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Friday, June 3, 2011

Introduction to Links for Capital Market Articles (by S. Boyko & W. Rappleye)

In a series of four articles written for “Startup Blog,” we argue that the underlying troubling trend of larger and more frequent boom-bust cycles was caused by randomness resulting from conflating of risk and uncertainty. To illustrate, the Crash of 1987 experienced a $1trillion decline of wealth. Fourteen years later, in 2001, the Dot-com Crash witnessed a decline of wealth of $4 trillion. Seven years later, in 2008, the Subprime Crash saw an $8 trillion decline of wealth.

Notwithstanding Einstein’s admonition that it is insane to repeat the same activity while hoping for a different result, the government’s economic stimulus proposal was entrusted to the same deterministic econometric models that missed the real estate crash. We posit that a rarely identified factor that stands as a constant obstacle to the effective and efficient capital market management is the relationship of the component parts – predictability, risk, and uncertainty – to the connective concept of randomness.

To this end, “Beyond Rumsfeld,” reflexively provides the subjects to Rumsfeldian predicates for the construction of randomness sentences where:
·       Predictability is the known-knowns.
·       Risk is the known-unknowns. and,
·       Uncertainty is the unknown-unknowns.
Randomness sentences are complete thoughts that are more robust than foundational listings. The “Engine of Economic Growth” describes how entrepreneurs confront uncertainty to deal with unknown cash flow and unknown product demand in the real good and service sector of the economy. Correspondingly, the “Parallel Paper Economy” asks how could uncertain mortgage-backed securities with unknown cash flow and unknown market demand receive an AAA-rating? Lastly, “Financial Storm Hunters: In search of remedies for capital market crashes and crises” concludes by developing financial models from which economic crashes and crises could be better identified and governed.

We welcome any questions and/or discussions.

Stephen A. Boyko

Author of “We’re All Screwed! How toxic regulation will crush the free market system”
Twitter @n2k2695

I want to thank the authors for their excellent article for the Blog. They continue to publish articles and books of importance to the financial and regulatory sector. Steve published the book "We're all Screwed!" and has been on active speaking engagements. I am pleased to call him a friend and he has agreed to be an active contributor to the blog!

You can follow Taffy Williams on Twitter by @twilli2861 and you can email him with questions at twilli2861@aol.com. He can also be reached via his company website.  He writes for the local Examiner Paper and he is a member of the group Startup Group on Linkedin. The blog is now listed on Alltop®.