Derivative systems
This page describes the organizational forces that limit change.  It explains how to overcome them when necessary. 

Power& tradition holding back progress
This page uses an example to illustrate how:
  • A business can gain focus from targeting key customers,
  • Business planning activities performed by the whole organization can build awareness, empowerment and coherence. 
  • A program approach can ensure strategic alignment. 
Be responsive to market dynamics
This page uses the example of HP's printer organization freeing itself from its organizational constraints to sell a printer targeted at the IBM pc user. 
The constraints are described. 
The techniques to overcome them are implied. 
Overcome reactionaries
We are products of complexity, but our evolution has focused our understanding on the situation of hunter gatherers on the African savanna.  As humanity has become more powerful we can significantly impact the systems we depend on.  But we struggle to comprehend them.  So this web frame explores significant real world complex adaptive systems (CAS):
  • Assumptions of randomness & equilibrium allowed the wealthy & powerful to expand the size and leverage of stock markets, by placing at risk the insurance and retirement savings of the working class.  The assumptions are wrong but remain entrenched. 
  • The US nation was built from two divergent political views of: Jefferson and Hamilton.  It also reflects the development of competing ancient ideas of Epicurus and Cyril.  But the collapse of Bretton Woods forced Wall Street into a position of power, while the middle and working class were abandoned by the elites.  Housing financed with cash from oil and derivative transactions helped hide the shift. 
  • Most US health care is still operating the way cars built in the 1940s did.  Geisinger is an example of better solution.  But transforming the whole network is a challenge.  And public health investment has proved far more beneficial.  
  • Helping our children learn to be effective adults is part of our humanity, but we have created a robust but deeply flawed education system.  Better alternatives have emerged.  
  • Spoken language, reading and writing emerged allowing our good ideas to become a second genetic material. 
  • The emergence of the global economy in the 1600s and its subsequent development; 
It explains how the examples relate to each other, why we all have trouble effectively comprehending these systems and explains how our inexperience with CAS can lead to catastrophe.  It outlines the items we see as key to the system and why. 

Example systems frame
Dietrich Dorner argues complex adaptive systems (CAS) are hard to understand and manage.  He provides examples of how this feature of these systems can have disastrous consequences for their human managers.  Dorner suggests this is due to CAS properties psychological impact on our otherwise successful mental strategic toolkit.  To prepare to more effectively manage CAS, Dorner recommends use of:
  • Effective iterative planning and
  • Practice with complex scenario simulations; tools which he reviews.   
Complexity catastrophes
E. O. Wilson reviews the effect of man on the natural world to date and explains how the two systems can coexist most effectively. 
Adaptive ecology
Barton Gellman details the strategies used by Vice President Cheney to align the global system with his economics, defense, and energy goals. 
US vds alignment
Kevin Kruse argues that from 1930 onwards the corporate elite and the Republican party have developed and relentlessly executed strategies to undermine Franklin Roosevelt and the New Deal.  Their successful strategy used the credibility of conservative religious leaders to:
  • Demonstrate religious issues with the New Deal. 
  • Integrate the corporate elite and evangelicals. 
  • Use the power of corporate advertising and Hollywood to reeducate the American people to view the US as historically religious and the New Deal and liberalism as anti-religious socialism. 
  • Focus the message through evangelicals including Vereide and Graham. 
  • Centralize the strategy through President Eisenhower. 
  • Add religious elements to mainstream American symbols: money, pledge;
  • Push for prayer in public school
  • Push Congress to promote prayer
  • Make elections more about religious positions. 

Following our summary of his arguments RSS frames them from the perspective of complex adaptive system (CAS) theory.  Strategy is the art of the possible.  But it also depends on persistence. 

Inventing Christian America
Charles Ferguson argues that the US power structure has become highly corrupt. 

Ferguson identifies key events which contributed to the transformation:
  • Junk bonds, 
  • Derivative deregulation, 
  • CMOs, ABS and analyst fraud,
  • Financial network deregulation,
  • Financial network consolidation, 
  • Short term incentives
Subsequently the George W. Bush administration used the situation to build a global bubble, which Wall Street leveraged.  The bursting of the bubble: managed by the Bush Administration and Bernanke Federal Reserve; was advantageous to some. 

Ferguson concludes that the restructured and deregulated financial services industry is damaging to the American economy.  And it is supported by powerful, incentive aligned academics.   He sees the result being a rigged system. 

Ferguson offers his proposals for change and offers hope that a charismatic young FDR will appear. 

Following our summary of his arguments, RSS comments on them framed by complex adaptive system (CAS) theory.  Once the constraints are removed from CAS amplifiers, it becomes advantageous to leverage the increased flows.  And it is often relatively damaging not to participate.  Corruption and parasitism can become entrenched. 

Financial WMD
Matt Taibbi describes the phenotypic alignment of the American justice system.  The result he explains relentlessly grinds the poor and undocumented into resources to be constrained, consumed and ejected.  Even as it supports and aligns the financial infrastructure into a potent weapon capable of targeting any company or nation to extract profits and leave the victim deflated. 

Taibbi uses five scenarios to provide a broad picture of the: activities, crimes, policing, prosecutions, court processes, prisons and deportation network.  The scenarios are: Undocumented people's neighborhoods, Poor neighborhoods, Welfare recipients, Credit card debtors and Financial institutions.

Following our summary of his arguments, RSS comments on them framed by complex adaptive system (CAS) theory.  The alignment of the justice system reflects a set of long term strategies and responses to a powerful global arms race that the US leadership intends to win. 

Aligned justice
Jonathan Powell describes how the government of, the former UK Prime Minister, Tony Blair, actually operated.  Powell was Blair's only chief of staff. 
Mechanics of power
H. A. Hayek compares and contrasts collectivism and libertarianism. 
Libertarianism
John Doerr argues that company leaders and their organizations, hugely benefit from Andy Grove's OKRs. 

He promotes strategies that help OKR success: Focus, Align, Track, Stretch; replaces yearly performance reviews, and provides illustrative success stories. 

Doerr stresses Dov Seidman's view that employees are adaptive and will respond to what they see being measured.  He asserts culturally supported OKRs/CFR processes will be transformative. 

Following our summary of his arguments, RSS comments on them framed by complex adaptive system (CAS) theory.  Doerr's architecture is tailored for the startups KPCB invests in.  It is a subset of the general case of schematic plans, genetic operators and Shewhart cycles that drive all CAS.  Doerr's approach limits support of learning and deemphasizes the association to planning. 

Startup PDCA
David Bodanis illustrates how disruptive effects can take hold.  While the French revolution had many driving forces including famine and oppression the emergence of a new philosophical vision ensured that thoughtful leaders were constrained and conflicted in their responses to the crisis. 
Voltaire's disruptive network
An epistatic meme suppressed for a thousand years reemerges during the enlightenment. 
It was a poem encapsulating the ideas of Epicurus rediscovered by a humanist book hunter. 
Greenblatt describes the process of suppression and reemergence.  He argues that the rediscovery was the foundation of the modern world. 
Complex adaptive system (CAS) models of the memetic mechanisms are discussed. 

Constraining happiness
Isaacson uses the historic development of the global cloud of web services to explore Ada Lovelace's ideas about thinking machines and poetic science.  He highlights the value of computer augmented human creativity and the need for liberal arts to fulfill the process. 
Complex adaptive system (CAS) models of agent networks and collaboration are discussed. 

Arts technology & intelligence
Haikonen juxtaposes the philosophy and psychology of consciousness with engineering practice to refine the debate on the hard problem of consciousness.  During the journey he describes the architecture of a robot that highlights the potential and challenges of associative neural networks. 

Complex adaptive system (CAS) theory is then used to illustrate the additional requirements and constraints of self-assembling evolved conscious animals.  It will be seen that Haikonen's neural architecture, Smiley's Copycat architecture and molecular biology's intracellular architecture leverage the same associative properties. 

Associatively integrated robots
Good ideas are successful because they build upon prior developments that have been successfully implemented.  Johnson demonstrates that they are phenotypic expressions of memetic plans subject to the laws of complex adaptive systems (CAS). 
Developing ideas
A government sanctioned monopoly supported the construction of a superorganism American Telephone and Telegraph (AT&T).  Within this Bell Labs was at the center of three networks:
  1. The evolving global scientific network. 
  2. The Bell telephone network.  And
  3. The military industrial network deploying 'fire and missile control' systems. 
Bell Labs strategically leveraged each network to create an innovation engine. 
They monitored the opportunities to leverage the developing ideas, reorganizing to replace incumbent opposition and enable the creation and growth of new ideas. 
Once the monopoly was dismantled, AT&T disrupted. 
Complex adaptive system (CAS) models of the innovation mechanisms are discussed. 

Strategic innovation
Roger Cohen's New York Times opinion about the implications of BREXIT is summarized.  His ideas are then framed by complex adaptive system (CAS) theory and reviewed. 


BREXIT
Scott Galloway argues that Apple, Amazon, Facebook and Google are monopolists that trade workers for technology.  Monopolies that he argues should be broken up to ensure the return of a middle class. 

Following our summary of his arguments, RSS comments on these arguments assuming they relate to a complex adaptive system (CAS).  While Scott's issue is highly significant his analysis conflicts with relevant CAS history and theory. 

Monopoly job killers
The IPO of Netscape is defined as the key emergent event of the New Economy by Michael Mandel.  Following the summary of Mandel's key points the complex adaptive system (CAS) aspects are highlighted. 
New economy
Ed Conway argues that Bretton Woods produced a unique set of rules and infrastructure for supporting the global economy.  It was enabled by the experience of Keynes and White during and after the First World War, their dislike of the Gold Standard, the necessity of improving the situation between the wars and the opportunity created by the catastrophe of the Second World War. 

He describes how it was planned and developed.  How it emerged from the summit.  And he shows how the opportunity inevitably allowed the US to replace the UK at the center of the global economy. 

Like all plans there are mistakes and Conway takes us through them and how the US recovered the situation as best it could. 

And then Conway describes the period after Bretton Woods collapsed.  He explains what followed and also compares the relative performance of the various periods before during and after Bretton Woods. 

Following our summary of his arguments RSS comments from the perspective of Complex Adaptive System (CAS) theory.  Conway's book illustrates the rule making and infrastructure that together build an evolved amplifier.  He shows the strategies at play of agents that were for and against the development and deployment of the system.  And The Summit provides a key piece of the history of our global economic CAS. 

