Tools of the Trade

I have observed that the tools we use affect the outcome of our efforts. To get optimum results one must use the best tools for the job, and use the tools appropriately.

If you use a tack when you need a nail; the project will fall apart. Misusing tools also leads to poor results. You can hammer in a screw or, with a bit of ingenuity, screw in a nail. Neither the hammered in screw nor screwed in nail is likely to hold.

The same observation is true of the market. When one uses the wrong tools, or uses tools in the wrong way, the results are usually unsatisfactory.

The driving metaphor the Equity Project is a demand to upgrade the tools used for trading, and to demand that we think deeply about how the tools of the trade affect outcomes.

Of Swords and Plowshares

Before designing tools, there should be a discussion about the intended audience for the tools. One of my primary complaints with the current market system is that it appears that the tools were designed primarily for stock traders and corporate moguls.

The market appears to be dominated by a tool chest designed to give traders market leverage or to give hedge funds the ability to hedge risk.

The current market appears to have been built around some sort of Machiavellian dream of a society ruled by corporate tycoons sitting on paper thrones with exceedingly complex combinations of debts and derivatives to protect their positions while attacking the position of business rivals.

To be blunt, many of the financial instruments on the market today appear to have been designed as weapons for use in business war. Hedge funds, by their very definition, are built as fortresses to hedge risk. Many of the other trading tools such as short attacks appear to have been designed as siege engines.

This market designed around the concept of business war has created an unstable, inherently self destructive market.

I wish to design the OSRTX with a different audience in mind. Rather than designing tools for use in business warfare, I wish to design tools to help people build and share equities. The two markets I wish to target are real estate holders who wish to share the equity in their holdings, and the small business owner who is looking for way to share equity in their business.

The classic example of a business that wishes to share equity is the high tech start up that rewards its employees with options (an equity stake) in return for the long hours needed to get the business up and running.

The Ideal Tools

The question of intended audience is extraordinarily important in designing the tools.

The corporate mogul engaged in business warfare wishes to have an arsenal that shows incredible strength while concealing the mogul's weaknesses and strategy. The business warrior seeks to put up an impressive face while concealing weaknesses.

The person wishing to share in and build equity is more interested in developing tools that accurately represent the items that they intend to trade.

The question of transparency is a major issue in the 2008 market collapse. Businesses were trading trillions of dollars in mortgaged backed securities while the mortgage brokers were concealing that the equities contained a large number of toxic loans.

I contend that the ideal for people wishing to share equity is to create a set of tools that accurately represent the item being traded.

The Tools of Creation

The vision I wish to hold in mind while designing an equity trading program is one where the participants of the exchange are concerned primarily with the development and sharing of equities. Such an audience would be looking for tools that accurately represent the various equities in the market so that they can determine the relative values of the different equities and make mutually beneficial trades.

The ideal put forward is admittedly utopian. Ideals such as this are valuable in the design process as ideals help guide the design process.

For example, a person who holds the ideal that business is war would find joy in a system that allowed a corporate raider to take a sudden massive short position against an enemy company. A large naked short position is a studied and true business battle tactic that has pushed thousands of companies into insolvency.

A person designing an exchange system with the ideal of people building and trading equities would find such a tool abhorrent because the massive short attack conceals the real value of the equity and makes trading extremely difficult.