System Weakness, from Jim Sogi

October 1, 2010 |

 Every system has a weakness. Where or what is it? Each human has a weakness. Each argument has a weakness. Financial systems have weaknesses. Financial models have weaknesses. The last one was the mortgage system generation and securitization and rating system. That was so big no one saw it. Governmental systems have weaknesses. The prior Greenspan put was good example of a system gone bad without realizing it. This is a good place to look for the weakness in the current situation. I can't put my finger on it exactly, but this government intervention cannot help but have some very unintended consequences. Governmental incentives are not properly aligned. The caliber and tenure of government workers is low. They are rather short term and incentivized to stay in power. In China, acknowledging one party system weakness, the tenure issue is improved. It is important to know your own weaknesses and the weaknesses of the model you use for survival and defense. It is good to know the weakness of your enemies, and those of the markets or system in which you engage.

Finding weakness is difficult without lengthy understanding, study and experience. Self delusion makes analysis very difficult. The lengthy time period of the play out of over 4 years is difficult for humans to comprehend. The comprehension of humans does not extend much beyond 3 or 4 years into the future at the most.

Ken Drees asks:

Can you expand on the 4 year time frame–not sure what this is. 

Jim Sogi replies:

When you began high school could you imagine or picture yourself as a Senior? As you began college, did you imagine your self working? Can politicians, economists, market speculators conceive 4 years into the future, much less remember 4 years ago. Some deceive themselves that they can, but it is hard. Humans seem to lack some capacity for time periods in excess of 3 years. The Bible makes it 7 year cycles, but the 4 year cycle is based on my poorly articulated 4 year phenomenon. Another explanation is there are just too many variables. 

William Weaver writes:

SWOT was a big part of my corporate strategy class in undergrad and I think it holds a lot of water with regard to analyzing trading strategies, governments and other systems as well as companies.

Strengths (internal)

Weaknesses (internal)

Opportunities (external)

Threats (external)

If I remember correctly it was HBS professor Michael Porter (I think there are two; one at HBS in corp fin and another in the econ dept) who wrote two or three papers on the subject, offered through HBSP.


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