Bretton woods
A key agent in the 1990 - 2008 housing expansion Countrywide is linked into the residential mortgage value delivery system (VDS) by Paul Muolo and Mathew Padilla.  But they show the VDS was full of amplifiers and control points.  With no one incented to apply the brakes the bubble grew and burst.  Following the summary of Muolo and Padilla's key points the complex adaptive system (CAS) aspects are highlighted. 
Housing amplifiers
Derivative systems
Johnson & Kwak argue that expanding the national debt provides a hedge against unforeseen future problems, as long as creditors are willing to continue lending.  They illustrate different approaches to managing the debt within the US over its history and of the eighteenth century administrations of England and France. 

The US embodies two different political and economic systems which approach the national debt differently:
  • Taxes to support a sinking fund to ensure credit to leverage fiscal power in: Wars, Pandemics, Trade disputes, Hurricanes, Social programs; Starting with Hamilton, Lincoln & Chase, Wilson, FDR;
  • Low taxes, limited infrastructure, with risk assumed by individuals: Advocated by President's Jefferson & Madison, Reagan, George W. Bush (Gingrich);
Johnson & Kwak develop a model of what the US government does.  They argue that the conflicting sinking fund and low tax approaches leaves the nation 'stuck in the middle' with a future problem.  And they offer their list of 'first principles' to help assess the best approach for moving from 2012 into the future.  

They conclude the question is still political.  They hope it can be resolved with an awareness of their detailed explanations.  They ask who is willing to push all the coming risk onto individuals. 

Following our summary of their arguments RSS frames them from the perspective of complex adaptive system (CAS) theory.  Historically developing within the global cotton value delivery system, key CAS features are highlighted. 

National debt
Robert Gordon argues that the inventions of the second industrial revolution were the foundation for American economic growth.  Gordon shows how flows of people into difficult rural America built a population base which then took the opportunity to move on to urban settings: Houses, Food in supermarkets, Clothes in department stores; that supported increasing productivity and standard of living.  The deployment of nationwide networks: Rail, Road, Utilities; terminating in the urban housing and work places allowing the workers to leverage time saving goods and services, which helped grow the economy. 

Gordon describes the concomitant transformation of:
  • Communications and advertising
  • Credit and finance
  • Public health and the health care network 
  • Health insurance
  • Education
  • Social and welfare services

Counter intuitively the constraints introduced before and in the Great Depression and the demands of World War 2 provide the amplifiers that drive the inventions deeply and fully into every aspect of the economy between 1940 and 1970 creating the exceptional growth and standard of living of post war America. 

Subsequently the rate of growth was limited until the shift of women into the workplace and the full networking of voice and data supported the Internet and World Wide Web completed the third industrial revolution, but the effects were muted by the narrow reach of the technologies. 

The development of Big Data, Robots, and Artificial Intelligence may support additional growth, but Gordon is unconvinced because of the collapse of the middle class. 

Following our summary of Gordon's book RSS frames his arguments from the perspective of complex adaptive system (CAS) theory. 

American growth
Carl Menger argues that the market induced the emergence of money based on the attractive features of precious metals.  He compares the potential for government edicts to create money but sees them as lacking. 

Following our summary of his arguments RSS frames his arguments from the perspective of complex adaptive system (CAS) theory.  With two hundred years of additional knowledge we conclude that precious metals are not as attractive as Menger asserts.  Government backed promissory notes are analogous to:
  • Other evolved CAS forms of ubiquitous high energy transaction intermediates and
  • Schematic strategies that are proving optimal in supporting survival and replication in the currently accessible niches. 

Emergence of money
Eric Beinhocker sets out to answer a question Adam Smith developed in the Wealth of Nations: what is wealth?  To do this he replaces traditional economic theory, which is based on the assumption that an economy is a system in equilibrium, with complexity economics in which the economy is modeled as a complex adaptive system (CAS). 

He introduces Sugerscape to illustrate an economic CAS model in action.  And then he explains the major features of a CAS economy: Dynamics, Agents, Networks, Emergence, and Evolution. 

Building on complexity economics Beinhocker reviews how evolution applies to the economy to build wealth.  He explains how design spaces map strategies to instances of physical and social technologies.  And he identifies the interactors and selection mechanism of economic evolution. 

This allows Beinhocker to develop a new definition of wealth. 

In the rest of the book Beinhocker looks at the consequences of adopting complexity economics for business and society: Strategy, Organization, Finance, & Politics & Policy. 

Following our summary of his arguments, RSS explores his conclusions and aligns Beinhocker's model of CAS with the CAS theory and evidence we leverage. 

Economic complexity
Sven Beckert describes the historic transformation of the growing, spinning, weaving, manufacture of cotton goods and their trade over time.  He describes the rise of a first global commodity, its dependence on increasing: military power, returns for the control points in the value delivery system(VDS), availability of land and labor to work it including slaves. 

He explains how cotton offered the opportunity for industrialization further amplifying the productive capacity of the VDS and the power of the control points.  This VDS was quickly copied.  The increased capacity of the industrialized cotton complex adaptive system (CAS) required more labor to operate the machines.  Beckert describes the innovative introduction of wages and the ways found to mobilize industrial labor. 

Beckert describes the characteristics of the industrial cotton CAS which made it flexible enough to become globally interconnected.  Slavery made the production system so cost effective that all prior structures collapsed as they interconnected.  So when the US civil war blocked access to the major production nodes in the American Deep South the CAS began adapting. 

Beckert describes the global reconstruction that occurred and the resulting destruction of the traditional ways of life in the global countryside.  This colonial expansion further enriched and empowered the 'western' nation states.  Beckert explains how other countries responded by copying the colonial strategies and creating the opportunities for future armed conflict among the original colonialists and the new upstarts. 

Completing the adaptive shifts Beckert describes the advocates for industrialization in the colonized global south and how over time they joined the global cotton CAS disrupting the early western manufacturing nodes and creating the current global CAS dominated by merchants like Wal-Mart pulling goods through a network of clothing manufacturers, spinning and weaving factories, and growers competing with each other on cost. 

Following our summary of Beckert's book, RSS comments from the perspective of CAS theory.  The transformation of disconnected peasant farmers, pastoral warriors and their lands into a supply chain for a highly profitable industrial CAS required the development over time: of military force, global transportation and communication networks, perception and representation control networks, capital stores and flows, models, rules, standards and markets; along with the support at key points of: barriers, disruption, and infrastructure and evolved amplifiers.  The emergent system demonstrates the powerful constraining influence of extended phenotypic alignment. 

Globalization from cotton
The structure and problems of the US health care network is described in terms of complex adaptive system (CAS) theory. 

The network:
  • Is deeply embedded in the US nation state. It reflects the conflict between two opposing visions for the US: high tax with safety net or low tax without.  The emergence of a parasitic elite supported by tax policy, further constrains the choices available to improve the efficiency and effectiveness of the network.  
    • The US is optimized to sell its citizens dangerous levels of: salt, sugar, cigarettes, guns, light, cell phones, opioids, costly education, global travel, antibacterials, formula, foods including endocrine disrupters;
    • Accepting the US controlled global supply chain's offered goods & services results in: debt, chronic stress, amplified consumption and toxic excess, leading to obesity, addiction, driving instead of walking, microbiome collapse;
  • Is incented to focus on localized competition generating massive & costly duplication of services within physician based health care operations instead of proven public health strategies.  This process drives increasing research & treatment complexity and promotes hope for each new technological breakthrough. 
  • Is amplified by the legislatively structured separation and indirection of service development, provision, reimbursement and payment. 
  • Is impacted by the different political strategies for managing the increasing cost of health care for the demographic bulge of retirees.  
  • Is presented with acute and chronic problems to respond to.  As currently setup the network is tuned to handle acute problems.  The interactions with patients tend to be transactional. 
  • Includes a legislated health insurance infrastructure which is:
    • Costly and inefficient
    • Structured around yearly contracts which undermine long-term health goals and strategies.  
  • Is supported by increasingly regulated HCIT which offers to improve data sharing and quality but has entrenched commercial EHR products deep within the hospital systems.  
  • Is maintained, and kept in alignment, by massive network effects across the:
    • Hospital platform based sub-networks connecting to
    • Physician networks
    • Health insurance networks - amplified by ACA narrow network legislation
    • Hospital clinical supply and food production networks
    • Medical school and academic research network and NIH
    • Global transportation network 
    • Public health networks 
    • Health care IT supply network
Health care
Deaton describes the wellbeing of people around the world today.  He explains the powerful benefit of public health strategies and the effect of growth in material wellbeing but also the corrosive effects of aid. 

Following our summary of Deaton's arguments RSS comments from the perspective of complex adaptive system (CAS) theory.  The situation he describes is complex including powerful amplifiers, alignment and incentives that overlap broadly with other RSS summaries of adaptations of: The biosphere, Politics, Economics, Philosophy and Health care. 

Improving wellbeing
Donald Barlett and James Steele write about their investigations of the major problems afflicting US health care as of 2006. 
Problems of US health care
Glenn Steele & David Feinberg review the development of the modern Geisinger healthcare business after its near collapse following the abandoned merger with Penn State AMC.  After an overview of the business, they describe how a calamity unfolding around them supported building a vision of a better US health care network.  And they explain:
  • How they planned out the transformation,
  • Leveraging an effective governance structure,
  • Using a strategy to gain buy in,
  • Enabling reengineering at the clinician patient interface. 
  • Implementing the reengineering for acute, chronic & hot spot care; to help the patients and help the physicians.  
  • Geisinger's leverage of biologics.  
  • Reengineering healing with ProvenExperience.  
  • Where Geisinger is headed next. 

Following our summary of their arguments RSS comments on them.  We frame their ideas with complex adaptive system (CAS) theory. 

E2E insured quality care
Robert Pearl explains the perspectives of a health care leader and son who know that the current health care network interacts with human behavior to induce a poorly performing system that caused his father's death.  But he is confident that these problem perceptions can be changed.  Once that occurs he asserts the network will become more integrated, coordinated, collaborative, better led, and empathetic to their patients.  The supporting technology infrastructure will be made highly interoperable.  All that will reduce medical errors and make care more cost effective. 

Following our summary of his arguments RSS comments on them.  We frame his ideas with complex adaptive system (CAS) theory including synergistic examples of these systems in operation.  The health care network is built out of emergent human agents.  All agents must model the signals they perceive to represent and respond to them.  Pinker explains how this occurs.  Sapolsky explains why fear and hierarchy are so significant.  He includes details of Josh Green's research on morality and death.  Charles Ferguson highlights the pernicious nature of financial incentives. 

