Study the Chessboard Problem not the current position of the pieces. Albert Bartlett sheds light on Taleb’s Skin in the Game.Eureka!

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Second half of the chessboard[edit]

 

 

A chessboard with each square labeled with the number of wheat grains according to the problem. A red line divides the chessboard in half.

An illustration of Ray Kurzweil‘s second half of the chessboard principle. The letters are abbreviations for the SI metric prefixes.

In technology strategy, the “second half of the chessboard” is a phrase, coined by Ray Kurzweil,[6] in reference to the point where an exponentially growing factor begins to have a significant economic impact on an organization’s overall business strategy. While the number of grains on the first half of the chessboard is large, the amount on the second half is vastly (232 > 4 billion times) larger.
The number of grains of wheat on the first half of the chessboard is 1 + 2 + 4 + 8 + … + 2,147,483,648, for a total of 4,294,967,295 (232 − 1) grains, or about 279 tonnes of wheat (assuming 65 mg as the mass of one grain of wheat).[7]
The number of grains of wheat on the second half of the chessboard is 232 + 233 + 234 + … + 263, for a total of 264 − 232 grains. This is equal to the square of the number of grains on the first half of the board, plus itself. The first square of the second half alone contains more grains than the entire first half. On the 64th square of the chessboard alone there would be 263 = 9,223,372,036,854,775,808 grains, more than two billion times as many as on the first half of the chessboard.
On the entire chessboard there would be 264 − 1 = 18,446,744,073,709,551,615 grains of wheat, weighing about 1,199,000,000,000 metric tons. This is about 1,645 times the global production of wheat in 2014 (729,000,000 metric tons).[8]

 

Use[edit]

 

Carl Sagan titled the second chapter of his final book The Persian Chessboard and wrote that when referring to bacteria, “Exponentials can’t go on forever, because they will gobble up everything.”[9] Similarly, The Limits to Growth uses the story to present suggested consequences of exponential growth: “Exponential growth never can go on very long in a finite space with finite resources.”[10]

 

 

 

 

 

According to Nassim Taleb, in 2009, the banking sector lost in 18 months all the profits it ever made since the beginning of banking. Is this true?

 

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Roger Glyndwr Lewis

Roger Glyndwr Lewis

Jul 21, 2015

 

´´any doubling is approximately equal to the sum of all the preceding growth!´´My researches have lead me to the Exponential Function. and Doubling Times
The notion of doubling time dates to interest on loans in Babylonian mathematics.  Clay tablets from circa 2000 BCE include the exercise “Given an  interest rate of 1/60 per month (no compounding), come the doubling  time.” This yields an annual interest rate of 12/60 = 20%, and hence a  doubling time of 100% growth/20% growth per year = 5 years.[1] [2] Further, repaying double the initial amount of a loan, after a fixed  time, was common commercial practice of the period: a common Assyrian  loan of 1900 BCE consisted of loaning 2 minas of gold, getting back 4 in  five years,[1] and an Egyptian proverb of the time was “If wealth is placed where it bears interest, it comes back to you redoubled.”[1][3]https://en.wikipedia.org/wiki/Doubling_time. 

I have found a paper that researching money supply growth in the US, Japan and Germany states a doubling time of between 8 and 10 years. If Money supply growth doubles in 10 years then that is roughly equivalent to all money supply combined in previous periods. looked at it this way it is easy to see how a catastrophic collapse after a particularly large boom in money supply and hence Bank profits would cancel out all previous profit. I think it will take rather longer to reduce the notion back down to some empirical data but it does exist albeit used to demonstrate other concerns on money supply mainly regarding inflation and not the consequences of debt.

 

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5 Answers

Javier Gonzalez
It is a simplification. If you take into account that a vast fraction of the sector was bankrupt and allow for negative numbers that cancels the part of the sector that was still above water. It is a simplification for two reasons: it allows for that kind of compensation and ignores the dividends that investors have taken out of the sector and used somewhere else. He could have said that most of the sector would have been technically bankrupt without federal help, but that wouldn’t have the same emotional impact as the above statement. Now, don’t hold it against the highly respected Dr. Taleb, Warren Buffet has said something similar by stating that the airline industry has not made any money since it began.

