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It's difficult to say what an illusion is and when it is good or bad. My own preference is to use the word "interpretive framework" because it doesn't have the same negative connotation that illusion has, but still suggests that parts of reality are lost or filled in.

An interpretive framework can be good or useful if it helps us interpret reality in a good or useful way in accordance with our goals. Reality itself, as observation and science reveals, is continually more deep, complex, and mysterious than we will ever know. So I feel that an interpretive framework is necessary to help make sense of it all. Of course we will miss some information and try to fill in the rest, but that's just the situation we're in. Some information is beyond our human capacity at the moment while other information is simply superfluous to our goals.

With that in mind, I'm also of the belief that we have an interpretive framework that we can change. The change is necessary when the lens we're currently using to look at reality doesn't suffice any more. This is when an interpretive framework becomes an illusion or delusion, and this is when it becomes bad.

Another great, thought provoking post =)

P.S. I haven't really watched The Matrix, even though I'm sure some of my comments sound like they're from the movie.

The Financial Philosopher


Your comment illustrates one "illusion" working to distract us from our path and that illusion is language. The fact that you chose not to use the word because of its negative connotation and limiting meaning tells me that you have refused to let "conventional wisdom" define you and your life...

There are many things that act as "illusion" in our lives and language and social conventions are but a few of them. Of course media noise and self-doubt are a few others to mention...

Thanks for the thought-provoking comment, as usual...

Iqbal Latif

One thing that strikes me is the 'meager value' of wealth that we pursue. The 'form of capital' today is a great illusion. The way huge amounts of wealth move from one place or party to another via a few 'cyber specks' is an uninterrupted illusion. Markets are efficient in destroying wealth and excess. A thousand, a million, a billion or a trillion - these are all in cyber space. This movement is unique, enabling people to be crafted from billionaires to paupers. Note here that an almost- millionaire is a pauper vis-a-vis a billionaire. BSC ex-CEO, Jimmy Cayne, sold his 5,658,591 shares on the 25th of March at $10.84. This was his total position of full common stock at BSC. At the high of the year, the value of his stake was about a billon$. At $10.84 it was $61.33. The wiping out of $950m of wealth is remarkably effortless.

Time and leverage are of the essence in the illusory world of today. Any individual, corporation or nation can go through the extremes of this illusion if they understand that the limits of their mathematical models are bound to fail at some point or another. Illusions surpass limits of mathematical models. John Merewether's efficient Market Hypothesis failed as it was based on assumption. Hence the disaster that was LTCM.

The markets have become more efficient. Particularly, the uncertainty associated with riskier assets has decreased, and therefore spreads between riskier and less risky assets should decrease. The fund, comprised of $140 billion in assets (almost all borrowed), had more than one trillion dollars in exposure through derivatives. Today's ABS and subprime crisis arises out of a similar genre.

A billion today is rarely ever physically transferred. In actuality, it has no physical presence. It comes easily and disappears into thin air. It is this 'illusion' that MER, C, BSC, JPM and MS now have to live with. Asset valuations are mathematically capitalized in 'cyber specks'; although this illusory cyber wealth is backed by physical assets, the ease of destruction of 'cyber wealth' is mind boggling. It leaves no charred grounds, no ruins. Physical wars against semi-developed nations are soon going to be meaningless. Once cyber credit disappears, nations go bust. If Afghanistan or Iraq were a cyber connected economies, for example, the shape of war would be very different. The 'loss of cyber speck dominated wealth ' can change the lives of people. It is far more destructive than physical war - it leaves no ruins but destroys people to the core.

Is it not a big illusion that a company like BSC gets smashed but its 1.2 billion glittering headquarters and its thousands of employees did not see any physical affect? Clashes in olden times left physical signs of destruction. In our illusion prone world, a man can be left penniless with no obvious sign of external destruction. Our present day global financial system is a system backed by illusory money – is this not a great illusion? 'Illusory money' has a destructive ability and its capability to obliterate the valuations of underlying physical assets is superior than any other method of obliteration. Those who handle this 'illusion' well (Goldman Sachs is a great example here) make money on both sides of the market.

The Financial Philosopher

Great points Iqbal:

Money is thought of as a tangible object (i.e. something we can touch and feel); however, it is quite the opposite -- it is intangible.

The value of investment assets and their derivatives are expressed on "paper" and, today, in electronic form.

As we have learned recently, "paper value" is illusory because complex financial structures do not even appear on the balance sheets of financial institutions. It's all an "illusion."

Thanks for the comment...

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About Kent Thune

  • Kent Thune is a wealth manager, a writer and a philosopher... Read More


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