Bad medical models
US healthcare is ripe for disruption.  Christensen, Grossman and Hwang argue that technologies are emerging which will support low cost business models that will undermine the current network.  Applying complex adaptive system (CAS) theory to these arguments suggests that the current power hierarchy can effectively resist these progressive forces. 
Disrupting health care
Atul Gawande writes about the opportunity for a thirty per cent improvement in quality in medicine by organizing to deploy as agent based teams using shared schematic plans and distributed signalling or as he puts it the use of checklists. 

With vivid examples from a variety of situations including construction, air crew support and global health care Gawande illustrates the effects of complexity and how to organize to cope with it. 

Following the short review RSS additionally relates Gawande's arguments to its models of complex adaptive systems (CAS) positioning his discussion within the network of US health care, contrasting our view of complexity, comparing the forces shaping his various examples and reviewing facets of complex failures. 
Complexity checklists
Friedman and Martin leverage the lifelong data collected on 1,528 bright individuals selected by Dr. Lewis Terman starting in 1921, to understand what aspects of the subjects' lives significantly affected their longevity.  Looking broadly across each subject's: Personality, Education, Parental impacts, Energy levels, Partnering, Careers, Religion, Social networks, Gender, Impact from war and trauma; Friedman and Martin are able to develop a set of model pathways, which each individual could be seen to select and travel along.  Some paths led to the traveler having a long life.  Others were problematic.  The models imply that the US approach to health and wellness should focus more on supporting the development and selection of beneficial pathways. 

Following our summary of their arguments RSS comments from the perspective of CAS theory.  The pathways are most applicable to bright individuals with the resources and support necessary to make and leverage choices they make.  Striving to enter and follow a beneficial pathway seems sensible but may be impossible for individuals trapped in a collapsing network, starved of resources. 

Promoting longevity
Gawande uses his personal experience, analytic skills and lots of stories of innovators to demonstrate better ways of coping with aging and death.  He introduces the lack of focus on aging and death in traditional medicine.  And goes on to show how technology has amplified this stress point.  He illustrates the traditional possibility of the independent self, living fully while aging with the support of the extended family.  Central planning responded to the technological and societal changes with poorly designed infrastructure and funding.  But Gawande then contrasts the power of bottom up innovations created by experts responding to their own family situations and belief systems. 

Gawande then explores in depth the challenges that unfold currently as we age and become infirm.  He notes that the world is following the US path.  As such it will have to understand the dilemma of integrating medical treatment and hospice strategies.  He notes that all parties involved need courage to cope. 

He proposes medicine must aim to assure well being.  At that point all doctors will practice palliative care. 

Complex adaptive system (CAS) models of agency, death, evolution, cooperation and adaptations to new technologies are discussed. 

Agent death
Sonia Shah reviews the millennia old (500,000 years) malarial arms race between Humanity, Anopheles mosquitoes and Plasmodium.  250 - 500 million people are infected each year with malaria and one million die. 
Malaria
Peter Medawar writes about key historic events in the evolution of medical science. 
Medical science events
Using John Holland's theory of adaptation in complex systems Baldwin and Clark propose an evolutionary theory of design.  They show how this can limit the interdependencies that generate complexity within systems.  They do this through a focus on modularity. 
Modular designed systems
Lou Gerstner describes the challenges he faced and the strategies he used to successfully restructure the computer company IBM. 
Compartmented systems
Grady Booch advocates an object oriented approach to computer software design. 
Object based systems
Bertrand Meyer develops arguments, principles and strategies for creating modular software.  He concludes that abstract data types and inheritence make object orientation a superior methodology for software construction.  Complex adaptive system (CAS) theory suggests agents provide an alternative strategy to the use of objects. 
Software construction
Tools and the businesses that produce them have evolved dramatically.  W Brian Arthur shows how this occurred.
Tools
Matt Ridley demonstrates the creative effect of man on the World. He highlights:
  • A list of preconditions resulting in
  • Additional niche capture & more free time 
  • Building a network to interconnect memes processes & tools which
  • Enabling inter-generational transfers
  • Innovations that help reduce environmental stress even as they leverage fossil fuels

Memetic trading networks
E O. Wilson argues that campfire gatherings on the savanna supported the emergence of human creativity.  This resulted in man building cultures and later exploring them, and their creator, through the humanities.  Wilson identifies the transformative events, but he notes many of these are presently ignored by the humanities.  So he calls for a change of approach. 

He:
  • Explores creativity: how it emerged from the benefits of becoming an omnivore hunter gatherer, enabled by language & its catalysis of invention, through stories told in the evening around the campfire. He notes the power of fine art, but suggests music provides the most revealing signature of aesthetic surprise. 
  • Looks at the current limitations of the humanities, as they have suffered through years of neglect.  
  • Reviews the evolutionary processes of heredity and culture:
    • Ultimate causes viewed through art, & music
    • The bedrock of:
      • Ape senses and emotions,
      • Creative arts, language, dance, song typically studied by humanities, & 
      • Exponential change in science and technology.  
    • How the breakthrough from our primate past occurred, powered by eating meat, supporting: a bigger brain, expanded memory & language. 
    • Accelerating changes now driven by genetic cultural coevolution.  
    • The impact on human nature.  
  • Considers our emotional attachment to the natural world: hunting, gardens; we are destroying. 
  • Reviews our love of metaphor, archetypes, exploration, irony, and considers the potential for a third enlightenment, supported by cooperative action of humanities and science

Following our summary of his arguments RSS frames these from the perspective of complex adaptive system (CAS) theory:
  • The humanities are seen to be a functionalist framework for representing the cultural CAS while 
  • Wilson's desire to integrate the humanities and science gains support from viewing the endeavor as a network of layered CAS. 

Evening campfire rituals
Brynjolfsson and McAfee explore the effects of Moore's law on the economy.  They argue it has generated exponential growth.  This has been due to innovation.  It has created a huge bounty of additional wealth.  But the wealth is spread unevenly across society.  They look at the short and long term implications of the innovation bounty and spread and the possible future of technology. 

Following our summary of their arguments RSS comments from the perspective of CAS theory. 

Brilliant technologies
Salman Khan argues that the evolved global education system is inefficient and organized around constraining and corralling students into accepting dubious ratings that lead to mundane roles.  He highlights a radical and already proven alternative which offers effective self-paced deep learning processes supported by technology and freed up attention of teams of teachers.  Building on his personal experience of helping overcome the unjustified failing grade of a relative Khan:
  • Iteratively learns how to teach: Starting with Nadia, Leveraging short videos focused on content, Converging on mastery, With the help of neuroscience, and filling in dependent gaps; resulting in a different approach to the mainstream method. 
  • Assesses the broken US education system: Set in its ways, Designed for the 1800s, Inducing holes that are hidden by tests, Tests which ignore creativity.  The resulting teaching process is so inefficient it needs to be supplemented with homework.  Instead teachers were encouraging their pupils to use his tools at home so they could mentor them while they attended school, an inversion that significantly improves the economics. 
  • Enters the real world: Builds a scalable service, Working with a real classroom, Trying stealth learning, At Khan Academy full time,  In the curriculum at Los Altos, Supporting life-long learning. 
  • Develops The One World Schoolhouse: Back to the future with a one room school, a robust teaching team, and creativity enabled; so with some catalysis even the poorest can become educated and earn credentials for current jobs. 
  • Wishes he could also correct: Summer holidays, Transcript based assessments, College education;
  • Concludes it is now possible to provide the infrastructure for creativity to emerge and to support risk taking. 

Following our summary of his arguments RSS frames them from the perspective of complex adaptive system (CAS) theory.  Disruption is a powerful force for change but if its force is used to support the current teachers to adopt new processes can it overcome the extended phenotypic alignment and evolutionary amplifiers sustaining the current educational network? 

Education versus guilds
Amy Chua and Jed Rubenfeld's New York Times opinion based on The Triple Package is summarized.  Their ideas are then framed by CAS theory and reviewed. 


What drives success
Peter Turchin describes how major pre-industrial empires developed due to effects of geographic boundaries constraining the empires and their neighbors' interactions.  Turchin shows how the asymmetries of breeding rates and resource growth rates results in dynamic cycles within cycles.  After the summary of Turchin's book complex adaptive system (CAS) theory is used to augment Turchins findings. 
Warrior groups
Through the operation of three different food chains Michael Pollan explores their relative merits.  The application of complex adaptive system (CAS) theory highlights the value of evolutionary testing of the food chain. 
Natural systems
E. O. Wilson & Bert Holldobler illustrate how bundled cooperative strategies can take hold.  Various social insects have developed strategies which have allowed them to capture the most valuable available niches.  Like humans they invest in specialization and cooperate to subdue larger, well equipped competitors. 
Insect superorganisms
Computational theory of the mind and evolutionary psychology provide Steven Pinker with a framework on which to develop his psychological arguments about the mind and its relationship to the brain.  Humans captured a cognitive niche by natural selection 'building out' specialized aspects of their bodies and brains resulting in a system of mental organs we call the mind. 

He garnishes and defends the framework with findings from psychology regarding: The visual system - an example of natural selections solutions to the sensory challenges of inverse modeling of our environment; Intensions - where he highlights the challenges of hunter gatherers - making sense of the objects they perceive and predicting what they imply and natural selections powerful solutions; Emotions - which Pinker argues are essential to human prioritizing and decision making; Relationships - natural selection's strategies for coping with the most dangerous competitors, other people.  He helps us understand marriage, friendships and war. 

These conclusions allow him to understand the development and maintenance of higher callings: Art, Music, Literature, Humor, Religion, & Philosophy; and develop a position on the meaning of life. 

Complex adaptive system (CAS) modeling allows RSS to frame Pinker's arguments within humanity's current situation, induced by powerful evolved amplifiers: Globalization, Cliodynamics, The green revolution and resource bottlenecks; melding his powerful predictions of the drivers of human behavior with system wide constraints.  The implications are discussed. 

Computationally adapted mind
The stages of development of the human female, including how her brain changes and the impacts of this on her 'reality' across a full life span: conception, infantile puberty, girlhood, juvenile pause, adolescence, dating years, motherhood, post-menopause; are described.  Brizendine notes the significant difference in how emotions are processed by women compared to men. 

