Unmastered software complexity and the Panic of 2008

"Many companies...will collapse under the sheer weight of the unmastered complexity of their data processing systems."

- Edsger Dijkstra 1975

"And the merchants of the earth shall weep and mourn over her; for no man buyeth their merchandise any more: The merchandise of gold, and silver, and precious stones, and of pearls, and fine linen, and purple, and silk, and scarlet, and all thyine wood, and all manner
vessels of ivory, and all manner vessels of most precious wood, and of brass, and iron, and marble, and cinnamon, and odours, and ointments, and frankincense, and wine, and oil, and fine flour, and wheat, and beasts, and sheep, and horses, and chariots, and slaves,
and souls of men."

- Apocalypse 18:10

Nelson D. Scwhartz, in today's International Herald Tribune (the article doesn't seem to be on the Web yet: it is "Why Wall Street Titans Couldn't Work Magic this Time Around", IHT 20 Sep) writes that J. P. Morgan was able to help stop the Panic of 1908 because he understood the system.

But Schwartz writes:

"Why didn't the magic wrought by J. P. Morgan-the banker, not the bank-work this time around? It may be because unlike 100 years ago, the people in the room did not fully understand what the institutions they run actually owned".

In other words, these "Masters of the Universe", despite their pretense to deep intellect and understanding, and the contempt they so often displayed in countless meetings for "mere technicians" (whether those techies understood finance, or software, or both), a contempt activated by ANY sign of ANY intellect exceeding in ANY way the needs of the quarterly bottom line and their own swinish comfort and pleasure, didn't understand their own companies, not to mention software or history itself.

Capitalism avoids its contradictions by finding new commodities, new nouns, as St John saw, including men's souls.

It's a basic assumption that underlies Say's "markets clear" Law that these commodities can be priced. If a farmer on the island off China where I live brings bananas to market, and insists on selling them, they will fetch a price, if only as animal feed.

[Actually the bananas are superior to Del Monte's factory farm bananas.]

However, there seems to be a sort of Godelian or Turing contradiction here. A complex "derivative" financial instrument is "derivative" because its description must mention other instruments, which mention other instruments, to a great depth in some cases.

Hopefully the graph which "prices" the derivative in question is a tree (a graph without cycles). But there may be a point at which all derivatives join and here, there are cycles of necessity such that no strike price can be found for any given derivative. In practice the market then repeals Say's law and the derivative price becomes "absolute zero"...and the United States government buys it lest you, as a fatcat, be discommoded.

Say's Law, which mathematically means that while at the bottom, commodities and labor approach zero but never are zero, is repealed, and in terms of classical economics, we're not in Kansas anymore.

The acceptance by the US government of these bad debts has started an alarming rumor (http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_gilbert&...): that Standard and Poor's, the rating service, may lower the AAA rating of the Federal government. THIS IS JUST A RUMOR. The facts, however, are that Standard and Poor's saw fit at this time to deny them.

To avoid a massive tax increase on a tax base in the US destroyed by unemployment, I see the US government actually hiring thousands of low-paid collection agents, and/or subcontracting hundreds of collection agencies to COLLECT these bad debts. People who, unable to pay mortgages have over 2007 and 2008 mailed their house keys as "jingle mail" to the mortgage holder, expecting that the banks would be too rich and too lazy to collect the balance owed, may be in for a nasty surprise.

They MAY be terrorised by bounty hunters so that the US government's AAA (or AA) rating isn't downgraded.

This could lead to armed conflict in the United States as a Fascist government struggles with its own citizen.

This could indirectly lead to a war with Canada over the Northwest Passage bankrolled by shipping interests.

If the economies of China, India, and the oil producers unlink successfully from that of the West, we could see, in our lifetimes, a reversion to the relationship that obtained in the European middle ages, with miserable Britons living on George Orwell's "herring and potatoes", sending argosies to Asia to buy the essentials of life....such as spices which before refrigeration were essential to preserving meat.

It's not a pretty sight. The Great Depression may not be a benchmark. The United States needs to reindustrialize as a forced march, to return to growing corn for food and animal feed, to start educating its children NOT ONLY in languages, science and math BUT ALSO in Outward Bound-style wilderness survival, and start training and disciplining civilian militias to which right wing head cases NEED NOT apply, and which must be racially integrated, using affirmative action if necessary.