Coping With Turbulence: More Theories and Math?

Isn’t it time to review our theories on economics, to see them in a radically different light? What lessons are we learning from this and other  crises, if any at all? In the 1930 around 10000 banks have defaulted. The total amount of assets involved was equivalent to approximately 100 billion of today’s dollars. In…

What Cannot be Modeled Should Not be Modeled

Ludwig Wittgenstein sustained that “what cannot be debated should not be debated”. We say that what cannot be modeled should not be modeled. Otherwise one faces making massive investments with no tangible return. Based on our current understanding of physics and using our contemporary mathematics certain things are “impossible to model”. Therefore, we should not…

Optimal Does NOT Mean Best

In the second half of the twentieth century it has become very popular to seek optimal solutions to a broad spectrum of problems: portfolios,  engineering systems, strategies, traffic systems, distribution channels, networks, policies, etc. But have you ever wondered if optimal really means best? Well, it does not. Optimality is not the most convenient state in which to…

Should Europe Have Its Own Rating Agency?

The Cold War was, de facto, the Third World War.  We are now fighting the Fourth World War. It is a global economic war. The victims are hundreds of millions, if not billions, of individuals, their savings, their lifestyles, their future and the future of their children. In effect, the future of the planet is…

In Math We Trust. That is Precisely the Problem.

The economy is a dynamic system which is far too complex for us to understand. Human nature is extremely complex and billions of irrational humans form the economy. How can such a system ever be thought to be inherently stable as many prominent economists have sustained? But this system, like every other natural or man-made…

Ratings – From an Opinion to Science

In January 2011 The Financial Crisis Inquiry Committee claimed that “The three credit rating agencies were key enablers of the financial meltdown”. Failing investment banks and large corporations enjoyed investment-grade ratings days before collapse. Rating agencies claimed that ratings represent a mere opinion. And this is precisely the problem. Rating agencies represent a fundamental source…