? We have more regulations than ever and basic law is not enforced. Perhaps it is enforcement, not regulations, that we need.

LawsofPhysics's picture

"We have more regulations than ever..."

LMFAO!!!  That's a good sheep, parrot what the GOP/DEMS tell you.

tarsubil's picture

Seriously, are you 12 years old?

SimplePrinciple's picture

How do you program a drone for that?

Zero Debt's picture

Bill of rights: 1 page

US constitution base text: 4 pages

FXPortent's picture

Hold still, this injection of Hopium and Complacium should be all you need!

Flakmeister's picture

Great chart Tyler....

Can you spell "Captured Regulatory Process"?

I knew you could....

Cognitive Dissonance's picture

Since I entered the field of finance 23 years ago I have always laughed inside when I hear people talk about risk free Treasuries. Even though I didn't fully understand what fiat actually was back then, it seemed to me that anything run by self serving politicians wouldn't be that stable for very long. 

Too freaking funny. All fiat currencies eventually fail. How's that for risk free?

MachoMan's picture

He who controls the language molds the minds.

kridkrid's picture

The real battle, rarely mentioned. Frame the discussion and you can drive any activity. The bigger the concept, the easier the sale, seemingly. "the American Dream", manifest destiny, American exceptionalism, make the world safe for democracy, they hate us for our freedom, etc. All just language molding soft minds.

falak pema's picture

Men don't live by words they live by acts. In a society where only words count, we are in big trouble. That is the crux of the issue in a media sustained society. Then acts can be dissociated with words as only the media word is heard at face value. While the act occurs in the silence of the Capitol Hill night.

kridkrid's picture

as only the media word is heard at face value...

That's kind of the point, right?  People wait for the media to tell them what happened.  They'll watch a debate but wait for the pundents after the event to shape what they just saw.  They'll wait for the talking points after the supreme court hands down a decision... it's like clockwork... you see them and hear them everywhere (the talking points).

It's not that the act isn't seen... it's the people, having seen it, will allow the media to decide whether or not it's a big deal and allow it die with the 24 hour news cycle.

Nels's picture

Men don't live by words they live by acts.

Seems kind of a silly simplification. Animals live by acts.   However, except for the most solitary and brutish animals, they generally act within the code of the herd or pride or pack.

Honorable men act according to the words they live by.  Men without honor can't be trusted from one action to the next.

falak pema's picture

As any banker will tell you, 23 years is not enuff to learn the intricacies of the trade, let alone to forget THOSE OTHER things whose effacement is more important than what you will have learnt in the trade subsequently. As to be a TRUE financier you have to forget everything you learnt BEFORE becoming a servant of money; aka all subservience to moral, ethical and logical values. As the pursuit of financial gain as holy grail is alien to all these other values; as it nourishes itself on human failings not on human strength. That type of wisdom comes easily to cold blooded reptiles, with more difficulty to mammals with back bones. Until you shed your old skin and some of your vertebrae.

Never let a money changer run society, alone. He is a water carrier for the truly wise as he does not search wisdom or justice. Social Darwinism finds a good disciple in him, as "destructive creation" is an excuse like war to the predators. 

How do we, the normal 99%, who do not adhere to recurrent and overtly assumed predatory values, ensure that this 1% strain does not control society? Enigma! As the pursuit of happiness makes such useful idiots out of us, we let them control the city until its too late to take it back from them.

Jason T's picture

from a Mish Shedlock post recently:

  • Pythagoras' theorem – 24 words.
  • Lord's Prayer – 66 words.
  • Archimedes' Principle – 67 words.
  • 10 Commandments – 179 words.
  • Gettysburg address – 286 words.
  • US Declaration of Independence – 1,300 words.
  • US Constitution with all 27 Amendments – 7,818 words.
  • EU regulations on the sale of cabbage – 26,911 words.

tarsubil's picture

Cabbage is a highly dangerous business. We need those regulations to protect us from cabbages. You wouldn't laugh if you found yourself alone at night in a dark alley with a cabbage.

akak's picture

We fight cabbage over there so we won't have to fight it over here.

For the children!

LawsofPhysics's picture

Have all the words you want, it means nothing if you don't enforce the fucking laws and have real consequences for bad behavior.

tarsubil's picture

Absolutely! We need to enforce the cabbage regulations!

akak's picture

If cabbage is dangerous (which of course it is), then horseradish is positively EVIL!


Fuck prime rib eaters, and the horseradish they rode in on.

You can lead a horseradish to water, but you can't make it not stink.

Horseradish is dangerous at both ends and unpalatable in the middle.

There's no point in (b)eating a dead horseradish.

Don't put a gift horseradish in your mouth.

When horseradish is outlawed, only outlaws will still eat horseradish.

Visualize horseradish-free world peace.

Think globally, act anti-horseradishly.

My parents went to Poland, and all they brought me back was this damned horseradish!

slewie the pi-rat's picture

polish leaded crystal horseradish is the way to go imo, ak!


repeal dodd/frank is republicunt drama!  socGen? 

