
Can Topology Prevent Another Financial Crash? - dnetesn
http://nautil.us/issue/37/currents/can-topology-prevent-another-financial-crash
======
fiatmoney
Financial networks interpret regulation as damage and route around it.

~~~
ethbro
I'd characterize it as their fitness function is "amount of profit generated"
and they attempt to maximize that. Or are you saying financial firms would
voluntarily leave profit on the table in order to help mitigate systemic risk?

~~~
fatbird
In Alan Greenspan's testimony to Congress on the 2008 crash he said he
believed Wall St. was smart enough to do exactly that: collectively manage
systemic risk by factoring it in, which would necessarily reduce profits by
forsaking some short terms gains.

He was wrong.

------
jackgavigan
CCPs can certainly help prevent a reoccurrence of what happened with Lehman
Brothers, where, unlike the Treasury, the market didn't _know_ that Lehmans
net exposure was relatively small (~$6bn if I recall correctly) compared to
the hundreds of billions worth of derivatives it had written, and therefore
were scared that if they kept extending credit, they'd be left holding the can
if Lehmans went under.

Under the new regulatory regime, a re-run of the 2008 financial crisis would
have engendered far less FUD and Lehmans could well have survived. Nobody
would have been scared that Lehmans' potential inability would have
represented an existential threat to _their_ firm because only the CCPs would
have been exposed. (This is a gross simplification but you get the point.)

However, as the article makes clear, the counterparty risk is now all
concentrated in just a few CCPs. We also don't know how the market will evolve
after central clearing becomes mandatory. The markets have a habit of behaving
with a certain ruthless efficiency when it comes to exploiting loopholes or
opportunities created by regulation so, like the army that prepares for the
last war, the new regulatory regime may not protect against emergent market
risks and behaviours.

~~~
cm2187
I think it is rather the contrary. There has been a fundamental regulatory
change that would make it _more likely_ that a Lehman would go bust and that's
a good thing: the introduction of bail-in.

Bail-in is the power given to the regulator to declare a bank non viable and
to impose losses on its creditor over a week end, and as a result auto-
recapitalise the bank, which will be open for business and healthy the
following Monday. You can see it as a flash, extra-judiciary chapter 11.

The regime is designed to impose losses on regular creditors (bond holders),
rather than clients taking a credit exposure to the bank through derivatives
or deposits, even if in a bankruptcy these would have the same ranking and
should suffer the same losses. This should reduce a lot the disruption on the
market of a bank going bad.

Banks have been required to hold minimum levels of bailinable wholesale debt
to ensure regulators can do a large scale bail-in.

This a fundamental shift which banks, regulators, and large bank creditors are
well aware of, but seems to be completely unkown to the general public. That's
kind of as absurd as keeping the dooms day machine secret in Dr Strangelove.
The ability to do bail-in is probably the main factor that reduced
dramatically the risk of another 2008-style financial crisis.

------
ZoeZoeBee
I have a problem finding credence with any article which talks about
preventing a future financial crash without mentioning the Central Bank Of
Japan.

They've taken the liberty of purchasing vast amounts of equities in the hopes
of financing the Japanese retirement fund.

>While the Bank of Japan’s name is nowhere to be found in regulatory filings
on major stock investors, the monetary authority’s exchange-traded fund
purchases have made it a top 10 shareholder in about 90 percent of the Nikkei
225 Stock Average, according to estimates compiled by Bloomberg from public
data. It’s now a major owner of more Japanese blue-chips than both BlackRock
Inc., the world’s largest money manager, and Vanguard Group, which oversees
more than $3 trillion [http://www.bloomberg.com/news/articles/2016-04-24/the-
tokyo-...](http://www.bloomberg.com/news/articles/2016-04-24/the-tokyo-whale-
is-quietly-buying-up-huge-stakes-in-japan-inc)

Demographics and central bank balance sheets being what they are, there is no
way these purchases can continue indefinitely and this is certainly not
indicative of a healthy market.