Complex adaptive system (CAS) theory associates the stages with the evolutionary under-pinning, psychological implications and behavioral CAS. 

Evolved female brain
The complexity of behavior is explored through Sapolsky developing scenarios of our best and worst behaviors across time spans, and scientific subjects including: anthropology, psychology, neuroscience, sociology.  The rich network of adaptive flows he outlines provides insights and highlight challenges for scientific research on behavior. 

Complex adaptive system (CAS) theory builds on Sapolsky's details highlighting the strategies that evolution has captured to successfully enter niches we now occupy. 

CAS behavior
Carlo Rovelli resolves the paradox of time. 
Rovelli initially explains that low level physics does not include time:
  • A present that is common throughout the universe does not exist
  • Events are only partially ordered.  The present is localized
  • The difference between past and future is not foundational.  It occurs because of state that through our blurring appears particular to us
  • Time passes at different speeds dependent on where we are and how fast we travel
  • Time's rhythms are due to the gravitational field
  • Our quantized physics shows neither space nor time, just processes transforming physical variables. 
  • Fundamentally there is no time.  The basic equations evolve together with events, not things 
Then he explains how in a physical world without time its perception can emerge:
  • Our familiar time emerges
    • Our interaction with the world is partial, blurred, quantum indeterminate
    • The ignorance determines the existence of thermal time and entropy that quantifies our uncertainty
    • Directionality of time is real but perspectival.  The entropy of the world in relation to us increases with our thermal time.  The growth of entropy distinguishes past from future: resulting in traces and memories
    • Each human is a unified being because: we reflect the world, we formed an image of a unified entity by interacting with our kind, and because of the perspective of memory
    • The variable time: is one of the variables of the gravitational field.  With our scale we don't register quantum fluctuations, making space-time appear determined.  At our speed we don't perceive differences in time of different clocks, so we experience a single time: universal, uniform, ordered; which is helpful to our decisions

Emergence of time
Consciousness has confounded philosophers and scientists for centuries.  Now it is finally being characterized scientifically.  That required a transformation of approach. 
Realizing that consciousness was ill-defined neuroscientist Stanislas Dehaene and others characterized and focused on conscious access. 
In the book he outlines the limitations of previous psychological dogma.  Instead his use of subjective assessments opened the window to contrast totally unconscious brain activity with those including consciousness. 
He describes the research methods.  He explains the contribution of new sensors and probes that allowed the psychological findings to be correlated, and causally related to specific neural activity. 
He describes the theory of the brain he uses, the 'global neuronal workspace' to position all the experimental details into a whole. 
He reviews how both theory and practice support diagnosis and treatment of real world mental illnesses. 
The implications of Dehaene's findings for subsequent consciousness research are outlined. 
Complex adaptive system (CAS) models of the brain's development and operation introduce constraints which are discussed. 

Conscious access
Reading and writing present a conundrum.  The reader's brain contains neural networks tuned to reading.  With imaging a written word can be followed as it progresses from the retina through a functional chain that asks: Are these letters? What do they look like? Are they a word? What does it sound like? How is it pronounced? What does it mean?  Dehaene explains the importance of education in tuning the brain's networks for reading as well as good strategies for teaching reading and countering dyslexia.  But he notes the reading networks developed far too recently to have directly evolved.  And Dehaene asks why humans are unique in developing reading and culture. 

He explains the cultural engineering that shaped writing to human vision and the exaptations and neuronal structures that enable and constrain reading and culture. 

Dehaene's arguments show how cellular, whole animal and cultural complex adaptive system (CAS) are related.  We review his explanations in CAS terms and use his insights to link cultural CAS that emerged based on reading and writing with other levels of CAS from which they emerge. 

Evolved reading
Read Montague explores how brains make decisions.  In particular he explains how:
  • Evolution can create indirect abstract models, such as the dopamine system, that allow
  • Life changing real-time decisions to be made, and how
  • Schematic structures provide encodings of computable control structures which operate through and on incomputable, schematically encoded, physically active structures and operationally associated production functions. 
Receptor indirection
Daniel Goleman and Richard Davidson describe a scientific investigation of meditation's impact on the brain.  They introduce the book by describing their experiences with meditation, science and the research establishment, their friendship, how meditation is now used in two distinct ways: deep - leading to altered traits & wide - that can reach the multitudes; which the book reviews as it critiques the claims and research used to back them up. 

Goleman and Davidson describe meeting as Harvard psychology graduate students, interested in consciousness, and how minds work.  They rebel against the behavioral orthodoxy, visit Asia and discover the Eastern tradition of exploring and altering the mind. 

Goleman had travelled to Sri Lanka to understand an Asian model of the mind, which he presented to the undergraduates at Harvard.  Goleman and Davidson developed it into a shared vision of consciousness.  It took over twenty years for scientific theory and experimental data to catch up and align with this model.  Much of the prior experimental data had to be abandoned. 

They introduce meditation's impact on the amygdala responding to pain and stress. 

They look at the changes in:
  • Stress
  • Compassion
  • Attention
  • Self-awareness; and the potential for use of mediation in psychiatry. 
And they warn of the occurrence of dark nights. 
They detail how scientists were able to study the brains of Tibetan meditation masters, starting with Mingyur Rinpoche, and detect meditation altering traits. 
Finally they discuss the potential benefits of meditation and strategies to distribute it broadly to a busy America. 

Meditating neurons
Tara Brach was worried from a young age that there was something terribly wrong with her: she like many others felt unworthy.  She responded by developing Radical Acceptance.  Brach then explains the steps in applying it: pause, greet what happens next with unconditional friendliness; allowing us to:
  • Initially attend to the sensations of our body, 
  • Accept the wanting self and discover its source of boundless love.  
  • Welcome fear with a widening attention, accept the pain of death and become free.  
  • Use adversity as a gateway to limitless compassion for ourselves and others.  
  • Focus on our basic goodness to counter Western culture turning anger, at being betrayed, towards ourselves.  Extend observing this goodness in everyone.  This enables the use of loving-kindness.  
  • Leverage friendships to understand more about our shared nature and strengthen Radical Acceptance.  
  • Realize our Buddha nature. 

Complex adaptive system (CAS) theory describes the emergence of the dualistic self and the tree of life linked by the genetic code and machinery.  It provides an analog of the Buddhist presence. 

Compassionate CAS
The influence of childhood on behavior is significant.  Enneagrams define personality types: Reformer, Helper, Achiever, Individualist, Investigator, Loyalist, Enthusiast, Challenger and Peacemaker; based on the impact of childhood driven wounds. 

The Enneagram becomes a tool to enable interested people to transform from the emotionally wounded base, hidden within the armor of the type, to the liberated underlying essence. 

Childhood leaves each of us with some environmentally specific Basic Fear.  In response each of us adopts an induced Basic Desire of the type.  But as we develop the inner observer, it will support presence and undermine the identification that supports the armor of the type. 

The Enneagram reveals three sets of relations about our type armor:
  1. Triadic self revealing: Instinctive, feeling, thinking; childhood needs that became significant wounds
  2. Social style groupings: Assertive, compliant, withdrawn; strategies for managing inner conflict
  3. Coping styles: Positive outlook, competency, reactive; strategies for defending childhood wounds
Riso and Hudson augment the Enneagram with instinctual distortions reflected in the interests of the variants. 

The Enneagram also offers tools for understanding a person's level of development: unhealthy, average, healthy, liberation; including their current center of gravity, steriotypical social role, wake-up call, leaden rule, red flag, and direction of integration and disintegration. 

Complex adaptive system (CAS) theory associates the models presented by the Enneagram with evolved behaviors and structures in the mind: feelings, emotions, social behaviors, ideas; driven by genetic and cultural evolution and the constraints of family and social life.  Emergent evolved amplifers can be constrained by Riso and Hudson's awareness strategies. 

Enneagram strategies
Antonio Damasio argues that ancient & fundamental homeostatic processes, built into behaviors and updated by evolution have resulted in the emergence of  nervous systems and feelings.  These feelings, representing the state of the viscera, and represented with general systems supporting enteric operation, are later ubiquitously integrated into the 'images' built by the minds of higher animals including humans. 

Damasio highlights the separate development of the body frame in the building of minds. 

Damasio explains that this integration of feelings by minds supports the development of subjectivity and consciousness.  His chain of emergence suggests the 'order of things.'  He stresses the end-to-end integration of the organism which undermines dualism.  And he reviews Chalmers hard problem of consciousness. 

Damasio reviews the emergence of cultures and sees feelings, integrated with reason, as the judges of the cultural creative process, linking culture to homeostasis.  He sees cultures as supporting the development of tools to improve our lives.  But the results of the creative process have added stresses to our lives. 

Following our summary of his arguments RSS frames his arguments from the perspective of complex adaptive system (CAS) theory.  Each of the [super]organisms discussed is a CAS reflecting the theory of such systems:
  • Damasio's proposals about homeostasis routed signalling, aligns well with CAS theory. 
  • Damasio's ideas on cultural stresses are elaborated by CAS examples. 

Emergence of feelings
Alfred Nemeczek reveals the chaotic, stressful life of Vincent van Gogh in Arles. 

Nemeczek shows that Vincent was driven to create, and successfully invented new methods of representing feeling in paintings, and especially portraits.  Vincent worked hard to allow artists like him-self to innovate.  But Vincent failed in this goal, collapsing into psychosis. 

Nemeczek also provides a brief history of Vincent's life. 

Following our summary of his main points, RSS frames the details from the perspective of complex adaptive system (CAS) theory. 
 
