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Financial markets have been known to unfailingly provide incontrovertible evidence for absolute ingenuity and absolute stupidity of mankind. The following article brings to court three follies: Value-at-Risk (VAR), London Interbank Offered Rate (LIBOR) and re-merging of commercial banking and securities businesses inside a single balance-sheet. Folly, perhaps, is a misplaced term. The second one in that list, for instance, was characterized as a "prostitution racket run by pimps" by its own creator.
All three though have common blood running through their veins: doing away with pain-staking details, restrictions, constraints and restraints with a view to aim for simplicity, which in turn can make it convenient for one or more group of priviledged individuals to run amok with their desires. In each of the case, the upholders of law, whose duty was to watch over such errant behaviour, have been by-standers or willing conspirers. All three, incidentally, also had a handsome role in precipitating the 2008 crisis.
Simplicity is a virtue in any decision-making. But the road to reach that virtue is strewn with laborious details. If such details are by-passed in a hurry, or caged inside well-pleasing equations, the simplicity that results is a mirage that promotes a feeling of comfortable sinning... till such sinning is called out.
The article, by Marc Rubinstein, is short and worth a read in its entirety and is accordingly linked to here directly: Creating a Monster.
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