~~~
mathattack
Completely different topic. This is talking about reducing counter-party risk
in derivatives by creating central counter-parties. (Of course derivative
counter-party risk was more a symptom of the real estate driven crash, but
that's another story)

There are dozens of other problems which can cause the next one. Most
regulations fight the last war, so the next one will be different.

------
ellius
Probably not:
[http://streetwiseprofessor.com/?p=10004](http://streetwiseprofessor.com/?p=10004)

~~~
pdabbadabba
This is an interesting piece, written by an obviously very smart person. But
the argument really seems to reduce to:

> The simple fact is that anybody who thinks they know what is going to happen
> is dangerous, because they are messing with something that is very powerful
> that they don’t even remotely understand, or understand how it will change
> in response to meddling.

Or, more specifically, there are economic reasons why the network formed the
way it should so we disturb it at our peril.

Huh?

First of all, this line of argument would seem to doom any attempt to regulate
the economy whatsoever. One can always say: but the market is really
complicated and it has developed the way it has for good reasons so its
dangerous to mess with it.

He's right that this will always raise the possibility of Unintended
Consequences. So it's a welcome point. But he's also discounting the fact
that, given people's level of expertise, and the sometimes dismal status quo,
it's hardly self evident that regulation is never the right move. Returning to
this case: it's the obvious response that the network may have evolved the way
it did for good economic reasons, but we have good reason to doubt that these
reasons adequately include the safety of the financial market as a whole in
the very long term? This, of course, is why we have regulators in the first
place: because the aggregate interests of private actors in the market do not
always correspond to our collective social interests.

~~~
conistonwater
He's a bit more specific that that:

> _One major problem–which I’ve been on about for years, and which I am quoted
> about in the Nautilus piece–is that counterparty credit exposure is only one
> type of many connections in the financial network: liquidity is another
> source of interconnection._

> _As a practical example, not only does mandatory clearing change the
> topology of a network, it also changes the tightness of the coupling through
> the imposition of rigid variation margining. Tighter coupling can change the
> probability of the failure of connections, and the circumstances under which
> these failures occur._

> _Another problem is that models frequently leave out some participants. As
> another practical example, network models of derivatives markets include the
> major derivatives counterparties, and find that netting reduces the
> likelihood of a cascade of defaults within that network. But netting
> achieves this by redistributing the losses to other parties who are not
> explicitly modeled. As a result, the model is incomplete, and gives an
> incomplete understanding of the full effects of netting._

> _Thus, any network model is inherently a very partial one, and is therefore
> likely to be a very poor guide to understanding the network in all its
> complexity._

FWIW, I think he's right to bring this up, as there are things that we already
know of that the topology model doesn't cover.

------
eru
If the market monetarists' arguments are to be believed, financial crashes are
not too much of a problem in any case. Recessions are. And the two need not be
related.

Eg Black Monday in 1987 did not cause a recession. Neither did the flash
crash. Even the Great Depression did not start because of the crash of 1929.

What's important is nominal GDP, and the central bank can target that to keep
it on a stable growth path.

~~~
ArkyBeagle
Best I can tell, market monetarism devolves to assumptions/beliefs about which
strength of the EMH to use and about volatility. I'm interpreting "market
monetarism" as "use an NGDP futures market".

This should (IMO) be viewed as a decent summary:

[http://noahpinionblog.blogspot.com/2012/07/excess-
volatility...](http://noahpinionblog.blogspot.com/2012/07/excess-volatility-
and-ngdp-futures.html)

I am not 100% sure I actually understand the post - I'd think that a "low pass
filter" could be applied to Fed actions to address this, but it could easily
be that I'm simply wrong about that. I have two competing biases - one,
control theory, and two, a skepticism of how the EMH works out in real life.

Also, it's not clear to me exactly what would happen if the Fed simply adopted
say, a 4% inflation target.

~~~
eru
I wouldn't use Noahpinion to learn about market monetarism. See Scott Sumner's
comment on this very piece at
[https://noahpinionblog.blogspot.com.au/2012/07/excess-
volati...](https://noahpinionblog.blogspot.com.au/2012/07/excess-volatility-
and-ngdp-futures.html?showComment=1341524261442#c5205186238350730702)

> Also, it's not clear to me exactly what would happen if the Fed simply
> adopted say, a 4% inflation target.