Vincent creates
Richard Dawkin's explores how nature has created implementations of designs, without any need for planning or design, through the accumulation of small advantageous changes. 
Accumulating small changes
Russ Abbott explores the impact on science of epiphenomena and the emergence of agents. 
Autonomous emergence
Terrence Deacon explores how constraints on dynamic flows can induce emergent phenomena which can do real work.  He shows how these phenomena are sustained.  The mechanism enables the development of Darwinian competition. 
Constraint based phenomena
Primary Navigation

The power of derivative systems

Summary
Satyajit Das uses an Indonesian company's derivative trades to introduce us to the workings of the international derivatives system.  Das describes the components of the value delivery system and the key transactions.  He demonstrates how the system interacted with emerging economies is a human SuperOrganism complex adaptive system (CAS) which operates and controls trade flows within a rich niche.  Economics models economies.  Robert Gordon has described the evolution of the American economy.  Like other CAS, economic flows are maintained far from equilibrium by: demand, financial flows and constraints, supply infrastructure constraints, political and military constraints; ensuring wealth, legislative control, legal contracts and power have significant leverage through evolved amplifiers. 
expanding them, extracting profits and then moving on as the induced bubbles burst.  Following Das's key points the complex adaptive system (
This page introduces the complex adaptive system (CAS) theory frame.  The theory is positioned relative to the natural sciences.  It catalogs the laws and strategies which underpin the operation of systems that are based on the interaction of emergent agents. 
John Holland's framework for representing complexity is outlined.  Links to other key aspects of CAS theory discussed at the site are presented. 
CAS) aspects are highlighted. 
Traders guns and money
In Satyajit Das's book 'Traders guns and money' he outlines the derivative value delivery system that
This page discusses the mechanisms and effects of emergence underpinning any complex adaptive system (CAS).  Physical forces and constraints follow the rules of complexity.  They generate phenomena and support the indirect emergence of epiphenomena.  Flows of epiphenomena interact in events which support the emergence of equilibrium and autonomous entities.  Autonomous entities enable evolution to operate broadening the adjacent possible.  Key research is reviewed. 
emerged after the creation of derivative contracts.  A variety of types of derivatives and their risk profile are described. 

Das uses a set of related foreign currency transactions with an Indonesian company during the 1990s Asian economic is the study of trade between humans.  Traditional Economics is based on an equilibrium model of the economic system.  Traditional Economics includes: microeconomics, and macroeconomics.  Marx developed an alternative static approach.  Limitations of the equilibrium model have resulted in the development of: Keynes's dynamic General Theory of Employment Interest & Money, and Complexity Economics.  Since trading depends on human behavior, economics has developed behavioral models including: behavioral economics. 
boom as an illustration of derivatives in action. 

To set the scene - foreign investment and loans were flooding into Asia in the 1990s.  It was part of a repeating process of integrating developing economies is a human SuperOrganism complex adaptive system (CAS) which operates and controls trade flows within a rich niche.  Economics models economies.  Robert Gordon has described the evolution of the American economy.  Like other CAS, economic flows are maintained far from equilibrium by: demand, financial flows and constraints, supply infrastructure constraints, political and military constraints; ensuring wealth, legislative control, legal contracts and power have significant leverage through evolved amplifiers. 
into the western financial system.  Das identifies four phases:
  1. The World Bank was setup as part of the Bretton Woods agreements, as the International Bank for Reconstruction and Development, to repair and reconstruct Europe after the Second World War and as the World Bank continues to provide reconstruction and development resources for projects in developing economies. It includes:
    • International Finance Corporation 
     had pushed the countries to deregulate to attract foreign investment.  Government controls were relaxed.  Local labor costs were low.  There were no employment laws.  Abundant natural resources were available.  The local markets were opening up.  But political instability and no social welfare system forced people to save money (especially in Swiss accounts).  The costs of office space sky rocketed.  Phones and plumbing didn't work.  Traffic was terrible. 
  2. Living standards improve for the fortunate.  Property and share prices climb steeply.  More money flows in.  Local banks relax lending standards. Foreign banks lend to local banks.  Investors enter the market. 
  3. Costs rise to levels that make the economy uncompetitive.  Politicians discuss moving up the value chain.  Major initiatives are launched.  The bubble pulls in more investment. 
  4. The new economy collapses.  
The international bankers and traders fuelled each boom with new issues of shares and bonds sold to investors.  They gained commissions trading the securities to foreign investors.  They had produced derivative products which the Asian companies and investors had snapped up. 

The foreign currency derivative transaction is an operation which guarantees to complete a defined set of activities or return to the initial state.  For a fee the postal service will ensure that a parcel is delivered to its recipient or will return the parcel to the sender.  To provide the service it may have to undo the act of trying to deliver the parcel with a compensating action.  Since the parcel could be lost or destroyed the service may have to return an equivalent value to the sender.  
In the 1990s the client, an Indonesian company, produced and sold product in Indonesia, but with the global integration they concluded it would be cheaper to obtain finances from the global market.  The Indonesian currency is legal tender which provides no interest payments to the holder.  It is a central aspect of money and in CAS is an analog of a short term potential energy token such as the high energy phosphate bond of the base ATP.  But the interaction of the geometric breeding and deaths of agents that perform actions and the linear increase in real resources, described by Turchin, results in the correspondence between energy and currency being complex and adaptive. 
was costing 12% for loans while the dollar was only 6%.  Investment banks were happy to assist.  The client entered into derivative contracts.  With the Indonesian currency pegged to the dollar there appeared to be no currency risk, is an assessment of the likelihood of an independent problem occurring.  It can be assigned an accurate probability since it is independent of other variables in the system.  As such it is different from uncertainty. 
. 

The initial derivatives the company used were swaps:
The bank then told them that the dollar yield curve, plots yield to maturity(y) against time to maturity (x) with the expectation that yield will be higher for debt instruments with longer times before they mature.  Price risk is also typically higher on longer maturity debt.  However when short term interest rates are rising the short term yield will rise faster than the long term yield and the shape of the yield curve can become inverted. 
was steep and that they would benefit from a contract change.  So they added an arrears reset swap:
  • The company agrees to pay for dollars at LIBOR - 0.4% at an interest rate set in arrears (actually 2 days before the end of the 6 month period of the contract).  
When the bank said the dollar yield curve was flattening they cancelled the arrears reset swap making a profit.  Probably when the dollar interest rate moved the trader no longer wished to be in the contract. 

The company entered into a swap to fix the cost of the dollar payments, under the assumption that the dollar rate would rise.  By trading in and out they had made another profit. 

The company then entered into a 'double up' swap:
  • The company would pay fixed rates in dollars for five years.  But interest rates for five years were higher than for six months.  So the companies cost of borrowing would be higher.  To make that cost cheaper, the company placed a bet - They were offered a lower borrowing cost but with some strings attached.  If dollar rates went up, then the fixed rate would convert to a floating one.  If the dollar went down then the deal ($300 million) would double in size ($600 million).  There was also a hidden currency option in the contract.  The exchange rate for the second $300 million was fixed at the original exchange rate. 
While this contract reduced the borrowing costs it made no sense for the company to enter into.  Any protection, they thought they had obtained, against dollar rates changing, was contractually removed just when they needed it!  The company had no control over the factors that could now impact them hugely.  However, the Federal Reserve of 1913 was a response to a series of banking panics with the goal of responding effectively to stresses.  It setup:
  • At least 8 and not more than 12 private regional Federal Reserve banks.  Twelve were setup
  • Federal Reserve Board with seven members to govern the system.  The President appointed the seven, which must be confirmed by Congress.  In 1935 the Board was renamed and restructured. 
  • Federal Advisory Committee with twelve members
  • Single US currency - the Federal Reserve Note. 
did. 

Das claims that investment banks typically initiated deals with a customer with a small win (Twinkie) for the customer.  Only later when the customer had built trust and distrust are evolved responses to sham emotions.  During a friendship where no sham emotions have been detected trust will build up. 
and assumed they were going to get more profits from further contracts would the hidden hooks appear.  Even when the customer lost money they would come back for more. 

Who understood what was happening?  Das discusses the accounting
The agents in complex adaptive systems (CAS) must model their environment to respond effectively to it.  Samuel modeling is described as an approach. 
models that banks are required to use.  Mark-to-market accounting attempted to link the various derivative products to their market values.  But since over-the-counter products could be unique, models were used to derive the value.  Dealers liked mark-to-market since it allowed income to be booked up front.  That introduces risk, is an assessment of the likelihood of an independent problem occurring.  It can be assigned an accurate probability since it is independent of other variables in the system.  As such it is different from uncertainty. 
, since the other party may not pay, so the banks are required to keep cash reserves.  Das explains that the subjective nature of the valuations makes reserves a potential slush fund for profit smoothing - which produces bank results that are attractive to investors.  Regulators and law makers control the accounting models but the nature of futures introduces estimations into the valuation process.  Accountants wanted to limit reserves (slush funds).  Regulators wanted to expand them.  Traders went with the accountants - they reported more income and obtained larger bonuses!

Often all three parties to a swap like the result:  A company can trade variable interest rate debt for fixed rate debt.  When interest rates are volatile this is a good hedge.  For that risk reduction the issuer of the fixed rate debt can obtain access to variable rate debt at an especially low price.  The bank obtains transaction fees and maybe more.  Over
Carlo Rovelli resolves the paradox of time. 
Rovelli initially explains that low level physics does not include time:
  • A present that is common throughout the universe does not exist
  • Events are only partially ordered.  The present is localized
  • The difference between past and future is not foundational.  It occurs because of state that through our blurring appears particular to us
  • Time passes at different speeds dependent on where we are and how fast we travel
  • Time's rhythms are due to the gravitational field
  • Our quantized physics shows neither space nor time, just processes transforming physical variables. 
  • Fundamentally there is no time.  The basic equations evolve together with events, not things 
Then he explains how in a physical world without time its perception can emerge:
  • Our familiar time emerges
    • Our interaction with the world is partial, blurred, quantum indeterminate
    • The ignorance determines the existence of thermal time and entropy that quantifies our uncertainty
    • Directionality of time is real but perspectival.  The entropy of the world in relation to us increases with our thermal time.  The growth of entropy distinguishes past from future: resulting in traces and memories
    • Each human is a unified being because: we reflect the world, we formed an image of a unified entity by interacting with our kind, and because of the perspective of memory
    • The variable time: is one of the variables of the gravitational field.  With our scale we don't register quantum fluctuations, making space-time appear determined.  At our speed we don't perceive differences in time of different clocks, so we experience a single time: universal, uniform, ordered; which is helpful to our decisions

time the competition between banks and the goal of increasing transaction volume would push each new derivative product into a commoditized product processed in bulk by a warehouse.  There were no arrangement fees.  Banks profited from the spread between the bid and offer.  The products were easily reverse engineered.  Commoditization and competition ensured the need for volume.   To improve the potential for profits traders would take open positions rather than hedge the derivatives. 

Das comments that swaps that hedged interest rate and currency risk, is an assessment of the likelihood of an independent problem occurring.  It can be assigned an accurate probability since it is independent of other variables in the system.  As such it is different from uncertainty. 
created opportunities as countries started to open up their markets.  The various currencies and financial systems allowed investors to find undervalued currencies providing them with access to low cost capital is the sum total nonhuman assets that can be owned and exchanged on some market according to Piketty.  Capital includes: real property, financial capital and professional capital.  It is not immutable instead depending on the state of the society within which it exists.  It can be owned by governments (public capital) and private individuals (private capital).  . 

