See, Giles, C (July 15, 2011) "Dual Debt Crises:The Abyss that Awaits," at: http://www.ft.com/cms/s/0/1de5c92e-af0f-11e0-bb89-00144feabdc0.html#axzz1SFQfKUtE
1. Common law lawyers draw a none too fine distinction between de facto and de iure except to say that for all intents and purposes when the two collide there is a similar legal result for the parties involved.
2. Many times economists who write regulation accuse their law-captured brethren of circumventing the intent or plain meaning of the law by using technical legal forms to subvert economic substance. For example, the legal language of CDOs was drawn specifically to avoid the machinery of bankruptcy and in doing so no doubt mock the fundamental freedom thereto, or say in the heyday of Basel II, hybrid financial instruments were drawn to meet the requirements of Tier 1 or Tier 2 capital, and Basel II had specific language warning bankers not to use "form over substance." See, the relevant sections on Securitizations in Basel II, 2006, www.bis.org.
3. But we sometimes have to pinch ourselves awake and remind ourselves that whatever financial instrument is drawn OTC was made by humans for a human purpose, and that no matter how apparently weirdly alien they may be, such instruments are evidence of a human who seeks survival, wealth and prosperity. Financial instruments by themselves are not evil incarnate with any intentional maliciousness, but they may, when aggregated to form baskets of other financial instruments fail to meet the requirements of preserving the fundamental rights and duties of the individual parties to the original contracts. Financial instrument aggregations, synthetic CDOs, synthetic options, and the like, where individual obligors are treated as indentured slaves and merely as robotic units of unquestionable positive cash-flow, are the most likely to weaken the bonds of trust and confidence in a society since such financial instrument aggregations attempt to short circuit the rites, rituals, signs and symbols that generate trust and confidence in the society. Note how MERS, a creature of real estate mortgage backed securities was backed by major banks so that the documentation of financial instrument aggregators could operate more "efficiently". However, MERS simply failed to bother with the details of registering indentures and mortgages in local registries assuming that intranet-company transfers of electronic documentation would be sufficient for the bond investors, but failed miserably in terms of the absolute local legal requirements of registration. In a word, MERS successfully accomplished fraud.
4. Our new philosophical and anthropological theory of law and finance recognises that
(1) Meaning is a quantum mechanical event. Thus, how we interpret states of the market matter just as in physics, rigid bodies matter.
(2) Risk is noninvertible. This means that risk has an asymmetric direction that cannot once assigned return on itself directly. In geeky language risk is non-Abelian. However this does not mean that it cannot be made useful as a factor in prediction. For example, Bayesian methods of probability combined with certain features of behavioural finance theory (specifically, prospect theory) can make rather accurate predictions during certain narrowly defined episodic scenarios of the open markets.
(3) Default is invariant. Of course, we do not mean this de jure, but rather de facto. By keeping default invariance in mind, we find categorical simplifications in terms of the structure of law and finance applying to both micro-level transactional interpretations of due diligence, governance and valuation and macro-level political-economic explanations of coalition management, brinksmanship and war mongering rhetoric.
(4) Isomorphism, Functor, Adjunction and Natural Transformations. The abstract and austere language of diagrams helps us see the essential structures of what must be. These Category Theory constructs are simply accounting methods for precisely tracing and tracking our thought processes. This intensionality view of science is not everyone's cup of tea. Unlike a full-blown extensionalist view which normally finds itself shipwrecked on pretending to feast on absolute infinities, Intensionalists don't make these kinds of superficial ontological if not childish errors. But the insights of the Intensionalists remain curiously childlike due to the depth of their questions which are pointedly faithful to their original motivation and philosophical manifesto which was to discover the truth of physical reality. The new financial theology carries on this veritable tradition.
5. The Need For Financial Theology. For a gutsy and determined intensionalist view, see Bouwer's "Life, Art and Mysticism," at: http://projecteuclid.org/DPubS/Repository/1.0/Disseminate?view=body&id=pdf_1&handle=euclid.ndjfl/1039886518. His words at p. 429 on the state of the world as general emotional suffering driven by insatiable greed and his solution to this problem of micro-to-macro misery via expansive and critical interiority could the basis of a financial theology.
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