In practice, they seem to have an inflation ceiling, not an inflation target.

But it has not too much to do with nGDP targeting. (Or only insofar as nGDP
targeting right now would suggest looser money, so going for more inflation
would do the same thing.)

Also, are you talking about a 4% level target?

~~~
ArkyBeagle
Wow. I was trying to be balanced about it. I didn't read the comments ( mea
culpa ).

I generally read Sumner first. But I've caught that criticism of market
monetarism from other sources. Now I wonder if it's valid.

I was talking about two things - nGDP and a 4% inflation target.

I wish we were talking about a 4% inflation target, although after watching
the Yellen grilling a coupe of Mondays ago I wonder of we can even do that.

~~~
eru
What we are actually interested in is eg industrial output and unemployment.

Stable nGDP growth seems pretty closely correlated with those two. Inflation
less so.

The standard examples are: the oil price shocks of the 1970s gave us
inflation, but nGDP crashed. The IT bubble and the housing bubble saw nGDP
grow above trend, but not inflation.

Nominal GDP is relatively straightforward to define and measure; inflation
comes with all kinds of thorny philosophical questions about quality
improvements.

That being said, targeting the trajectory of the price level (=`level
targeting') might still be a better idea than the current system, where the
central banks see their inflation targets as ceilings instead, and don't make
up this year for the targets they missed last year.

Scott Sumner argues that targeting aggregate nominal labour income might
actually be slightly superior to targeting nGDP, but it's wages that are
sticky. But the labour share of GDP is pretty stable over time in rich,
diversified economies, so it doesn't make too much of a difference.

The best advertisement for nGDP targeting I've read was Scott Sumner's slogan
that it's making the world safe for laissez faire capitalism: it's much harder
to organise political opposition to creative destruction, if everyone knows
that full employment is almost guaranteed, and there won't be any recessions.
Let the banks fail, abolish tariffs, let the immigrants in, review restrictive
licensing requirements, etc.

~~~
ArkyBeagle
Yep. Having (mis)read "A Monetary History of the United States" as an
undergrad and having done an actual research paper on "why was there a
Depression" by interviewing older relatives in the 1970s, I was extremely
receptive to Sumner's ideas.

And your point about the oil shocks - and WIN buttons - also contributed to
this.

~~~
eru
WIN buttons?

I am currently reading Sumner's book about the Great Depression ("The Midas
Curse"). Seems pretty interesting so far.

Now, I just need to find a country to migrate to that does nGDP targeting and
finances itself via land value taxes alone.

~~~
eru
Oh, found it:
[https://en.wikipedia.org/wiki/Whip_inflation_now](https://en.wikipedia.org/wiki/Whip_inflation_now)

------
Mz
Well, it's an interesting piece and the ideas seem to have merit, but what we
need is a lot more stability for, say, the bottom third of our population,
both globally and within each nation. We really need solutions that help
reduce the odds that individual lives readily come rapidly unraveled. This
will help the entire system be more stable.

Hint: I don't think Basic Income provides any such thing. I think it would
worsen problems.

Though I think reducing the degrees of separation between the Haves and Have
Nots can really help and the internet has enormous potential for facilitating
that. However, we need to reduce prejudice and institute some best practices.
Currently, the Haves do not want to hobknob with the Have Nots even online and
even when being bludgeoned with an explicit expectation of getting help
developing an income, not seeking charity. They just default to this
assumption that poor people are beggars and charity cases and it goes bad
places.

~~~
smaddox
May I ask why you think basic income would worsen stability? Based on the
sentence before, I would have thought you a supporter.

~~~
Mz
Just for you, I dashed this off last night:

[http://micheleincalifornia.blogspot.com/2016/07/money-is-
not...](http://micheleincalifornia.blogspot.com/2016/07/money-is-not-
wealth.html)

~~~
smaddox
I skimmed your post, but nothing in there convinced me that basic income would
worsen stability. I agree that basic income will not eliminate the gap between
the rich and the poor, but that's not the point. Nothing can permanently
eliminate the gap between the rich and the poor; the gap is a consequence of
the time-value of money. However, by reducing the lower class's reliance on
debt, basic income could raise the quality of life of the lower class.