Enabling the Japanese investor in the 1980
Japan was particularly attractive for banks and issuers.  Byzantine investment rules, mostly unwritten and obscure, prevented investors from investing where they wanted. Investment banks and issuers devised structures to circumvent the rules. 

Japanese investors were limited in the amount of foreign currency is legal tender which provides no interest payments to the holder.  It is a central aspect of money and in CAS is an analog of a short term potential energy token such as the high energy phosphate bond of the base ATP.  But the interaction of the geometric breeding and deaths of agents that perform actions and the linear increase in real resources, described by Turchin, results in the correspondence between energy and currency being complex and adaptive. 
bonds they could buy, but a bond denominated in a foreign currency issued by a Japanese entity are, according to Abbott, a class including people, families, corporations, hurricanes.  They implement abstract designs and are demarcatable by their reduced entropy relative to their components.  Rovelli notes entities are a collection of relations and events, but memory and our continuous process of anticipation, organizes the series of quantized interactions we perceive into an illusion of permanent objects flowing from past to future.  Abbott identifies two types of entity:
  1. At equilibrium entities,
  2. Autonomous entities, which can control how they are affected by outside forces;
 was not a foreign currency bond under the rules.  In 1985 Long Term Credit Bank a AAA rated Japanese lender entered a contract with Bankers Trust for a bond with a 1% higher interest rate than normal.  In return the investors, Japanese insurance reduces volatility in standard of living by compensating for losses of income during periods of unemployment, for catastrophic losses from disaster, or death of a family income earner as described by Gordon.  Insurance companies must set aside reserves to handle such claims.  Britain initially required that insurance buyers also have an insurable interest.  That is required in insurance markets to ensure buyers of insurance don't destroy their asset just to obtain the insurance.  Health insurance is treated separately being unusual, since the subscriber is likely to know more about their state of health than the insurer is and the subscriber is more likely to purchase the health insurance when aware of their increased risk.  This behavior collapses the risk pool by: forcing the insurer to increase the premiums, and encouraging healthy individuals to opt out of health insurance coverage.   companies took on uncertainty is when a factor is hard to measure because it is dependent on many interconnected agents and may be affected by infrastructure and evolved amplifiers.  This is different from Risk.   if the yen rose above 169 to the dollar over the next 10 years.  If it reached 84.5 to the dollar the investors lost their entire principal. 

Similarly Japanese investors liked US$ zero coupon bonds.  These pay no interest over the 10 year period but then pay the principal and compounded interest in one sum.  If the Japanese yen fell (the bank of Japan policy kept the yen weak) the final dollar payment was amplified in terms of yen.  Further while the initial bond investment was a payment the final repayment was classed as a capital is the sum total nonhuman assets that can be owned and exchanged on some market according to Piketty.  Capital includes: real property, financial capital and professional capital.  It is not immutable instead depending on the state of the society within which it exists.  It can be owned by governments (public capital) and private individuals (private capital).   gain which was not taxed in Japan at the
Carlo Rovelli resolves the paradox of time. 
Rovelli initially explains that low level physics does not include time:
  • A present that is common throughout the universe does not exist
  • Events are only partially ordered.  The present is localized
  • The difference between past and future is not foundational.  It occurs because of state that through our blurring appears particular to us
  • Time passes at different speeds dependent on where we are and how fast we travel
  • Time's rhythms are due to the gravitational field
  • Our quantized physics shows neither space nor time, just processes transforming physical variables. 
  • Fundamentally there is no time.  The basic equations evolve together with events, not things 
Then he explains how in a physical world without time its perception can emerge:
  • Our familiar time emerges
    • Our interaction with the world is partial, blurred, quantum indeterminate
    • The ignorance determines the existence of thermal time and entropy that quantifies our uncertainty
    • Directionality of time is real but perspectival.  The entropy of the world in relation to us increases with our thermal time.  The growth of entropy distinguishes past from future: resulting in traces and memories
    • Each human is a unified being because: we reflect the world, we formed an image of a unified entity by interacting with our kind, and because of the perspective of memory
    • The variable time: is one of the variables of the gravitational field.  With our scale we don't register quantum fluctuations, making space-time appear determined.  At our speed we don't perceive differences in time of different clocks, so we experience a single time: universal, uniform, ordered; which is helpful to our decisions

time. 

In December 1985 at the Plaza Accord, the Reagan administration got the agreement of the G7 is the group of seven: Canada, EU, France, Germany Italy, Japan, UK, US.    central bankers that the Bank of Japan would let the yen float.  The yen rose dramatically an appreciation of 310% at its peak.  The Japanese investors, who had always assumed the Bank of Japan would keep the yen weak to help the countries exporters suffered huge derivative losses. 

The long term effect of the yen appreciation was to push the Japanese economy is a human SuperOrganism complex adaptive system (CAS) which operates and controls trade flows within a rich niche.  Economics models economies.  Robert Gordon has described the evolution of the American economy.  Like other CAS, economic flows are maintained far from equilibrium by: demand, financial flows and constraints, supply infrastructure constraints, political and military constraints; ensuring wealth, legislative control, legal contracts and power have significant leverage through evolved amplifiers. 
into depression.  The central bank dropped interest rates to 0.  Japanese insurance reduces volatility in standard of living by compensating for losses of income during periods of unemployment, for catastrophic losses from disaster, or death of a family income earner as described by Gordon.  Insurance companies must set aside reserves to handle such claims.  Britain initially required that insurance buyers also have an insurable interest.  That is required in insurance markets to ensure buyers of insurance don't destroy their asset just to obtain the insurance.  Health insurance is treated separately being unusual, since the subscriber is likely to know more about their state of health than the insurer is and the subscriber is more likely to purchase the health insurance when aware of their increased risk.  This behavior collapses the risk pool by: forcing the insurer to increase the premiums, and encouraging healthy individuals to opt out of health insurance coverage.   companies had written policies with guaranteed interest of 3-4%.  The economy would not allow their businesses to generate that.  US investment banks were happy to offer derivative products (reverse dual currency bonds) that might help them generate that capital.  Ordinary Japanese investors were also getting 0% interest on their savings.  They also headed for reverse dual currency bonds. 

Black-Scholes can solve the contingent investment discount rate dilemma for pricing options.  It establishes a tracking portfolio with the same payoffs as the option and dynamically tracks the portfolio as the stock price evolves, adjusting the value of the option.  It is argued that the adjustment ensures the rate of return to a hedge position remains constant over time. 
option pricing allowed derivatives products to be built around options.  The contracts used the models to hedge the risk, is an assessment of the likelihood of an independent problem occurring.  It can be assigned an accurate probability since it is independent of other variables in the system.  As such it is different from uncertainty. 
but the models were not perfect and in Oct 1987 US stock markets collapsed.  Option books failed badly.  The models had proved poor approximations of markets in meltdown. 

Das points out that the former Federal Reserve of 1913 was a response to a series of banking panics with the goal of responding effectively to stresses.  It setup:
  • At least 8 and not more than 12 private regional Federal Reserve banks.  Twelve were setup
  • Federal Reserve Board with seven members to govern the system.  The President appointed the seven, which must be confirmed by Congress.  In 1935 the Board was renamed and restructured. 
  • Federal Advisory Committee with twelve members
  • Single US currency - the Federal Reserve Note. 
chairman Alan Greenspan argued that derivatives allow banks and non-banks to unbundle risks and thereby enhance the process of wealth is schematically useful information and its equivalent, schematically useful energy, to paraphrase Beinhocker.  It is useful because an agent has schematic strategies that can utilize the information or energy to extend or leverage control of the cognitive niche.    creation. 

In the 1990s Greenspan's low interest rate policies, government regulatory requirements and pension privatization strategies, consistent economic growth, escalating real estate prices, and the shaky financial position of many banks drove investment managers, flush with cash, to seek safer and higher returns in the financial markets.  The excess of capital enabled hedge fund is an investment fund that accepts investments from a limited number of accredited individual or institutional investors.  Hedge funds are able to use investment methods that are not allowed for other types of fund. 
s to operate as investment vehicles. 

The derivative
The complex adaptive system (CAS) nature of a value delivery system is first introduced.  It's a network of agents acting as relays. 

The critical nature of hub agents and the difficulty of altering an aligned network is reviewed. 

The nature of and exceptional opportunities created by platforms are discussed. 

Finally an example of aligning a VDS is presented. 
value delivery system
The buy side - are customers, corporations and investors who trade derivatives with investment banks.  They do it to hedge risk, is an assessment of the likelihood of an independent problem occurring.  It can be assigned an accurate probability since it is independent of other variables in the system.  As such it is different from uncertainty. 
, manage exposure or speculate.  Money managers need to match or beat their competitors.  They often do that by investing a large proportion of their funds in the market (index funds use simple rules to decide what assets to include in an investment fund: mutual fund or ETF.  John Bogle leveraged the low cost and predictability of the approach to build Vanguard's index funds for consumer investors, explaining "My ideas are very simple.  In investing, you get what you don't pay for.  Costs matter, so intelligent investors will use low-cost index funds to build a diversified portfolio of stocks and bonds, and they will stay the course.  And they won't be foolish enough to think they can consistently outsmart the market."  University of Chicago economists: Renshaw, Feldstein, Samuelson; initially developed the indexing idea to obtain a diversified open-ended vehicle aligned with the assumed random operation of the market.  Complexity economics undermines these ideas, suggesting index funds are an evolved amplifier leveraging captive 401K funds.  Index funds are not guaranteed to be transparent and the selection process involves lightly regulated companies which can be open to conflict of interest - their selections will alter the demand for and price of the stocks (Feb 2019). 
) and then a small proportion in a hedge fund is an investment fund that accepts investments from a limited number of accredited individual or institutional investors.  Hedge funds are able to use investment methods that are not allowed for other types of fund. 
where they hope to obtain a higher return. 

The sell side - Investment bank traders, who can trade over-the-counter with buyers, or at the exchanges, and their support staff: sales team, research analysts, risk managers, product controllers, compliance officers, lawyers, quantitative analysts and other back-office staff.  Traders make prices for the sales teams to show their clients.  If the client accepts, the trader must then buy the asset - hopefully at a lower cost than the price he set.  Traders unbundle derivatives and cover each part in a trade.  Traders can also trade for their own accounts - to do that successfully they must know the future.  Das writes trading strategies include: overwhelming force, ganging up, ambush (inside information)!  The contractual nature of the products requires the lawyers to accurately assess the courts positions. 