  1. just elect mittens! 
  2. keep the House republicunt majority; 
  3. get a 60-R senate; 
  4. overturn 0bummerCare; 
  5. overturn dodd/frank; 
  6. and then mittens and the neoCons murdering torturing fascist mofo MIC bastards will tell us what to do next

i just LOVE it when a plan comes together after scotus leaves mittens as hairless and stimpy after the morning napalm and coffee

ain't gonna happen socGen;  trust me

everything is screwed down tight;  slewie gets his check;  you don't!  fuk you if you don't like it socGen cocksuckers!  Hahaha! 

Dr. Engali's picture

U.S Constitution was 6 pages. Glass -Stegall was 37 pages long.  Dodd Frank  2319 pages.    The more corrupt the state the more it legislates ~Tacitus~


MachoMan's picture

Yep.  It's the inevitable result of monetary expansion...  it always finds a home...  it spreads into every facet of our society...  especially legislation.

Dactuck's picture

Great Post.  Financial complexity has help create judicial and legislative obfuscation.   Is there any other reason Corzine, Abelove, And Steenkamp (The Three Blind MF Global Mice), still run free?

StychoKiller's picture

"There's no way to rule innocent men.  The only power any government has is to crack down on criminals.  Well, when there aren't enough criminals, one makes them.  One declares so many things to be a crime that it becomes impossible for men to live without breaking laws.  Who wants a nation of law-abiding citizens?  What's there in that for anyone?  But just pass the kind of laws that can neither be observed nor enforced nor objectively interpreted--and you create a nation of law-breakers--and then you cash in on guilt.  Now that's the system, Mr. Rearden, that's the game, and once you understand it, you'll be much easier to deal with. --  Dr. Floyd Ferris, "Atlas Shrugged"

viator's picture


What Caused the Financial Crisis
Jeffrey Friedman (Editor), Richard A. Posner (Afterword)

"Editor Jeffrey Friedman takes a Hayekian approach to the most recent financial crisis of 2008 and concludes, along with his contributors, that the primary problem was information failure (i.e. ignorance on the part of regulators and market participants). But, he makes an important distinction: information failures work very differently among regulators and market participants. While there may be heterogeneous opinions among regulators as to the correct regulations, only one theory gets codified into law. In contrast, discordant theories between market participants lead to competition and a darwinian weeding out of erroneous strategies via profits and losses."

Plausible Deniability's picture

Regulatorts missed real estate prices going up 10-12% a year?? Thats all you needed to hear to know that we were in a bubble. It was THAT simple. That should have prompted digging around, and boom, they would have seen the ugly under belly that was the sub prime market. Its politics. There was no incentive to turn off the ATM. On top of that, we have mistaken an ivy league education for real organic intelligience. There is an unbelievable amount of group think going on in the highest Wall Street and Washington circles. We have tossed aside experience and organic brilliance and replaced them with religious like adherence to central banking/planning, despite the fact that it is been, by far, the most consistently and spectaculary disastrous economic doctrine of the century. We have self serving and corrupt dip shits running this country. I love these economists with these elaborate reasons for the financial crash. All you had to do was look at historic real estate prices and read the damn white paper on a CDO! Regulators will never be the answer because they never have been. Think about this, the market is more regulated than at ANY time in history, and we have the most devastating frauds and collapses of all time. No one ever stops to think of the unintended consequences of more regulation or why the super banks are so willing to back the regulations that will supposedly "put them on a leash". Increased regulations make the cost of competing with the mega banks impossible. They can take advantage of economies of scale and use their global presence to re-route profits and avoid taxes. Every regulation only strengthens the strangle hold of the super banks. The only regulations that work are those of the Glass-Steagle (sp?) ilk, which simply say no. There is no inner mingling or "regulation". Just a simple "NO". Regulation is a myth, a popular strategy of those seeking to solidify their market dominance and prevent the up and coming competition from breathing down their neck.

I know its over used and its source is debated, but this quote says it perfectly "that a democracy cannot exist as a permanent form of government. It can only exist until the voters discover they can vote themselves largesse out of the public treasury". This is precisely what has happened in Europe and here.


Umh's picture

Third brake light. Seemed to work until they became the norm.

Safer cars have been mentioned as a reason for more accidents?


Things that are designed to provide safety work like the net around children's trampolines; just fine until you start counting on the net.

Fort's picture

There once was a rock band called Europe. They had this one nice up beat song called "It is the final countdown". Seems like it was a hit 25 ought years to early. For Europe the countdown has arrived. Ladiladila. O, lalala come guys throw in another EU-summit I just can't get enough of the broken record.

tabasco71's picture

Great points made in this article.

Regulation is as useless as a manual that explains to you precisly how you can ride a motorbike blindfold at 200mph...

No matter how detailed the manual, you need to have your own common sense!!

MeelionDollerBogus's picture

And yet ... several robot cars now let you sit and drive completely blindfolded and it works.