The point of basic income is similar to the point of minimum wage. Individual
businesses cannot choose to raise their workers wages or they will be priced
out of the market by their competitors. In contrast, if every company agrees
to raise their minimum wage (or is forced to by the state), then the worker's
share of wages improves. Of course this is not a permanent solution, since
inflation reduces the utility of the minimum wage over time. Thus, basic
income, like minimum wage, would need to be adjusted over time.

I also agree that money is not wealth, and I agree that the distinction is
extremely important, particularly for understanding macroeconomics and
ecological economics. Indeed, unsustainable divergence of money from wealth
(through credit expansion of the money supply) is the prime cause of economic
crises. However, under a properly controlled basic income system, such
divergence could be minimized and even eliminated, thereby eliminating
depressions.

So, while I agree that basic income cannot solve all our economic woes, I do
believe it is a step in the right direction.

~~~
Mz
Let me put it this way: I live in California, in one of the more affordable
cities here. I am homeless. My monthly income is more than $1000/month. If I
could find a place for around $200-$300/month, I could be off the street. Such
a place does not exist.

There is no upper limit to how expensive housing can get. Giving me $500 a
month in Basic Income in no way guarantees that I still won't be able to
afford housing.

The problem as I see it is that Bad Income is a lazy answer: oh, let's just
cut poor people a check.

You skimmed what I wrote and dismissed it. You have said not one word about
addressing the issue of the tremendous shortage of affordable housing, which
has been steadily deepening.

So your reply in no way alleviates my fear that if we get Basic Income, the
well off people involved in creating new housing stock will just have one more
excuse to not care about solving the much thornier issue of affordable
housing.

If there were affordable housing available, I could get off the street right
now. Without it, I have no reason to believe Basic Income solves my problems
and every reason to believe it deepens them.

Given the trends that go back decades, the affordable housing shortfall is the
issue I would like to see tackled. And it is not happening.

~~~
smaddox
I apologize for not directly addressing the issue of affordable housing. The
reason I did not directly address it is that I see it as one piece of the
puzzle, though certainly an important one.

Housing prices in California are high primarily for two reasons: a)
California's population has quadrupled since 1950, and b) the US household
debt to GDP ratio is ~twice what it was in 1950 [1], and higher household debt
means higher housing prices [2].

By reducing the lower and middle classes' dependence on debt, basic income
could actually reduce housing prices, or at least slow the rate of increase.
Of course it's certainly feasible that basic income could take the form of
housing subsidies. However, such an approach would add complexity to an
otherwise very simple system, and the simplicity of the basic income system is
one of it's biggest selling points.

All that being said, basic income does not address the issues of population
growth, resource scarcity, and climate change. So, while I do think it would
raise the average quality of life, I don't think it's sufficient to ensure our
species success.

[1] [http://www.financialsense.com/contributors/lance-
roberts/con...](http://www.financialsense.com/contributors/lance-
roberts/consumer-debt-still-a-long-way-to-go) [2]
[http://www.debunkingeconomics.com/us-flow-of-funds-
update/](http://www.debunkingeconomics.com/us-flow-of-funds-update/)

~~~
Mz
I appreciate you taking the time to reply, but perhaps you should go back and
read what I wrote instead of skimming it.

TLDR: New construction is about twice the size now as it was in the 1950s,
with more amenities, while housing fewer people.

This goes a long way towards accounting for the higher housing prices
alongside rising homelessness. You don't need fancy economic explanations.
Houses that are nearly 2500 sq. ft. instead of 1200 and loaded up with vastly
more amenities straight up cost more. Period.

And as long as new housing _averages_ nearly 2500 sq. ft., no amount of basic
income stabilizes the bottom third of the population because the housing they
need simply does not exist. Period.

No amount of money gets you well if the cure you need simply does not exist.
Ask anyone with an incurable medical condition.