The exchanges - Dealers match buyers and sellers of commoditized derivative products, charging a fee on the transaction. 

Warehouses - Investment banks entered into trades with clients as principals, allowing immediate execution, but adding to the banks risk, is an assessment of the likelihood of an independent problem occurring.  It can be assigned an accurate probability since it is independent of other variables in the system.  As such it is different from uncertainty. 
.  The assumption was that banks could enhance earnings from trading and managing the risks of the mismatches.  Actually warehousing, is a loan extended from a large bank or Wall Street firm to a nonbank to originate mortgages.   turned the traded derivatives into undifferentiated commodities and typically exchanged profit for volume. 

Product groups - include arbitrage teams who leverage the models and analytics to identify inefficiencies.  These inefficiencies can be exploited by creating derivatives contracts which traders could bet with. 

Quantitative analysts - Produced the models that, for example, match one item in a forward with the market benchmark, the analytics that identify market inefficiencies, and the technologies. 

Accountants - model the operation of the banks, assessing assets and allocating cash flows, revenues and profits to particular accounts. 

Academics - Guardians of the theories leveraged to develop the models, and create the derivative products, and legal frameworks that enable the
This page discusses the effect of the network on the agents participating in a complex adaptive system (CAS).  Small world and scale free networks are considered. 
network of
Plans are interpreted and implemented by agents.  This page discusses the properties of agents in a complex adaptive system (CAS). 
It then presents examples of agents in different CAS.  The examples include a computer program where modeling and actions are performed by software agents.  These software agents are aggregates. 
The participation of agents in flows is introduced and some implications of this are outlined. 
agents to emerge and operate.  

Hedge fund is an investment fund that accepts investments from a limited number of accredited individual or institutional investors.  Hedge funds are able to use investment methods that are not allowed for other types of fund. 
s and financiers - Hedge funds charge investors a fee and a share of the profits.  They are allowed to perform trades that typical investors can't - short selling is a multi part transaction where:
  • A borrowed tradable asset (this part of the transaction is not performed in the naked version) is sold under the assumption that the asset is going to fall in price during the period when it has been borrowed. 
  • Once the asset falls in price it is then purchased. 
  • The asset is returned to the lender, with any additional risk premium. 
  • The short seller keeps any profit.  If the asset gained value during the period of the short then the seller makes a loss.  
 and leveraged trades.  Those trades require derivatives.  They may arbitrage two similar assets that are differently priced and wait for the prices to equalize.  To make big money these small differences must be leveraged.  The assumption is that the market models available to the hedge funds limit the risk of mistakes! 

Regulators - Global agents such as the World Bank was setup as part of the Bretton Woods agreements, as the International Bank for Reconstruction and Development, to repair and reconstruct Europe after the Second World War and as the World Bank continues to provide reconstruction and development resources for projects in developing economies. It includes:
  • International Finance Corporation 
.  Western economy is a human SuperOrganism complex adaptive system (CAS) which operates and controls trade flows within a rich niche.  Economics models economies.  Robert Gordon has described the evolution of the American economy.  Like other CAS, economic flows are maintained far from equilibrium by: demand, financial flows and constraints, supply infrastructure constraints, political and military constraints; ensuring wealth, legislative control, legal contracts and power have significant leverage through evolved amplifiers. 
's central banks: the US is the United States of America.   Federal Reserve system of 1913 was a response to a series of banking panics with the goal of responding effectively to stresses.  It setup:
  • At least 8 and not more than 12 private regional Federal Reserve banks.  Twelve were setup
  • Federal Reserve Board with seven members to govern the system.  The President appointed the seven, which must be confirmed by Congress.  In 1935 the Board was renamed and restructured. 
  • Federal Advisory Committee with twelve members
  • Single US currency - the Federal Reserve Note. 
in particular, and US market regulators such as the regulators of the Chicago Mercantile Exchange. 

Derivatives and risk
The forward contract hedge
A farmer with no support subsidies who has invested in a field of wheat, is exposed to price risk, is an assessment of the likelihood of an independent problem occurring.  It can be assigned an accurate probability since it is independent of other variables in the system.  As such it is different from uncertainty. 
(supply & demand), and potentially volume risk.  To control the price risk the farmer can sell the wheat forward for an agreed price.  By giving up wind fall profits of a high price the farmer hedges against a low price.  Typically the agreed sales price is created by pre-selling a future share of an 'equivalent' market benchmark product.  At the
Carlo Rovelli resolves the paradox of time. 
Rovelli initially explains that low level physics does not include time:
  • A present that is common throughout the universe does not exist
  • Events are only partially ordered.  The present is localized
  • The difference between past and future is not foundational.  It occurs because of state that through our blurring appears particular to us
  • Time passes at different speeds dependent on where we are and how fast we travel
  • Time's rhythms are due to the gravitational field
  • Our quantized physics shows neither space nor time, just processes transforming physical variables. 
  • Fundamentally there is no time.  The basic equations evolve together with events, not things 
Then he explains how in a physical world without time its perception can emerge:
  • Our familiar time emerges
    • Our interaction with the world is partial, blurred, quantum indeterminate
    • The ignorance determines the existence of thermal time and entropy that quantifies our uncertainty
    • Directionality of time is real but perspectival.  The entropy of the world in relation to us increases with our thermal time.  The growth of entropy distinguishes past from future: resulting in traces and memories
    • Each human is a unified being because: we reflect the world, we formed an image of a unified entity by interacting with our kind, and because of the perspective of memory
    • The variable time: is one of the variables of the gravitational field.  With our scale we don't register quantum fluctuations, making space-time appear determined.  At our speed we don't perceive differences in time of different clocks, so we experience a single time: universal, uniform, ordered; which is helpful to our decisions

time of the future sale the benchmark product is purchased offsetting the price change in the wheat.  At the time of the actual sale the actual wheat and the bench mark may have moved out of alignment so there is still some 'basis' risk.  It depends how good a model for the wheat the benchmark future is. 

When interest rates are high and volatile (1980) currency is legal tender which provides no interest payments to the holder.  It is a central aspect of money and in CAS is an analog of a short term potential energy token such as the high energy phosphate bond of the base ATP.  But the interaction of the geometric breeding and deaths of agents that perform actions and the linear increase in real resources, described by Turchin, results in the correspondence between energy and currency being complex and adaptive. 
transactions can be hedged. 

You can speculate with forward contracts betting that the price will rise while buying forward, or that it will fall while selling forward.  It can create leverage since the dealer may only require a deposit on the transaction. 

Borrowers demand money at the lowest prices.  Swaps allowed them to exploit anomalies between capital is the sum total nonhuman assets that can be owned and exchanged on some market according to Piketty.  Capital includes: real property, financial capital and professional capital.  It is not immutable instead depending on the state of the society within which it exists.  It can be owned by governments (public capital) and private individuals (private capital).   markets to raise cheaper funds.  They would raise money in a currency with a low interest rate, while charging their direct investors a premium, and then swap the currency for the one they really needed. 
Derivative put option
The farmer can attempt to capture a high future price while 'insuring' against a low price with a put option is an agreement, covering a stated period of time, by the put option seller to pay the put option buyer the option price if required, for the asset the buyer owns, even if this underlying asset has a lower current value in the market.  The seller of the put option is paid a premium for providing the 'insurance'.  .  The contract agrees that
  • If prices fall below the strike price the seller of the option makes up the difference.  He does this because
  • The farmer will pay a premium for the 'insurance'.  

Derivative call option
Call options provide the equivalent 'insurance' on a rise in price. 

Buying options limits your losses to the option premium paid.  Selling options limits your gain to the premium while the potential loss is unlimited. 

Derivative short sell
Contractually agreeing to sell a product or commodity at an agreed price in the future locks in the price, but the seller does not need to own the item is where a tradable asset is sold short but no arrangement is made to ensure the asset can be borrowed.  The SEC has banned the practice in the US.  But traders and hedge funds may take a risk to ensure their goal is achieved, may use an exchange in a country that allows naked trades, or use the court system to avoid punishment. 
.  If the actual price has dropped at the contracted time of sale then the item can be purchased at the
Carlo Rovelli resolves the paradox of time. 
Rovelli initially explains that low level physics does not include time:
  • A present that is common throughout the universe does not exist
  • Events are only partially ordered.  The present is localized
  • The difference between past and future is not foundational.  It occurs because of state that through our blurring appears particular to us
  • Time passes at different speeds dependent on where we are and how fast we travel
  • Time's rhythms are due to the gravitational field
  • Our quantized physics shows neither space nor time, just processes transforming physical variables. 
  • Fundamentally there is no time.  The basic equations evolve together with events, not things 
Then he explains how in a physical world without time its perception can emerge:
  • Our familiar time emerges
    • Our interaction with the world is partial, blurred, quantum indeterminate
    • The ignorance determines the existence of thermal time and entropy that quantifies our uncertainty
    • Directionality of time is real but perspectival.  The entropy of the world in relation to us increases with our thermal time.  The growth of entropy distinguishes past from future: resulting in traces and memories
    • Each human is a unified being because: we reflect the world, we formed an image of a unified entity by interacting with our kind, and because of the perspective of memory
    • The variable time: is one of the variables of the gravitational field.  With our scale we don't register quantum fluctuations, making space-time appear determined.  At our speed we don't perceive differences in time of different clocks, so we experience a single time: universal, uniform, ordered; which is helpful to our decisions

time and then sold on for a profit.  If the price has risen then a loss ensues. 

Since the product or commodity shorted is a multi part transaction where:
  • A borrowed tradable asset (this part of the transaction is not performed in the naked version) is sold under the assumption that the asset is going to fall in price during the period when it has been borrowed. 
  • Once the asset falls in price it is then purchased. 
  • The asset is returned to the lender, with any additional risk premium. 
  • The short seller keeps any profit.  If the asset gained value during the period of the short then the seller makes a loss.  
 is not owned is where a tradable asset is sold short but no arrangement is made to ensure the asset can be borrowed.  The SEC has banned the practice in the US.  But traders and hedge funds may take a risk to ensure their goal is achieved, may use an exchange in a country that allows naked trades, or use the court system to avoid punishment. 
, no capital is the sum total nonhuman assets that can be owned and exchanged on some market according to Piketty.  Capital includes: real property, financial capital and professional capital.  It is not immutable instead depending on the state of the society within which it exists.  It can be owned by governments (public capital) and private individuals (private capital).   is required to commit to the sale.  The transaction has leverage.  How much depends on the margin required by the dealer in accepting the trade. 

