He uses the analogy of 'too clever by half' to exemplify his idea that 'financial innovation is always wrong'.
Nothing could be further from the truth. Insurance products have changed the world just as much as any technical innovation.
Mortgaged backed securities are not a bad thing, far from it, they allow more efficient use of capital by having 'saving Germans and Japanese' invest their money where they otherwise would not be able to.
The problem in the 2008 crash was soft systematic corruption and un-ironically a lack of fragility (ie one bank goes down it takes the rest down like dominos) - not necessarily the securities themselves for which he didn't actually even provide any basis of his negative assertion.
Efficiency is usually how we gain productivity and it's borderline absurd to say there is inherently something wrong with it on the whole. Like anything 'it depends'.
If you can have a software algorithm outperform 100 analysts on weather predictions for your fleet of drivers ... that's probably efficient. But cutting down operating margins so that any bump in the economy will leave you flat is maybe 'over optimisation'.
> He uses the analogy of 'too clever by half' to exemplify his idea that 'financial innovation is always wrong'.
I don't really have a horse in this race, but I think you're misreading the article.
He says: "Every truly disruptive discovery or innovation in history is the work of coyotes. It’s always the non-domesticated schemers who come up with the Idea That Changes Things. We all know the type. Many of the readers of this note ARE the type."
That's not a criticism, that's a point of praise.
He then follows it up immediately by saying: "Financial innovation is no exception. And this is Reason #1 why financial innovation ALWAYS ends in tears, because coyotes are too clever by half. They figure out a brilliant way to win at the mini-game that they’re immersed in, and they ignore the meta-game. Eventually the meta-game blows up on them, and they’re toast."
That isn't saying it's a bad thing, it's saying that the people who come up with the new ideas lose sight of the broader picture and get taken out by "the thieving raccoons" and the State.
He's saying "the coyotes" lose sight of the broader picture, just like in the famed XKCD [1] where the "too-clever-by-half" computer person encrypts all their data, and forgets that the thug who is going to come looking for it will just beat the piss out of them with a wrench until they turn over the key.
The core nugget of the article, in my opinion, is exactly the "meta-game is what always gets you" aspect.
It's the same thing that NN Taleb refers to as "2nd order effects."
He uses the analogy of 'too clever by half' to exemplify his idea that 'financial innovation is always wrong'.
Nothing could be further from the truth. Insurance products have changed the world just as much as any technical innovation.
Mortgaged backed securities are not a bad thing, far from it, they allow more efficient use of capital by having 'saving Germans and Japanese' invest their money where they otherwise would not be able to.
The problem in the 2008 crash was soft systematic corruption and un-ironically a lack of fragility (ie one bank goes down it takes the rest down like dominos) - not necessarily the securities themselves for which he didn't actually even provide any basis of his negative assertion.
Efficiency is usually how we gain productivity and it's borderline absurd to say there is inherently something wrong with it on the whole. Like anything 'it depends'.
If you can have a software algorithm outperform 100 analysts on weather predictions for your fleet of drivers ... that's probably efficient. But cutting down operating margins so that any bump in the economy will leave you flat is maybe 'over optimisation'.