~~~
smaddox
I went back and read your post beginning to end. I have no nitpicks---only
disagreements.

Fist, I must say that upon reading your data points on average new housing
size, my default mental response was "averages can be misleading". However,
after looking up the data myself, it appears that the median house size has
similarly nearly doubled in so much time. That is quite a remarkable figure,
and I certainly agree that it has almost certinaly greatly raised the cost of
living for those who wish to have their own space.

That being said, I strongly disagree that government-backed mortgages are the
answer (not that you explicitly called for government-backed mortgages, but I
think they are the consequence of your train of thought). Quite to the
contrary, I would argue that the government-backed G.I. Bill mortgages, and
similar programs in more recent years, are the root cause of the rising
housing costs. As I described in my previous post, rising mortgage debt
significantly increases housing prices by inflating housing asset prices. I
think that, while not the be-all-end-all solution, basic income would be far
more effective at countering homelessness than government-backed mortgages
would be.

On a separate note, based on your descriptions of how basic income would
affect the class dynamic, I think we have a different understanding of what a
basic income would mean. Perhaps I should be more explicit in my wording. When
I say basic income, I mean universal basic income, i.e. every citizen (and
perhaps even non-citizens) would receive the same monthly dividend (or weekly,
or biweekly). I fail to see how universal basic income would create a rift
between the rich and the poor, since everyone would receive the same income.
It is true that the poor would receive more utility from that income, but in
my mind that disparity in utility is the main merit of the concept. That
disparity in utility is what could transform our country from a land of Haves
and Have Nots to a land of Haves and Have Mores.

On the topic of financial education, I complete agree with you. Universal
basic income will not solve the problem of people with adequate income living
month to month (or week to week). I don't think that's an argument against
universal basic income, though. It's an argument for education reform. And by
reform, I mean true reform, not charter school vouchers, and book purchase
programs. We need to move from an education system designed to train factory
workers to an education system designed to train service providers. The most
important skills, skills that are, if anything, discouraged in our existing
education system, are interpersonal communication and critical thinking. And
financial education is right up there with those two.

~~~
Mz
I appreciate you taking the time to treat my writing with real respect. It has
been a long time since I had such a high quality discussion on HN. So, thank
you.

But, I don't believe true universal income will ever happen. I think that if
it gets implemented, it will basically be the new welfare.

Second, no, I have no desire to get government backed mortgages as the
"solution" for affordable housing. I want an actual solution. I want more
housing that is under 1200 square feet but not a trailer and not a Tumbleweed
house on wheels.

In Japan, few homes have ovens. When I lived in Germany in my twenties, family
homes all had refrigerators the size of what Americans put in dorms. These are
first world countries with high standards of living, but they do not shackle
their people with crazy "minimum" standards that cause the kinds of problems
we have here in the US.

Tumbleweed houses -- one of the earliest companies in the tiny house movement
-- were put on wheels as an end run around housing requirements that are
supposed to prevent slums but just end up pushing people into trailers or out
in the street. Our default expectation is a home so large as to fit a nuclear
family, along with a giant fridge, a four burner stove and an oven.

When I got divorced and went from a family of four to a family of three, we
began storing sodas in the fridge so the milk would not spoil. I assure you, a
single person not only does not _need_ a twenty cubic foot fridge, it is
actively a burden for them.

Why are we more okay with the rising levels of homelessness than we are with
small spaces with (say) a dorm sized fridge, hot plate and microwave? Your
typical single person living alone has zero need of a four burner stove. Even
with cooking for a family of four, I rarely used the fourth burner. I
typically used two or three burners at one time. The result: The fourth burner
became covered in grease and would smoke when I turned it on.

Why should I be saddled with a fourth burner I do not need and which will
become a potential fire hazard if I do not clean it regularly, in spite of not
using the damn thing? How does this prevent my home from being a slum? For me,
a fourth burner is nothing but a headache.

And I cooked from scratch so much that the cashiers at the grocery store would
say "I need you to talk to my wife. She never cooks. She's a microwave queen."

I was a full-time wife and mom at a time when that was out of fashion and I
and my sons and husband all had special dietary needs. I cooked constantly.
But I still only rarely used the fourth burner.

The housing standards we have are simply crazy. They are a burden for
Americans, not something that protects us from abusive slum Lords. And they
are increasingly pushing people out into the street.

I don't want a _financial_ solution to this problem. I want a _real_ solution
that involves building more actual small spaces with basics instead of more
and more McMansions while homelessness continues to rise.

And I think what this exchange tells me is that if I want to see real change
here, I have my work cut out for me. Because even someone who will take the
time to read my writing and treat me with genuine respect cannot immediately
grasp that I am not talking about a _fiscal_ solution. I am saying: We need to
build millions of smaller homes with fewer amenities that ordinary people can
afford without working three jobs and/or having roommates they don't really
know. Because currently, the solution for unmarried individuals is rent a
three bedroom place and get two roommates. And it simply should _not_ be that
way.

Thank you for engaging me in discussion.

Take care.

------
carterehsmith
If I was Mammon, I would totally engineer a crisis, get prices low, buy shit
at low prices, borrow money to governments etc at usurious interest rates,
then let it all go back to normal.

Then I would wait until people kind of forget the crisis and stop demanding
banker's heads. 6-7 years? Then goto 1.

Disclaimer: not Mammon.