Derivative swaps
Swaps allow one series of future cash flows to be exchanged for a different series of cash flows.  While initially traded at exchanges these contracts were allowed, in the late 1970s, to be traded in the over-the-counter (OTC) market, including cash settlements.  That allowed the emergence of a network of banks and non-banks creating, selling and trading the contracts. 

Large transactions that would disturb the currency is legal tender which provides no interest payments to the holder.  It is a central aspect of money and in CAS is an analog of a short term potential energy token such as the high energy phosphate bond of the base ATP.  But the interaction of the geometric breeding and deaths of agents that perform actions and the linear increase in real resources, described by Turchin, results in the correspondence between energy and currency being complex and adaptive. 
markets, and typically drive up the interest rate could be virtualized as swap contracts between organizations which were seeking the flows.  IBM and the World Bank was setup as part of the Bretton Woods agreements, as the International Bank for Reconstruction and Development, to repair and reconstruct Europe after the Second World War and as the World Bank continues to provide reconstruction and development resources for projects in developing economies. It includes:
  • International Finance Corporation 
 used a pair of such flows in a currency swap so IBM could sell huge volumes of Swiss and German currency it had accumulated at a profit and the World Bank could buy them at low interest rates.  IBM paid the World Banks dollar bond obligations while the World Bank paid IBMs Swiss/German bond obligations.  Salomon made a lot of money setting up the transaction. 

Speculation on the future values was argued to increase the liquidity of the markets. 

Regulatory arbitrage
Since the resolution of a derivative contract is in the future it has no current accounting value, making the contract off balance sheet.  Similarly the contract may never require ownership of the traded commodity, removing the transaction from the control of the commodity regulator.  Indeed, stock awards that limit selling for a period of
Carlo Rovelli resolves the paradox of time. 
Rovelli initially explains that low level physics does not include time:
  • A present that is common throughout the universe does not exist
  • Events are only partially ordered.  The present is localized
  • The difference between past and future is not foundational.  It occurs because of state that through our blurring appears particular to us
  • Time passes at different speeds dependent on where we are and how fast we travel
  • Time's rhythms are due to the gravitational field
  • Our quantized physics shows neither space nor time, just processes transforming physical variables. 
  • Fundamentally there is no time.  The basic equations evolve together with events, not things 
Then he explains how in a physical world without time its perception can emerge:
  • Our familiar time emerges
    • Our interaction with the world is partial, blurred, quantum indeterminate
    • The ignorance determines the existence of thermal time and entropy that quantifies our uncertainty
    • Directionality of time is real but perspectival.  The entropy of the world in relation to us increases with our thermal time.  The growth of entropy distinguishes past from future: resulting in traces and memories
    • Each human is a unified being because: we reflect the world, we formed an image of a unified entity by interacting with our kind, and because of the perspective of memory
    • The variable time: is one of the variables of the gravitational field.  With our scale we don't register quantum fluctuations, making space-time appear determined.  At our speed we don't perceive differences in time of different clocks, so we experience a single time: universal, uniform, ordered; which is helpful to our decisions

time can be circumvented with a forward sale contract on the stock. 

As significant was the potential to avoid exchange controls and tariffs.  A swap would allow future foreign exchange flows to be contractually matched with local currency flows.  The investment bank would find a second company that wished to do the opposite transaction.  Both companies would avoid the taxes. 

Credit derivatives allowed banks to offload credit, and hence reuse capital is the sum total nonhuman assets that can be owned and exchanged on some market according to Piketty.  Capital includes: real property, financial capital and professional capital.  It is not immutable instead depending on the state of the society within which it exists.  It can be owned by governments (public capital) and private individuals (private capital).  .  Credit was historically legally tied to a bank.  It was difficult to trade and tied up capital.  Credit derivatives could solve that problem.  When interest rates are low and credit margins thin investors want yield enhancement.  Buying a high interest bond linked to a portfolio of Japanese bank A rated bonds seemed attractive.  If any of the Japanese banks defaulted on their obligations the investor suffered a loss, since they got the Japanese bonds of the defaulting bank (with a 40% of face value) rather than their investment.  But the combined probability of the first to default actually made the bond a BBB-.  The first to default condition was also leveraged.  While the loss is limited to the face value of the bond the risk, is an assessment of the likelihood of an independent problem occurring.  It can be assigned an accurate probability since it is independent of other variables in the system.  As such it is different from uncertainty. 
taken on is five times that.  If the default correlation of the banks is low this also means more risk for the investor.  The bond issuer had removed the credit risk from their books even though they nominally still held the Japanese bonds. 

The breakthrough credit derivative was the credit default swap (CDS is a credit-default swap, nominally insurance where the buyer of the CDS gets paid if the subject of the swap can't meet its obligations.  It appears to be insurance but insurance companies must set aside reserves to handle such claims.  Britain initially required that insurance buyers also have an insurable interest.  That is required in insurance markets to ensure buyers of insurance don't destroy their asset just to obtain the insurance.  CDS were not required to do the same, because it was decided they were not insurance which encouraged such abuses and risk taking.  Stocks could be sold short when they were backed by CDS.  And the swap market is limited making it easy to undermine its liquidity.  They carry considerable risk because:
  • They are governed by the CFMA, which ensures they are unregulated and opaque
  • The incentives encouraged problems - the more CDS you own the more you benefit from [causing] problems with the 'insured' assets.  And unlike traditional insurance you could buy as many CDS as you could afford. 
).  Here a bank sells the uncertainty is when a factor is hard to measure because it is dependent on many interconnected agents and may be affected by infrastructure and evolved amplifiers.  This is different from Risk.   on a loan to a buyer for a fee.  The investor agrees to indemnify the bank against losses if the loan taker fails. 

The key credit derivative is the collateralized debt obligation (CDO is a:
  • Care delivery organization in health care. 
  • Collateralized debt obligation in finance.  The idea is to transfer the credit risk rather than the loan itself.  The bank enters into a CDS on the loans with a SPV.  The CDO allows the bank to shift its loans outside the reach of regulators.  The CDO also can distribute the risk unevenly by tranching.  Equity is most at risk.  Then any subordinated debt. 
).  The idea is to transfer the credit risk, is an assessment of the likelihood of an independent problem occurring.  It can be assigned an accurate probability since it is independent of other variables in the system.  As such it is different from uncertainty. 
rather than the loan itself. 

The flexibility of a derivative contract ensured that each investor could match their desired risk, is an assessment of the likelihood of an independent problem occurring.  It can be assigned an accurate probability since it is independent of other variables in the system.  As such it is different from uncertainty. 
and reward profile to a tradable commodity.  The underlying assets could vary dramatically is when a factor is hard to measure because it is dependent on many interconnected agents and may be affected by infrastructure and evolved amplifiers.  This is different from Risk.  : management of liabilities, interest rates, currencies is legal tender which provides no interest payments to the holder.  It is a central aspect of money and in CAS is an analog of a short term potential energy token such as the high energy phosphate bond of the base ATP.  But the interaction of the geometric breeding and deaths of agents that perform actions and the linear increase in real resources, described by Turchin, results in the correspondence between energy and currency being complex and adaptive. 
, equities, emerging market local currency securities, credit eventually including mortgages; unfortunately the liquidity typically created a bubble in each new asset market which sucked in investors and then burst.  In 1995 Mexico experienced the Tequila crisis.  In 1997 the Asian century burst.  In 1998 Russia defaulted.  In 2001 Argentina collapsed.  In 2001 the CDO (credit) market collapsed. 

The application of
This page introduces the complex adaptive system (CAS) theory frame.  The theory is positioned relative to the natural sciences.  It catalogs the laws and strategies which underpin the operation of systems that are based on the interaction of emergent agents. 
John Holland's framework for representing complexity is outlined.  Links to other key aspects of CAS theory discussed at the site are presented. 
CAS theory represents derivative contracts as a set of
This page discusses the mechanisms and effects of emergence underpinning any complex adaptive system (CAS).  Physical forces and constraints follow the rules of complexity.  They generate phenomena and support the indirect emergence of epiphenomena.  Flows of epiphenomena interact in events which support the emergence of equilibrium and autonomous entities.  Autonomous entities enable evolution to operate broadening the adjacent possible.  Key research is reviewed. 
emergent niches.  The investment banks could use legal contracts to create:
More broadly financial organizations can be viewed analogously to mitochondria are the energy molecule generating production functions of eukaryotic cells.  They are vestigial blue-green bacteria with their own DNA and infrastructure.  Unlike stand-alone bacteria they also use the eukaryotic host DNA and infrastructure for some functions.  The high energy molecules are nucleotides with a high energy phosphate bond.  The most used high energy molecule is Adenosine-tri-phosphate.  , with similarly powerful capabilities to:

It is clear that derivatives allow huge creativity, and
To benefit from shifts in the environment agents must be flexible.  Being sensitive to environmental signals agents who adjust strategic priorities can constrain their competitors. 
flexibility in what actions can be induced.  


Market Centric Workshops
The Physics - Politics, Economics & Evolutionary Psychology
Politics, Economics & Evolutionary Psychology

Business Physics
Nature and nurture drive the business eco-system
Human nature
Emerging structure and dynamic forces of adaptation
integrating quality appropriate for each market
 
This page looks at schematic structures and their uses.  It discusses a number of examples:
  • Schematic ideas are recombined in creativity. 
  • Similarly designers take ideas and rules about materials and components and combine them. 
  • Schematic Recipes help to standardize operations. 
  • Modular components are combined into strategies for use in business plans and business models. 

As a working example it presents part of the contents and schematic details from the Adaptive Web Framework (AWF)'s operational plan. 

Finally it includes a section presenting our formal representation of schematic goals. 
Each goal has a series of associated complex adaptive system (CAS) strategy strings. 
These goals plus strings are detailed for various chess and business examples. 
Strategy | Design |
This page uses an example to illustrate how:
  • A business can gain focus from targeting key customers,
  • Business planning activities performed by the whole organization can build awareness, empowerment and coherence. 
  • A program approach can ensure strategic alignment. 
Program Management | Home
Profiles | Papers | Glossary | E-mail us

Copyright ©2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020 •  Rob Lingley