Jan

29

The parasite T. Gondii lives in rats but must get transmitted to cats to complete its life cycle. It does this by changing the rat brain so that it seeks out cats. When the cat eats the rat, the parasite gets transmitted through droppings to other mice and humans. The incidence of schizophenia in humans is about 25% higher in those 7% of the human population that have contracted the parasite than the rest of the population.

This parasite and other parasites play a large role in determining the behavior of their hosts. For example the fluke d. dendriticum changes the behavior of ants so that instead of spending time in its nest, it climbs on top of a blade of grass, so that it will eaten by a grazing aminmal. Other flukes cause fish to jump up so that predators will eat them. And hairworms cause grasshopers to drown themelves, transmitting the worms through water as they die.

Parasites attack the body without the host knowing it, and the virulence of their attack is related to their method of transmission. Factors that determine their activity include their ability to reproduce, the mobility of their host, the costs of dying and the costs of sickness. In general, if the probability of transmission is high as it is in crowded conditions, for example in foxholes or planes, then then severity of the illness increases.  Where the parasite needs a mobile host who sneezes, or has sex with induced increased frequency then the parasite becomes relatively mild in its impact, especially during the first stage of its impact, so that it has more time to reproduce and survive.

All this and much more is contained in the layman's book "Survival of the sickest" by Sharon Moalem. The basic thesis is that many diseases that we now have once served to help us survive when a short term solution like preventing freezing during an ice age or gaining energy during a famine were imperative. They served a function then, but now cause diseases like diabetes, Alzheimer, and cancer.

In looking at the recent disclosure of an 8 billion loss from a hidden agent in its Delta One unit, I found that the insights I gained from the study of infectious agents and their transmission method were very helpful. The agent was hidden in a hard to find part of the hosts structure, it stayed invisible for several years while it was acting with little impact, it acted mainly during the evenings, in anonymity, without alerting the immune system through margin calls, or seemingly unbalanced positions. Indeed, like many parasites, it had turned the host immune system against the host by copying the methods of healthy traders within the system. But most important of all, the parasite was finally expunged from the system, and this left the host, and the market it acted within in a much healthier state.

I would be interesting to consider what other parasites are acting upon the market system , and how they coevolve with their hosts.

Alston Mabry adds:

Attenborough's Trials of Life videotape series has incredible, and ghastly, footage of several of these parasites and their actions ontheir hosts.

Sushil Kedia writes in:

Separation of Corporate Management from Corporate Ownership that was hailed as a quantum progress in the management of businesses, heralding an era of objective decision making by profesisonal managers, has brought in its wake massive Agency Costs.

Regular earnings announcements every quarter were made mandatory to fulfill compliance with the agency relationship corporate managements have with the stakeholders. Over shorter periods the volatility in announcements is perhaps affecting the valuation of the stakeholders' equity.

Fundamental Valuation Research driven brokerage and investment banking services were initially celebrated to have brought greater professionalism to markets to only finally ending up in being forced to have Chinese Walls and arms length existence from their Research Divisions.

The Margining System when introduced to the Clearing Houses of Exchanges was a boon for their existence and sustenance. However, when catastrophic moves occur the Portfolio VaR shoots up because the benefit of diversification dwindles as asset correlations increase. The very same margins thus shoot up unexpectedly bringing down the trading & clearing system of exchanges.

Similarly, all of the risk management technology that has come up to manage risk within tolerable ranges ends up making it intolerable, even more so as risk goes out of the tolerable range.

Banks and Investment Banks were required to operate in different segments of financial services to keep the systemic risk under check. Finally, competition in risk taking brought about a necessity for banks and investment banks to be brought back into the same circle.

The Reflexivity perspective of markets itself is akin to a virus that was initially required for our progression but has started affecting the progression itself. Markets came into existence to help us allocate resources by anticipating future events. Now often times markets are shaping future events.

The law of Diminishing Utility of Returns itself operates as if there are viruses of the types Vic  describes here, embedded within any pursuits inside the markets. A local maximum exists in the progression of each process in the market system. It is appealing to imagine that such viruses are perhaps  Nature's way of making change the only permanent process.

 


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