~~~
eru
Solvent governments have been borrowing at absurdly cheap rates ever since the
crisis.

------
pash
One overlooked mechanism to forstall the next systemic credit crisis—this
occurred to me when I studied these topics in graduate school in the years
after the last crisis—is to have central banks issue credit-default swaps
against the failure of major financial institutions in their jurisdictions.

Since central banks can't unwillingly default on liabilities denominated in
the currencies they control, this eliminates the second-order credit risk that
was a major factor in the last crisis, when AIG and other institutions that
issued credit insurance themselves became major sources of credit risk, first
in the market for those instruments and then (due to the enormity of their
losses) in the wider financial system. If a central bank must pay out on a CDS
in the event of a crisis, the situation is little different from what happens
anyway: central banks swell their balance sheets, effectively by printing
money, to provide liquidity to the financial institutions. By acknowledging
and formalizing this inevitable outcome through the issuance of credit
derivatives (and by requiring major financial institutions to hold them),
central banks can (a) make the financial sector pre-pay for its eventual
bailing-out, (b) create a credible means by which to refuse further bailouts,
and (c) facilitate a more effective and more informative market for credit
instruments, which would help to prevent a crisis in the first place.

I suspect that this potential tactic has been ignored mostly because it would
be politically infeasible to convince a financially unsophisticated public
that CDSs—financial "weapons of mass destruction", in Warren Buffet's
phrase—could be part of the solution. (But then it might be feasible: central
banks are not accountable to the political process in the way that legislators
are.)

At base, to tie this back into the submitted article, note that what I'm
suggesting is little different from putting central banks into the role of
central-clearing counterparties for credit risk, but with the added feature
that these risks would be distilled into securities so that they can be priced
and traded, with the concomitant benefits: the parties that receive credit
insurance must pay for it, and markets for trading it aggregate otherwise
diffuse information about the underlying credit risks.

Quite separately—at the same time I was musing about this stuff, I wrote a
(rushed and rather mediocre) master's thesis that tried to expose the macro-
level topology of the global financial system. The idea was to use the
statistical correlations between major markets and assets classes to induce
the structure of a metric space [0], revealing the "stochastic distance"
between markets across time [1]. This ended up not being terribly useful, due
to the well known fact that correlations between most markets move toward one
in a crisis; the metric structure similarly collapsed in a crisis.

0\. A metric induces a topology on the same underlying set.