 

 

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This is a question I also wished to find data for and as with Javiers answer I also remember Buffet saying the same thing about the Airline industry. My question arose out of a wish to establish how much skin is there in the game when Banks Bail out soveriegns and vice versa? To a large extent it would seem that neither in fact have much skin in the game and Talebs interview with the Library for Economic freedom and liberty examines this question and he again makes the claim of Banking over its history returning a net loss. So How much Skin do the Troika have in the Game..

 

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Scott Gosnell

I haven’t been able to identify his source for this statement, but since the banking sector is still in existence, and several of the banks were never insolvent, I suspect that there’s a mismatch between the measures for “banking profits over time” and “losses over 18 months.” The latter may be based on changes to market cap, which would be a multiple of single year earnings changes, or changes to all financial assets, which would dwarf the size of the financial sector firms combined.

 

How was all of this calculated? Who knows.

 

229 Views · Answer requested by Roger Glyndwr Lewis

 

 

 

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Roger Glyndwr Lewis
Roger Glyndwr Lewis

Roger Glyndwr Lewis

Jun 21, 2016 · 1 upvote from Scott Gosnell

 

at 53.25 of the transcript last paragraph he says this. ‘’Russ: Yeah. My example of the airplane is a bad example. Guest: People overpay for lottery tickets, for example. Which is true: they overpay for lottery tickets. Russ: Meaning the value is negative. Guest: Hence, people overpay for financial options. Hence let’s sell[?] remote probabilities in finance. Well, anybody who has a brain would realize that banks aren’t engaged in the business of selling small probabilities in finance. And they lost $5 trillion in 2008. More money than they ever made in the history of banking. So, therefore, that statement, that people overpay for protection in finance, is false.’’ Taleb on Skin in the Game | EconTalk | Library of Economics and Liberty also quoted here ihn my own blog. So How much Skin does the Troika have in the Game?The figure in question is 5 trillion in bailout costs for losses in 2008? where one starts to calculate the costs and finishes calculating them is another question. With massive money supply growth since the 2000 dot com crash particularly the doubling time for successive periods sees the last period being greater than the sum of all previous doublings, with this fact it is easy to see how in actual terms rather than inflation-adjusted terms the proposition is not a far fetched one. Some evidence may lay in this study which was completed for the period 1920 to 1968 Profitability in English banking in the twentieth century

 

 

 

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Juanjo Asegurado
I do not agree with that statement. There is a difference between losses and changes in the price of the stock and neither of those were down that much (if that would be the case the banks would have dissapear -even taking into account the federal help-).
you requested help to find good data: The National Information Center(NIC)
and EDGAR | Search Tools maybe are not the most easy to search webs, but the info is in there (you need to process it a little bit)

 

 

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Roger Glyndwr Lewis
Roger Glyndwr Lewis

Roger Glyndwr Lewis

Jul 16, 2015

 

Thanks, I will take a look. I am hoping to find out information on shareholders paid-up share capital in the event of bankruptcy this is the tangible basis for what the Banks owners would lose and the foundation upon which the rest of the Banks balance sheet is derived I suppose. Gong on from that further the Central Bank balances in Central Bank money I wonder how these are created does a Bank have to raise shareholder equity and deposit it with the Central Bank and is that collateralised by something or do shareholders part with actual cash. A how to start a bank 101 might prove useful.

 

Juanjo Asegurado

Juanjo Asegurado

Jul 17, 2015

 

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Roger Glyndwr Lewis

Roger Glyndwr Lewis

Jul 17, 2015

 

Thanks, Juanjo, Regulations will be fascinating. A model start-up balance sheet crossreferenced to regulatory requirements is what I aim to find. I am sure that such a thing already must exist already the links you already gave have proved interesting I have been comparing Goldman Sachs and JP Morgan Institution Profile Page Goldman sachs
88. Common equity tier 1 capital ratio (calculated using advanced approaches)
10.71% JPM AND 12.61 GOLDMAN

89. Tier 1 capital ratio (calculated using advanced approaches)

12.08% JPM AND 14.17% GOLDMAN

90 Total capital ratio (calculated using advanced approaches)

13.65% JPM AND 16.33% GOLDMAN

What these Equity and Capital ratios tell us is that the Capital which is represented by collateral belonging to Borrowers is greater than than the level of Equity represented by shareholder capital at risk which would be termed equity at best there is 30% of real stuff at risk as it was with roughly half of the real stuff being actually the security offered up by the borrowers themselves the rest 70% is fresh air in a fiat money system and in a fiat money system based on debt its thin air at interest.

