How To Uncouple A Dyadic Cyclone: A Timeline Re-Script

Conceived and enacted on the Solstice evening of 21st-22nd June 2010.

I recently went through a therapeutic process using several different treatment modalities to deal with some unresolved issues such as ‘status change’ after a past relationship breakup. As part of this, it is usual for people to write letters to those people who they need to make amends to. These letters are not always sent, and, in most cases I have done so. They probably come across as slightly self-indulgent to others.

Below is one for a specific person I am no longer in contact with (with identifiable details in contrast to research ethics guidelines to have ‘de-identifiable data’ – I will explain to the person why if they ever contact me directly for clarification – for starters, I hope the person is safe and well). That said, the person may be unlikely to ever see or read this message. And, if they do read it, they will likely have a different view of the events described and their (non-) significance.

As Douglas Hofstadter observed in his book I Am A Strange Loop (Basic Books, New York, 2007), we can often end up with only self-referential ‘simulations’ or fleeting memories of the people in our deep past who were once close to us. These self-referential ‘simulations’ are often nothing like what a person is, now. Even if you have not seen a person in a long time — in say 12 years — such self-referential ‘simulations’ may be reactivated during periods of anxiety, stress and anniversarial issues.

This is meant as an ‘appreciative’ note before the memories fade. We may not be able to change our past yet we can change the significance and meaning-making that we imbue it, thus freeing our lives for the present and the unfolding future.

At least some of this did actually happen. The rest is a ‘Just So’ story — a subjective ‘narrative’ that is constructed as a ‘healing fiction’ and meant to be discarded when the therapeutic intervention ends.

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Bryan Burrough on Bear Stearns’ Demise: A Dark Possibility

Bryan Burrough is legendary in M&A circles for co-writing Barbarians at the Gate (Harper & Row, New York, 1990) with John Helyar, the cautionary tale of RJR Nabisco’s leveraged buyout and the winner’s curse faced by deal-maker Henry Kravis.

Burrough’s latest investigation for Vanity Fair contends that short sellers used CNBC and other media outlets to spread rumours that destabilised Bear Stearns and sparked a liquidity run on the investment bank’s capital.  Burrough’s thesis has sparked debate that overshadows his investigation’s strengths: a strong narrative and character portraits, new details of the negotiations with JPMorgan Chase and the Federal Reserve, and a cause-effect arc that shifts from CNBC’s internal editorial debate to the effects its coverage has on the marketplace and the subjective perceptions of individual investors and senior decision-makers.

In the absence of a ‘secret team’ or a ‘smoking gun’ how could Burrough’s thesis be tested?

Theoretically, Burrough’s hypothesis fits with: (1) a broad pattern over two decades of how media outlets respond to media vectors, systemic crises and geostrategic surprises; (2) the causal loop dynamics and leverage points in systems modelling; (3) the impact that effective agitative propaganda can have in psychological operations; and (4) the complex dynamics and ‘strange loops’ in rumour markets (behavioural finance) and rumour panics (sociology), notably ‘information cascade’ effects on ‘rational herds’.

This is likely a ‘correlation-not-cause’ error although it does suggest a dark possibility for strategic intervention in financial markets: could this illustrative/theoretical knowledge be codified to create an institutional capability, deployed operantly, and which uses investor fears of bubbles, crashes, manias and various risk types as a pretext for misdirection?  Behavioural finance views on groups and panics, and George Soros‘ currency speculation against the Bank of England’s pound on Black Wednesday suggest the potential and trigger conditions may lie in the global currency/forex markets (using stochastic models like Markov Chain Monte Carlo for dynamic leverage in hedge funds) and money markets (using tactical asset allocation).  If possible, this capability could also create second- and third-order effects for regulators, the global financial system and macroeconomic structures, and volatility in interconnected markets, which may actually be more dynamic and resilient than this initial sketch indicates.

To meet quantitative standards and validate Burrough’s hypothesis a significant forensic and data analytics capability with error estimates would also be required.  ‘Strong’ proof may not be possible: Burrough’s hypothesis is probably an unsolvable ‘mystery’ rather than a solvable ‘puzzle’ (a distinction by intelligence expert Gregory Treverton that The New Yorker‘s Malcolm Gladwell later popularised).

Ironically, several CNBC analysts have already decided: they used parts of Burrough’s hypothesis to explain the subsequent short-selling driven volatility of Fannie Mae and Freddie Mac‘s stock prices in mid-July 2008.