1\. In the course of my literature review, I found out that Rosario Mantegna
had the core of the idea a decade before; see, Mantegna (2000), _Introduction
to Econophysics: Correlation and Complexity in Finance_.

~~~
smaddox
I don't see that working for the same reason having a mechanism to short
stocks can't prevent stock crashes. Adding a positive feedback mechanism can't
stabilize a system (at least not in the real world, where you can't perfectly
balance feedbacks against each other). If anything, they magnify instability.

If we want to prevent the next crises, we need to address the underlying
cause. I find Minsky's financial instability hypothesis quite poignant in this
regard. I also highly recommend Steve Keen's work, which is heavily influenced
by Minsky.

~~~
eru
Actually, shorting does help stabilize the stock market.

First, the possibility of shorting gives people an incentive to dig up dirt
early. Thus keeping management in line, and away from doing stuff that's too
stupid.

Second (and less important), once someone shorts, they are forced to buy
later. Thus, giving the stock a guaranteed buyer.

~~~
smaddox
Yes, on second thought, I was mistaken. Stock shorts do counter the
instability of stock purchases.

I suppose the real problem, then, is that stabilizing the stock system would
require perfectly counterbalancing the two, which is infeasible in the real
world. Stabilizing the system requires a financial damping friction.

For the same reason, I didn't see how traditional CDS's could realistically
stabilize the system. I only saw how they could only change the oscillation
period.

However, if the CDS's were issued by a central bank, which I now understand
was the original author's suggestion, I do think I understand how they could
play a fundamentally different role, i.e. the role of a financial damper. If
the rate of issuance were properly controlled to be close to the critical
damping condition, then I suppose the central bank could use such an
instrument to stabilize the monetary system.

It might be an interesting research project to determine how the instruments
would need to be priced to provide the desired damping.

------
pfarnsworth
It's actually not Kevin Bacon but rather every single human is connected by 6
degrees of separation or less. Although the idea sounds crazy, it might make
sense. I'm 3 degrees away from Obama, which means everyone I know is at most 4
degrees away from him, etc.

~~~
carl_corder
Another interesting and related topic are Ramsey numbers. R(3,3)=6 which
means:

"In any party of six people either at least three of them are (pairwise)
mutual strangers or at least three of them are (pairwise) mutual
acquaintances"

[https://en.wikipedia.org/wiki/Theorem_on_friends_and_strange...](https://en.wikipedia.org/wiki/Theorem_on_friends_and_strangers)

~~~
drjesusphd
This sounds like a tautology. What am I missing?

------
superobserver
Since the money-market system is fundamentally based on debt structures,
circumventing any kind of crash will be tantamount to preventing any kind of
overvalued market. In other words, no amount of mathematical juggling will
alter the underlying sine qua non of the (global) financial market. Frankly,
any newly put forward mechanism suggested should be subjected to serious
analysis and scepticism if the true goal is to avoid a crash. Looking over the
history of the financial markets, however, given anyone who works within the
system, I would doubt that they would care to envision, let alone implement,
any kind of method that would not have a necessary relationship to their
securing their bottom line.

------
_asummers
I really enjoy almost all nautilus articles I've read so far, and they're
linked pretty frequently here. So just now, I finally decided to just buy a
yearly subscription to support them. All fine and dandy, easy checkout,
whatever. But then after purchasing I get an email from them that says that to
sign in and view content, only the email used is required, no password needed
(account details are unavailable without password). I'm now thoroughly
confused because even the worst security models I've seen at least pretend to
have a password. What reason would that have for this security model?

~~~
zimbatm
What do you have to lose? The risk of unpaying users is on them and they are
compromising that for your own benefit (simplicity of access).

------
scottlocklin
I hope he was well paid by somebody who doesn't like clearing houses to write
that, as it appears to be the sheerest nonsense. Clearing houses are useful,
and they have worked very well in futures markets for the last 100 years. Why
I'm supposed to be safer because "big banks trading with each other ... and
topology" remains unstated in any convincing way.

I mean, despite the author's having worked on the street, he apparently never
heard of correlation matrices.

------
jshaqaw
No

------
JustUhThought
Wait, wait. I'll take this one.

No. It cannot.

