Sunday, May 24, 2009

the risk economy and a gamble society

An essential reason behind the current financial crisis is the crash of the risk economy. Insurance and the risk economy is supposed to bring more security into our regular life. Many of us, however, forget the other side of the coin---when we valuate safety higher, our society is actually less in secure.

In about 500 B.C., the great Chinese philosopher Lao Tzu wrote the following statements.

大 道 废 , 有 仁 义 ﹔ 智 慧 出 , 有 大 伪 ﹔
六 亲 不 和 , 有 孝 慈 ﹔ 国 家 昏 乱 , 有 忠 臣 。

Raymond Blakney, in 1955, translated the words.

"The mighty Way declined among the folk
And then came kindness and morality.
When wisdom and intelligence appeared,
They brought with them a great hypocrisy.
The six relations were no more at peace,
So codes were made to regulate our homes.
The fatherland grew dark, confused by strife:
Official loyalty became the style."

The translation is fine in expressing the plain meaning. It does not, however, well reveal the deeper thoughts Lao Tzu wanted to tell. By my understanding, I then revised Blakney's translation a little bit.

大 道 废 , 有 仁 义 ﹔
Now you see that in a society everybody tells the greatness of kindness and morality; it is only because that the might Way has declined among the folk.
智 慧 出 , 有 大 伪 ﹔
Now you see that in a society everybody appreciates the true wisdom and intelligence; it is only because that a great hypocrisy has been among them.
六 亲 不 和 , 有 孝 慈 ﹔
Now you see that in a society everybody looks for regulation in their homes; it is only because that the six relations have been no more at peace.
国 家 昏 乱 , 有 忠 臣 。
Now you see that in a society everybody is grateful to official loyalty; it is only because the fatherland has grown dark, confused by strife.

In additional to the four, I, hereby, add another one:

Now you see that in a society everybody demands insurance; it is only because the nation is fond of gambling.

How much does a particular risk really worth? This is a truly hard question. The economics geniuses at Wall Street believed that they had figured out the answer. Based on a few very complex mathematical equations, the geniuses built the foundation for the investment banking. If we pull off all the complicated and intentionally sophisticated layers wrapping the investment banking, the core is indeed surprisingly straightforward: to inject the motion of gambling into the society. The more people are found of earning money through gambling their money, the higher valuation the risks can be; the higher valuation the risks are, more people then join the force of gambling their money through risk investment. The cycle thus forms until one day the valuation of risks becomes truly ridiculous. Therefore, financial crisis comes as we have it now.

The more insurance we implement in our society, the less possible we may avoid this kind of financial crisis in the future. This is what Lao Tzu had told us 2500 years before.


Alan Chang's Space said...


Yihong Ding said...

Hi Yuchou,

not bad. I will have a project meeting tomorrow at Cambridge. I agree to you that the western culture needs to learn something from the oriental literature.

how are you recently?


Alan Chang's Space said...

If I have some time this summer, I would visit you in Connecticut:-)

Yihong Ding said...

sure, you are welcome. :)

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