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Culture War Roundup for the week of September 26, 2022

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What’s the point of growth? I’m asking about economies, companies, social security, and all types of organizations. And should GDP growth stop at some point, what are the unintended consequences if such a thing happened?

Malthusian thinking was wrong but it was sound science for the data he had. There’s probably a max carrying capacity for the Earth, unless we find incredible inventions. Another invention like the Haber process just seems unlikely. To me that looks like a future where most countries around the world will stabilize into an economy that treads water without growing nor contracting.

I’ve always heard from big wigs that you either grow or die? But if our future looks more like the countries with low fertility, then at the end of it doesn’t it mean that our our economy needs a new way of functioning.

Well everyone hears stories about Musk or Gates or Bezos or Lebron or Jordan or Kershaw, making astronomical figures. To most Americans that type of inequality is okay because the economy is growing like an amoeba trying things out, that sometimes get unicorn status. Now, if in the future that economic pie becomes nearly constrained, the only level of power left is the communists/technocrats that will divvy up the economic pie.

Income equality is no big deal as long as there’s a rising tide with opportunities for your own lottery ticket.

Too big to fail has morphed to become one of the worst ideas this century. Doesn’t mean they should do nothing, they should’ve kept the system afloat while reforming the system and exposes/charging all the financial decisions those big banks did. Instead we are again stuck in the same system trying to put bandaids on their recklessness.

Remember the movie The Big Short explaining CDOs? Reuters in 2019:

Synthetic CDOs once symbolised the kind of financial wizardry that led to the financial crisis of 2008. A decade on, banks are again staffing up desks to trade these complex products on the back of growing demand from yield-hungry investors.

https://www.reuters.com/article/idUSL5N22B5Q2

Why can’t we make the finance industry basic again? Without all the never ending novel financial instrument inventions—There’s almost zero productive reason that brilliant quants are needed in vast numbers on Wall Street. Unless of course you just want to make as much money as possible.

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I’m sorry for how all over the place this was. I was up all night reading and had a bunch of disparate thoughts that felt quasi-connected. In the morning I’ll clean it up.

Without growth, there is a fixed pie. Anyone else's gain is your loss. It becomes extremely important that you protect what you got, because once someone else has it, they are going to fight like a cornered rat to keep it.

A society without growth might be possible, in the sense that it would not violate the law of gravity. But anyone who thinks they can pull it off and be in charge is already too dumb to actually achieve it, and they will start destroying people about 5 minutes in.

People gambling money on various esoteric financial instruments do not contribute to growth.

Capitol allocation is important to growth, and all investment activity, even derivatives, are capital allocation.

Yes, but adding extra several layers of gambling doesn't help and destabilises everything. Did we learn nothing from the financial crisis ?

Did the elaborate financial products whose risks were not properly understood help in any way, or were they merely helping to set up the system for a failure ?

Investments involve risk, and the point of derivatives is to allocate that risk to the investors most willing and able to accept that risk. They exist for the same reason insurance exists.

If the instruments that are supposed to help allocate risk instead create extra risk because they're employed in an irresponsible way, what then ?

"Extra layers of gambling" seems rather arbitrary. Are calls and puts extra included in this? They're contracts that grant the right to sell or buy securities at a certain price. They also help to check prices that are either too high or too low. If there's a buying or selling panic you can contradict the crowd, help to nudge the price, and make money if you turn out to be right.

A credit default swap is just insurance.

The financial instrument is easy to point to and say "it's too complicated," but no one is forced to trade any particular instrument. The people that traded them almost certainly understood what they were, they just had little incentive to care about the risk they were exposing their institutions to.

The people that traded them almost certainly understood what they were

They didn't. Nobody understood the risks of the pooled mortgages failing.

Or rather the relevant credit rating agencies lied / didn't care, the banks who were making them didn't want to and the customers were too stupid.

They convinced themselves that the odds of a large package of mortgages failing were minimal because not enough of them could go into nonpayment at once, so even a financial instrument made out of a lot of dogshit mortgages was actually not risky because odds of mortgages failing were independent, or some BS like that.

You guys don't remember any of this ?

A credit default swap is just insurance.

Yeah, sure. But if you're buying insurance on stuff you don't own, in a completely disproportionate amount, because you see the CDS's as being just free money, and then it blows up, you could argue that it was just stupid gambling.

Are calls and puts extra included in this?

Nothing wrong with that. But why is the derivatives market apparently something like an order of magnitude bigger than planetary GDP ?

Good thing that’s a separate argument no one is here discussing