The last post concerning the superstability of financial markets had some success in reading, yet I had not touched on the political consequences of all this. Because the problem I pointed out is like the world of finance (ie the world in which money is an abstract concept that moves between computers) can no longer be guided by human decisions, from the moment that human decisions are too slow, and machines that do almost everything bring everything back to a state of balance in a much shorter time.
But this leads to a question: does a superstabile market need a government of human beings?
You know well the dislike I have about the concept of "magic hand of the market", because up until now it was a theory based on a pseudo-mathematics that has proved false since the time of Nash, Sen and Arrow. But today the "magic hand" is simply the evolution of an actor who was first the human decision maker: the machine decision maker.
To believe that today there is a "magic hand" I no longer have to believe in improbable humanist bullshit of the "Chicago School", then "Austrian School", much less believe in theories that have been denied in mathematical terms. I know that this magic hand is a decision maker who uses reproducible algorithms, I know (well or badly) what principles his decisions are based on, and I know what he is composed of, that is normally by applications that run in some data center . So far, we leave the magical world of "economists" and enter the world of technology that is sold on the market. People who "expect results".
But now that REALLY exists the "magic hand of the markets", c "and" to wonder what it means for the political class. We can use Germany as an example. The nation is cited as an example of commercial success, and the export figures confirm this, a sign that German companies on the financial markets evidently can find the resources they are looking for.
One would therefore say that this is due to a magnificent governance of Schäuble, but in reality if we examine what the German regulator has done with regard to finance, the answer is:
Anything. Nada. Nix. Nothing. Ever since Merkel came to power, the only changes in financial rules have come from Brussels. Someone will now get bored saying that "but you say, the German government has saved the banks", which is absurd, for one reason: the government (which is not the government, is the state in the form of Länder , Kreis / Landkreis, Stadt – regions, provinces and cities) and member of the banks. That the shareholder participates in the recapitalization of the bank he owns is obvious: but not because it is a choice of the government. Because you're a partner, and if the banks need to be recapitalized, you participate. It's not a decision, it's a reaction.
Moreover, if I asked you what Merkel's policy in the "private" banking sector is, the answer is: do nothing. Deutsche Bank is being left to slowly collapse, Kommerzbank is better but did it all by itself: if there is a strategy it must be secret, because no one has seen it.
It is said that the Merkel governments are characterized by "intervening at the last", but if this is the case, in the case of finance they have intervened almost for nothing. Indeed, they pushed for Brussels to approve a directive that avoids having to intervene in the future: the losses of the banks must pay shareholders and large investors. Fact: Governments are cut off.
And the fact that an invisible hand was born precisely in the years in which the government that DECIDED LESS came out of the various crises better than those who "decided" should make us think.
If we look at a crisis like the Greek one, we have seen that when there were human decision makers, after 23 meetings of the "Trojka" the markets were devastated. When the spotlight on the Greek economy went out, and Greece was left practically alone on the market (with a government like the Tsipras one, which in the financial field was "competent" the right), it has recovered as it did (but only on the financial market level) and has risen.
The interesting thing, I said, is that Greece has risen only on one level, that of "financial markets". In the rest of the economy the landscape remains devastated, but where there is a "magic hand" made of machines, the crisis has been absorbed and today everyone is shouting that the Greek debt is safer than the Italian one.
And then the question arises: was it the human decision maker or the silicon decision maker who solved the problems? Everything suggests that it was silicon:
- In fields where there are no silicon decision makers, the Greek economy is the same expanse of rubble as before.
- In the fields where there are silicon decision makers (the one in the financial markets), the Greek situation has improved enormously since human decision makers left the track.
The suspicion starts to become legitimate: that the financial markets have an automatic decision maker more efficient than the human one. Your "singularity", realized as an interaction between financial software that all have the same purpose: to lower losses and raise profits.
If so, we won't have to do much to know. In fact, Christine Lagarde is the new paralytic president of the ECB. She is born paralyzed because she must preside over a board split in two, where the shareholders of the Germanic area have welcomed her simply … by buying physical gold. In practice, saying "we will make war in every possible way".
It is highly probable that, with the FED paralyzed by the attacks of Trump and the ECB paralyzed by the bad choice of the president, the euro zone soon finds itself in a situation of "absent human decision maker".
In these conditions of vacuum of governance, in theory the markets should suffer and become empty. But if my theory is right, we will see exactly the opposite happen.
It is possible, that is, that Lagarde will be praised for the excellent results without having actually decided anything (nothing strange: the same is true for Merkel, it would not be the first time), simply because the markets regulated by machines are capable of handling themselves much better if no human regulator disturbs them.
I took European markets as an example not only because Lagarde will not be able to "decide" anything, but only react (and be late): I took them because there is something new that is the PSD2 directive, which allows a banking broker to arbitrage on behalf of the client. It means you can have 2 bank accounts, three credit cards, and a silicon decision maker will decide which bank / card to make the transaction with.
It doesn't take much to figure out how this can lead to arbitrage, if the entity called "Fintech App" will be smart enough to use banking services while trying to arbitrate.
Currently the European banks are reluctant to implement the API Gateways for the simple reason that it is a field dominated by agile methodologies, and the European banks are entities that have almost nothing in agile. Some implement the method, but implementing the agile method with people who have the mentality of the burosaur is of no use: it is like when a Rugby player decides to give himself to classical dance. It works, but only if you don't laugh too much.
However, given the pace at which they lay off, that is, at the rate at which personnel change, it is possible that within 4/5 years we will all be using some "Fintech App". If this is true, the consumer banking market should also enter a state of superstability.
If we suppose that a guy has "invested his pension", rather than directly in a bank using one of these apps (maybe managed by a broker), the bank's progressive failure would lead to the shift (at a very fast pace) of the money in the bank. another bank. The "fintech app", in fact, slams of how much friend is the director and how much crap can be invented to convince the customer to stay: if one of the two banks is bad, that moves the account on the other in a time of milliseconds. There is therefore the possibility (if the concept is implemented well) that you eventually have an account with the Revolut on duty, but you do not know well in which bank the money is: then the silicon of the Revolut of turn takes care of keeping them where it is convenient. more and you risk less. In short, the superstability of the consumer banking market.
If this were achieved in the EU, since the financial market of large operators is already superstable, what we would get would be that despite the Brexit (which happens very slowly for people, let alone for machines) and despite the Lagarde, financial markets could be booming. Even, as happens in Greece, if the surrounding economy is in crumbs.
And we would see it easily just because when we find ourselves asking exactly what Lagarde did to get this result, and the answer will be "nothing".
Since there is no free meal, clearly the decision that the "miracle" made will be sought elsewhere, and while the newspapers will look for another human actor to be credited with, I will personally see it as another success of the "Invisible hand of the markets", which today is made about this way:
And you can also photograph it, about this way ":
The question that remains open is the following: how the political class, which insists on engaging in financial markets rather than being a client like everyone else, can accept an advice such as "take your hands off the box and let the machines do the work , idiot!".
Because politicians don't like being cut off. On the other hand, they proceed so slowly that machines can easily compensate for any decision human politicians make. So, ultimately, the hands from the box will take them out, or the machines that handle the transactions will keep them out of the game.
They will be very fun years.