Yanis Varafoukis in his comments published on the EU Bailout states that 1 billion of the 87 billion for the so-called Greek bailout will represent an investment in the Greek economy proper.

The percentage of Capital ratios stated above does not address the question of what paper instruments count as Collateral for capital formation purposes, for instance, it takes no account of rehypothecated assets, one suspect there is much more double counting in the system than is healthy. The best description of this I have ever found is in Samuel Taylor Coleridge’s published diaries Table Talk. Table Talk.
this from 27th April 1823.
The national debt has, in fact, made more men rich than have a right  to be so, or, rather, any ultimate power, in case of a struggle, of  actualizing their riches. It is, in effect, like an ordinary, where  three hundred tickets have been distributed, but where there is, in  truth, room only for one hundred. So long as you can amuse the company  with any thing else, or make them come in successively, all is well, and  the whole three hundred fancy themselves sure of a dinner; but if any  suspicion of a hoax should arise, and they were all to rush into the  room at once, there would be two hundred without a potato for their  money; and the table would be occupied by the landholders, who live on  the spot.
http://www.gutenberg.org/cache/e…

 

Albinas Uikis
its more of a statement to grab your attention than for you to think about it. If you actually thought about it you would realise it cannot be true. The banking sector may have lost that much at one point, however this was as much due to the panic as anything else. they were not realised losses,

 

 

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Roger Glyndwr Lewis
Roger Glyndwr Lewis

Roger Glyndwr Lewis

Jul 15, 2015

 

Albinas I think it does bear thinking about for instance the fed says there are How much U.S. currency is in circulation?       There was approximately $1.37 trillion in circulation as of June  4, 2015, of which $1.32 trillion was in Federal Reserve notes.http://www.federalreserve.gov/faqs/currency_12773.htm  yet in one year or 18months we learn that Banking lost 5 Trillion, call it 3 times as much money as there actually is eve now 6 years later. I know about fractional reserve Banking and I know about Basle 3 and I know about money supply measures but even with all that I am not asking a rhetorical question. I think the answer is the Banks have skin in the game to the tune of their paid-up share capital, which share capital should have been wiped out in 2008. I have much more faith in our Swedish Banks as after our 92 crisis moral hazard was enforced and the asymmetry that worries Taleb so much exists here in our Banking elites memory. What of Germany and what of the ECB and what of Wall Street and City of London Colossus banking institutions? The risks are not commensurate with the rewards that Banking gives itself, I would like a metric by which one can ascertain just how far below the bar of an acceptable moral risk does Talen think they are or anyone else I dod another blog related to Apple and its cash mountain, is it real? it’s a similar question but form the point of view a large corporate ostensibly duking it out with the rest of us in the real jungle as it were albeit from a monopoly position.  MUSO MUSINGS On Fatherhood Theory and STuff

 

Albinas Uikis

Albinas Uikis

Jul 15, 2015 · 1 upvote from Roger Glyndwr Lewis

 

Roger Glyndwr Lewis

Roger Glyndwr Lewis

Jul 15, 2015

 

Hi Albinas, young people still demonstrate in the UK and in Sweden, I do not know which country you are resident but it’s very sad if that is the case where ever you are. On changing the world no one person will ever do that but by asking questions we can at least try to understand the parts of it that potentially and in fact do affect our lives the most. Money seems pretty integral to that. Many politicians and economists are ignorant of the questions of debt-based money more so than in the 1880s and 1930s for instance and the immediate post-WW2 period. Even back to the late 1600s in the Uk where the Philosopher John Locke wrote a paper on the debasing of the currency occasioned by clipping and the like of coinage. Issac Newton was the Warden of the British Mint for instance and Fredrich Soddy was ostracised by British society in the 1930s for his inquiries and writings into the workings of money. On the question of making money one should be mindful of the devices by which even tangible assets accumulated to store personal wealth are greatly at risk due to the currents in prices brought about by credit contractions those who do not have first access to newly minted money or money proxies are at a severe disadvantage I have discovered to my cost that we need to be like sharks and constantly move to stay alive even when we wish to sleep. There is no shelter from the tyranny of fiat money issued with no democratic oversight or moral hazard for those who conjure it up. Taleb’s claim would with some data serve as a useful analogue by which to demonstrate what otherwise is reduced by explication with metaphor.

 

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