The tempest

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“It wasn’t infinity in fact. Infinity itself looks flat and uninteresting. Looking up into the night sky is looking into infinity — distance is incomprehensible and therefore meaningless. The chamber into which the aircar emerged was anything but infinite, it was just very very very big, so big that it gave the impression of infinity far better than infinity itself.”

— Douglas Adams, The Hitch-Hiker’s Guide to the Galaxy

The financial markets are cyclical. There are times of fallow, times of harvest, times of maintenance, and times of storm. The activity of all those hardy souls that till the fields of finance: farm-boys, the ostlers, the stable-hands, shepherd-girls; those that sow and reap, those that thresh, those that maintain the machinery by which we harvrest the fruits of the field and forest — it varies by season, by climate and by weather. We prune in the winter. We till the soil and plant our seed in the spring. Once the crops are underway and flourishing in the warm the summer breeze, we go away to Majorca. We are back in time for harvest: once the book is closed, for three months the senior farmers hunker down to agree how much grain each has earned and what pittance of it they should set aside for their sharecroppers. The interlocking cycles — annual, seasonal, circadian — carry on their ancient ways, interrupted by intermittent storms, when the agrarian community comes together, puts down their ploughshares and bends all their footsteps towards protecting crops, saving livestock and battening down hatches.

Most times the tempest passes quickly, with little lasting damage. The hardest storms do not. Unlike actual weather, we do not measure the severity of a financial storm against a bell curve. Storms are long-tailed. They are human. The largest are orders of magnitude more destructive than the smallest: they exist inside the collective conscious; they rage though the infinite tiny interpersonal observations: how millions of people, in a swarm, behave. And in the teeth of a gale, we behave erratically, irrationally and unexpectedly. We blindly run about, our hair on fire. The normal laws of commerce stop working.

Just like financial models of behaviour, legal models of behaviour, predicated on rational participants, observable values and crystal clarity as to the prevailing environmental circumstances, tend to break down exactly when you need them. These may prevail, in discrete default scenarios, but when an epochal tempest is raging, they will not. Normal assumptions do not apply. We have seen this in all the ten-billion-year storms of our era: the crash of 1929, Black Monday, the First Russian Crisis, the Dot-Com bust, the great financial crisis,

See also

• The Apocalypse