First world to third world in under 60: Greece, markets, and tech

The Greece problem is another fascinating insight into the variability of markets, and a model to hypothesize about the impacts of various changes on how market swings are exacerbated or slowed by technologies. In part, what it comes down to is a similar problem facing consumers: everybody wants to make it about Greece, the consumer, and its debt, but the reality is, its at least, if not more, about the structure of the markets which dont allow for prescient management of the interest and payment schedules on the part of the debt holders.

Take, for example, two types of loans: in one loan, there is a fixed contractual payment schedule. If payments are missed, there is no resolution except for the increasing demands of increasing payments on the part of the lender/servicer, or immediate attempts to lock down productivity in terms of asset seizure or lienage. This is generally seen as a strong lender-biased contract, in that they can “securitize” their investment by aggressive collection techniques, seizures, etc. In another type of loan, what could be called a strong borrower-biased contract, the lender is held to a flexible repayment system based on attempts to link borrowers productivity to ability-to-pay. In automated systems, of course, this is much harder to implement than the threshold/default system of the first type of loan above. The bigger problem with the borrower-bias loans are also frequently seen as allowing borrowers to abscond with investors money by simply reducing productivity as repayment terms start to come into play, and the volatility/unpredictability this introduces to the lenders income schedule. In truth though, its not well documented that borrower-bias loans over time are worse investments due to the fact that, statistically, given the option of repaying small amounts in line with a borrowers productivity, borrowers are much more likely to maintain payment contracts than lenders who can sell them on secondary debt markets. Its also clear that the pressure of short-term investment volatility plays a role in lenders desire to avoid these borrower-biased systems, but this also seems to be primarily an emotional perception based on the possibility that investments that take a persons lifetime, or even ten years, to pay off are clearly not of benefit when the actors see themselves as operating in a prisoners-dilemma context, whether in the international and institutional market or the individual . Politics, volatility, and instability are important to any system where the desire is to increase the possibility of going from 0 to 60 in 1 second, outweighing the benefits to the overall systems participants. The individual actor can increase their odds of vast differentials (including losses) by pressuring any organized system into instability, and the losers are those who depend on the system to maintain productivity and long term debt payments.

The end result is the pyramid problem: the market itself is one big liquid pile of debt, serviced by the production over time of new capital entrants into the debt market. And as its well known, in a positive production environment, the debt can be serviced, as long as the production is maintained at an equal level for the debt-contractual requirements. But with new high-speed and automated technologies creating the market infrastructure, and with increasingly tightly integrated international markets such communication underlayment contributes to, only make it easier to both bring systems down, and ignore long term and flexible borrower-biased markets in favor of short term volatility.