Friday, March 20, 2009

Schrodinger's cat is clawing at the financial system

Who knew that an understanding of quantum mechanics is necessary to be an accountant?

The so called toxic mortgage derivative assets are just like Schroedinger's cat. They have both value and non value until someone opens a bank vault and looks at them, thus causing their value to collapse into a definite state. Once the bank vault door is closed again the value of the assets can only be expressed as a quantum superposition.

In more formal terms, accounting for the assets of the banks must take into account that the psi function of a vault, whenever its door is closed, has in it both value and non value mixed or smeared out in equal parts.

Full disclosure: I got a D in second semester freshman physics at Illinois Tech, so someone at Fermilab or CERN or Princeton's Institute for Advanced Study should probably review this before passing it to Barney Frank, Chris Dodd and the FASB for incorporation into the mark to market accounting rules and the regulations implementing same.

http://en.wikipedia.org/wiki/Schr%C3%B6dinger's_cat

2 comments:

Your son said...

No no no... once the bank vault is open, the states collapse and the contents have a definate value... just closing the door again doesn't cause them to have an indefinate value. Once you observe the system, the states collapse, the states don't uncollapse just by then looking away. That's what confuses me most about them letting the banks revalue their mortgages by a more relative scale, it's not going to make the analysts forget the more absolute values which have already been reported. Over time, as the contents of the vault change, unobserved, perhaps new possible states will be present, it that the goal? To allow the banks to have unclear asset valuations a year from now?

Sully said...

Yes, yes, yes. It is as though each one of the toxic asset pieces of paper contains an unlimited amount of a radioactive substance to decay and kick it back into an indeterminate value state as soon as you stop observing it.

The real flaw with the concept of my little conceit is that even when you thoroughly observe that piece of paper there are those who insist that its value is indeterminate since they won't accept the market value if it is "too low" to be "realistic."