Topic started on 18-5-2012 @ 10:28 PM by jannerfish
What if we limit the number of times a financial product can be repackaged? This would limit those asset classes that become so large they must be
Currently we have no control over the number of 'nodes' or connections between financial institutions. Each time a loan (or some other financial
product) is resold it creates an ever more complex shared liability. If a firm goes under, the liability ripples outwards through every node.
We can track tiny value retail products using bar/QR-codes, RFID already. It should be even easier as the asset becomes more valuable and scarce. The
value-singularity, were a company or asset becomes so large that no-one can afford it is the natural limit on price. As an asset approaches this
(dynamic) value it begins to represent an ever larger part of the economy until, as we all know, it cannot be allowed to fail.
This also represents the end of business as we know it. The private holders of that asset become less liable as its value approaches some ill defined
point. Periodic nationalisations are inevitable without controlling the level of complexity via nodal variation.
It would offer another lever on the economy, like rates and reserve requirements. But this would be a new kind of response, based on networking
theory. Something which is obviously at work in today's complex economy but over which we have no control or even knowledge.
We should be able to find optimum interconnectedness, or number of nodes (resales). These could be adjusted for 'tighter' or 'looser' economies
depending on economic indicators. An index measuring consolidation (or monopolization) could be used to tighten or relax nodal requirements. This
seems preferable to allowing arbitrarily large asset classes, the contents of which are too numerous and connected to even audit and whose scope is
only apparent when they burst.
I realise those who hold the reins won't like being told to limit holdings and politics would snuff it out. But it needn't limit business. If an
asset reaches you and contains products that are at their resale limit, you must repackage them into smaller holdings. That account must now clear, or
go delinquent. This is a stimulus, not a restriction. Also, the resale value of an asset falls as it becomes less mobile, limiting the incentive to
consolidate. Again, promoting sound new business.
tl;dr Idea to monitor and optimise complexity of high value asset classes through variable nodal (resale) points.