JMG

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]]>jay gee

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]]>Also Germany outlawed naked short selling of financial stocks, another financial gimmick to rob the world of capital so as to fill-up the pockets of the few and unworthy, for useless pursuits, but the thrill of evil enjoyed.

I guess me and the Germans do not know what we are talking about.

Patrice Ayme

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]]>I do know what I am talking about. Just an example. The fact is AIG had sold around 180 billion of Credit Default Swaps, for which it had made no provisions. This was an insurance against the default of some credit instruments, but AIG had no money to pay said insurance. Instead the US taxpayers had to.

I notice that Sherry “refuse(s) to waste any more of my time trying to engage Patrice in any meaningful dialogue”. More misquoting and mischaracterizing of mine, no doubt.

Germany and her conservative Chancellor, Angela Merkel, a lady of substance, a former PhD physicist, has just outlawed some types of derivatives as dangerous to German national security.

Here is a quote from another site:

” Webster G. Tarpley

TARPLEY.net

May 19, 2010

Germany and Europe have now made some promising initial steps in the direction of their necessary self-defense against the depredations of those zombie banks and hedge fund hyenas who have been organizing a massive speculative attack on Greece, Spain, Portugal, and Italy with a view to destabilizing the euro and perpetuating the world hegemony of the troubled US dollar.

The most significant of these moves is the ban imposed unilaterally by the Merkel-Schäubele Christian Democratic-Liberal German coalition government to outlaw the use of high risk derivatives, specifically credit default swaps (CDS), for the naked shorting of government bonds which are denominated in euros. This means that Europe’s largest economy and the Frankfurt financial center – the biggest in continental Europe – will be off limits for speculators using these toxic CDS, which are issued by entities which have not fulfilled the legal requirements for underwriting insurance. This website has repeatedly urged a ban on credit default swaps.”

It seems to me that Sherry is disparaging me, and not respecting a modicum of intellectual debate.

But having just listened to Glenn Beck and hours of his lies, I am in no compromising mood. I have long studied the Nazis, and I know their propaganda tricks. Character assassination and the technique of the big lie are central.

Patrice Ayme

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]]>Sherry Jarrell

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]]>Keith:

Good point, the analogy with QED. I propose to RENORMALIZE, indeed, the derivative df/dt according to the effect it has on f itself. This is actually what QED and QFT do. there, the function f is given by nature, whereas on Wall Street, nature does not exist, and what is counter to nature is best! So we propose to go back to situation where only trading in df/dt that moderates f is allowed. and to get there, trading would be renormalized: renormalize as you go!

PA

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]]>Keith:

Thanks for the thoughtful answer. Very good mathematical observation. Any high frequency function with have a huge derivative. Actually the wise guys on Wall Street have discovered this deep mathematical truth all by themselves, and they exploit it. In your example the derivative varies between +2500 and -2500.

Maybe the way to look at it would be this. Given f, look at df/dt. If absolute value of df/dt is X, then use it to limit not just the size of the leverage allowed, when trading df/dt, but also overall, how much trading is allowed in df/dt, in the light of the fact it is supposed to **moderate f, not amplify it**. So only **countertrades on df/dt could be allowed, as X(t) evolves, with delays**, etc… As you say, “Hard to sort it out with so much else going on”. I hardly have the time to derive a correct financial theory of **stabilizing derivatives**! …. But maybe you can… Of course many on Wall Street would not be keen anymore than the some in the mafia would be keen to develop a treatment for organized crime. However, they should, because the collective opportunity loss in the advancement of civilization has become too great.

PA

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]]>Please forgive me for addressing you incorrectly in my first response!!!

This is more old age and dyslexia on my part than anything else and I am very sorry to have made such a slip.

Always Yours,

Keith

PS I think your post discovered one of the inherent pathologies in the derivative financial plane. You express the moral outrage, which can get the best of one. One of the things here is to let the public know just what it is these things encompass. In fact derivatives of mathematical functions can and often are MUCH MUCH larger than the underlying function.

Ex. f(x) = sine(2500x); df/dx = 2500cosine(2500x)

f as the sine, whatever the frequency, can never take on a value greater than 1.

But its derivative in this example has a maximum value of 2500 (!)

And if x is related to time then these maxima of df/dx occur rather frequently in one cycle due to the large frequency.

Better that people understand these things. Hard to sort it out with so much else going on.

There is of course another type of change, as you have often brought to attention: changing the rules of the game of finance! Here it is as though the world’s financial system has been the subject of a computer simulation! Someone pointed out, by the way, the similarity between CDSwaps and insurance. BUT, the weren’t called insurance and were not subject to those laws and regulations. In fact it wasn’t until several decades in the west after the selling of commercial insurance, that it became law that for someone to take out insurance on something, they must have and ‘insurable interest’ in the thing insured. You can imagine prior to this the abuse that occurred. Are we now not in a somewhat analogous situation with these new unsecured instruments?

It would seem to me that the very inordinate value which the derivative instruments can take on very quickly (imagine our sine(2500x) as an example) in proportion to the values of the underlying stocks, bonds and commodities would (and no doubt do) cause the need for huge sales of the underlying assets to unroll the derivative positions. Sucking out liquidity, as you so cogently remind us, and potentially destroying wealth, confidence, and of course, the ability to create wealth in the way learned over so many years.

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]]>I very much enjoy your work.

But one little thing here — the derivative of exp(3x) is 3exp(3x) — which is larger than the function of which it is the derivative:

3exp(3x) > exp(3x)

The derivative of x*x is 2x,

and 2x > x*x for all x < 2.

In math derivatives can be far larger than their functions, without going into fractals for examples.

Sorry to intrude. Please go on with your thoughts. it's a complex subject, so no need to confuse things anything more than need be.

If I had to try to explain this financial mess to the public I might simply use a simple stock option example to show how a stock may appreciate by 20% while at the same time an option on the same stock may increase by 250% or more.

It seems to me you want to illustrate that the set of wagers on the tangible wealth has reached valuation exceeding the tangible wealth.

It’s a very general problem — not only in the exotic deregulated casino of present day hedging. Don’t forget simple, prosaic cases of stocks bid up far far beyond any possible value they may have had — there are endless examples as you no doubt know.

But as for the present situation, I for one would leave the pure mathematical idea of the derivative aside if I were looking for mathematical analogies. It reminds me of the crazy world of quantum electrodynamics — where all the exceedingly clever calculations of electron mass and magnetic moment and so on diverged — until some people invented ‘renormalization.’ Which was thought to be funny stuff at the time.

Not sure how fitting the analogy is — but they both (finance and QED) do seem to concern themselves with virtual realities.

Anyway, not to criticize. I very much enjoy your work and the far ranging insights you bring to bear are most impressive and very thought provoking.

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