Article: Covid-19 has exposed our financial fragility

Discussion in 'Economics' started by imjohn, Mar 21, 2020.

  1. imjohn


    zdreg likes this.
  2. zdreg


    "What do high frequency market making, share buybacks and high corporate debt have in common? They are supposedly tools to make trading, growth and returns on capital more efficient and cheaper, yet they have made the system more fragile and less resilient. Perhaps returns on capital and cheapness of market orders and ETFs are less important than stability and anti-fragility, i.e. designing systems that are robust in the face of stress."

    The author must be a fan of Taleb, the master of the subject, who wrote the book Antifragile:
    : Things That Gain from Disorder
    Last edited: Mar 22, 2020
  3. zdreg


    "In 1987 Per Bak, Chao Tang, and Kurt Wiesenfeld found that while sandpiles may be individually unpredictable, they all behave the same way. The critical finding of their experiments was that the distribution of sand avalanches obeys a mathematical power law: The frequency of avalanches is inversely proportional to their size. Much like forest fires, the less frequent they are, the more catastrophic they are."

    Exactly. The notion that the Fed or any Central Bank" can eliminate recessions has once again been proven wrong.
    cdcaveman and imjohn like this.
  4. southall


    Im not sure the virus exposed how fragile things were and are. This was all plain to see for decades.
    The Government, Wall Street, the Media and Fed have been gas lighting us for decades.
    The solution for too much debt is more debt and lower interest rates so everyone can borrow more.
    Most don't care as long as the economy is growing and everything appears rosy.
    And anyone who points out this insanity is made to feel like they are the insane ones.
    Last edited: Mar 22, 2020
    jys78, prefro and schizo like this.
  5. schizo


    Oh, I like you already even though you might be insane. :D
  6. prefro


    Thanks for the link.
    One aspect that might make this financial crisis more severe than 2008 is the way institutions have tried to generate returns in a low-interest world by buying real-estate in major cities for investment. When these over-leveraged funds starts to go bust, their houses and apartments will go up for sale immediately and we might see a 20-30% price drop.
    Compare this to the small and slow drop in house prices in 2008 where people to a greater extent as compared to now lived in these houses and couldn't move until they found another place to stay. The price drop will lead to further forced sales and so on.