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Why the Daleks and Vogons were right about financial markets

An interesting debate broke out here at Fidessa Towers this morning concerning the infamous Sci-Fi phrase “resistance is useless”. Should it be attributed to Dr Who’s nemesis, those metallic, warbly-voiced Daleks, or to the slug-like, green-skinned Vogons that appear in Douglas Adams’ The Hitchhiker’s Guide to the Galaxy? Anyhow, whilst folks furiously searched Google for the answer it got me thinking about the contrast between resistance and true resilience. The difference is more than just semantics. Resistance is all about hardwiring pre-programmed responses to known threats, whereas resilience is something more subtle altogether. Resistance assumes that you can deconstruct a system into its component parts, see how they fit together and so understand how it all works. This works well in simple systems, but global financial markets are now so complex and interconnected that this just won’t work; if anything, it makes the probability of some non-linear calamity actually more likely. Despite this, regulators around the world obsess on resistance by setting hard limits on some activities, banning others altogether and trying to impose blanket taxes.

Resilience, on the other hand, takes a different approach. Instead of focusing on the near field, it emphasises context and adaptivity. Making markets safer is the right thing to do, but it should be everyone’s responsibility not imposed top-down by a few well-intentioned regulatory bodies. The more rules they impose, the more I fear everyone else abrogates their own responsibility and simply plays catch-up with the new regulations. Maybe it’s time to think about letting markets manage themselves again, re-energise the concept of SROs and trust that market participants are best placed to learn from the mistakes of the past. Obviously this will not go down well with the politicians, but maybe it’s the only path to a truly resilient global financial system. The alternative is just to keep on ratcheting up complexity with more and more rules, which will either strangle the industry to death or lead to the next unforeseen disaster.

So maybe, as far as financial markets go, resistance really is useless, but resilience, well that’s another story…

Happy New Year.

P.S. Personally, I backed the Daleks.

Comments
2 Responses to “Why the Daleks and Vogons were right about financial markets”
  1. Mark Hughes says:

    Indeed – as Taleb and others have been saying for some time: https://hbr.org/2009/10/the-six-mistakes-executives-make-in-risk-management

    Or as Ford Prefect might say – if you’re going to survive out there, you’ve really got to know where your towel is.

  2. Mohan Virdee says:

    Spot on Steve,
    Great article. Resilience is indeed the order of the day….but for how many more years.
    Mohan

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