The world goes crazy because the money stops flowing. Why?
George Dyson wrote an essay on current finances in the world. In that essay, he recounts the history of “tallies”, sticks of wood carefully notched to indicate funds and dates. Money deposited in the Exchequer for the use of the king was tallied, accounted for on the stick and then the stick split. The tally was split and one half remained at the place of deposit (and was called the “stock”, thus the original of the term we have), the other half went with the depositor.
Take that essay, distill it into the New York Times and another article, this one an Op Ed piece by Richard Dooling. Quote:
Somehow the genius quants — the best and brightest geeks Wall Street firms could buy — fed $1 trillion in subprime mortgage debt into their supercomputers, added some derivatives, massaged the arrangements with computer algorithms and — poof! — created $62 trillion in imaginary wealth…
…Making money, it seems, is all about the velocity of moving it around, so that it can exist in Hong Kong one moment and Wall Street a split second later.
Go back to the tallies – a stock of wood representing money.
If you wave that stick back and forth REALLY REALLY fast, it looks like you have two of ’em.
There’s your hallucinatory addition of wealth. If you move the money around fast enough, it looks like it is in two places at once, or more. Using computer and advanced made-up economic vehicles, you get 62 places at once.
That analogy, and, actually, metaphor, that visual of someone waving a stick back and forth in furious concentration, that works for me. Scale it up, make it much harder to see, make it shiny, call it a credit swap or a derivative, and you really are in that same place, waving a magic stick back and forth and insisting there are two of them.
Brilliant.
The plates twirling at the top of the sticks are fine as long as they are moving. The financial markets don’t come to an actual static accounting unless and until the movement stops. Visual economics.
Optical illusion. Optional Delusion. Or maybe not so optional – maybe just a matter of perception.
—dsm