1. On disciplined software development:
There’s a trap here. The trap is that is the “visible disciplined rules” are how the business actually works, AND that the business CAN work with visible disciplined rules in its market.
…So perhaps Freddie Mac was badly managed. But it may also be that any entity in that market *HAD* to be “badly managed” to stay in the business. In other words, if you didn’t make ad-hoc weird deals with originators, they’d go to a competitor, or to congress.
Exactly. There was tension between the customer-facing divisions of the business, who wanted to be flexible and creative, and the information technology division, which wanted to work with clearly-articulated business rules. The IT people saw the business people as constantly breaking their data model, and the business people saw the IT people as trying to drive the business “from the back seat.”
In recent years, there has been talk of having Freddie and Fannie, or some combination, operating as a “securitization platform.” I figure that this would limit their flexibility and perhaps even put an end to innovation in their business processes–which would not necessarily be a bad thing.
2. On the limits to firm size:
Aren’t many of these questions answered in Sraffa (1926) and Allen and Lueck (1998)?
Piero Sraffa pointed out that in classical economics there was both a law of diminishing returns and a law of increasing returns. The law of diminishing returns applied to land, as exemplified by Ricardo’s theory of rent. The law of increasing returns applied to specialization and trade, as exemplified by Adam Smith saying that the larger the extent of trade, the greater scope for specialization.
Concerning economies of scale at the firm level, Sraffa wrote
Everyday experience shows that a very large number of undertakings-and the majority of those which produce manufactured consumers’ goods-work under conditions of individual diminishing costs. Almost any producer of such goods, if he could rely upon the market in which he sells his products being prepared to take any quantity of them from him at the current price, without any trouble on his part except that of producing them, would extend his business enormously. .. Business men, who regard themselves as being subject to competitive conditions, would consider absurd the assertion that the limit to their production is to be found in the internal conditions of production in their firm, which do not permit of the production of a greater quantity without an increase in cost. The chief obstacle against which they have to contend when they want gradually to increase their production does not lie in the cost of production which, indeed, generally favours them in that direction-but in the difficulty of selling the larger quantity of goods without reducing the price, or without having to face increased marketing expenses.
This describes monopolistic competition before there was such a term in the literature.
As for Allen and Lueck, a description of their work says
They posit that if there are gains to be captured from specialization, then partnership or corporate farm organizational arrangements could be more efficient than farms in which ownership and control is combined– if partners could monitor and enforce farmer effort at lower cost. But because most agriculture production is heavily influenced by nature, it becomes too costly to differentiate production deficiencies from lack of farmer effort or from effects of nature.
Well, I did not claim that my thoughts were original.
“But it may also be that any entity in that market *HAD* to be “badly managed” to stay in the business. In other words, if you didn’t make ad-hoc weird deals with originators, they’d go to a competitor, or to congress.”
So if te only way you can succeed is by breaking the law, it is OK to break the law because other people are breaking the law?
Nice civilization you got there.
It’s human nature. A civilization built by humans will reflect that.
Just look at the situation in professional sports not all that long ago (and perhaps still now, I don’t follow any of them closely.)
To be competitive in U.S. professional sports one “had” to take steroids to build muscle mass, because others were doing so & you lost by comparison.When the authorities began successfully prosecuting for steroid use, it became blood doping, harder at the time to detect, on the international scene as well as in the U.S. If you didn’t do so, then you lost by comparison. (Now, I understand, pro bicyclists have gone to miniature motors hidden in the bike frames….)
In horse racing, they test every horse’s urine after a race to detect performance-enhancing drugs. The Russian olympians…. IIRC, at one time swimming authorities were discussing outlawing the “sharkskin” suits that purportedly give competitors an edge in the pool.
When there is lots of money or reputation riding on the results of any competition, there will be at least one who will attempt to “win” by using some form of performance-enhancing technology, which may lie outside the rules, written and as-yet unwritten. I tend to think of it as kind of a parallel (analogy?) to Gresham’s Law: one doping competitor drives another to try it; multiple doping competitors drive out the honest kind.
I meant to close that comment by saying that I don’t see where a financial institution, be it a bank or GSE, would be any different than the sports industry.
There is no mention of laws being broken.
The “visible disciplined rules” are business rules like give a 5% discount if the customer places over one million dollars in orders a month.
https://en.wikipedia.org/wiki/Business_rule
The claims is that there no simple set of business rules that can be used for deciding the price and other considerations for purchasing of mortgages because they can vary too much.
I make no comment on law. I’m merely pointing out that “disciplined business processes” are nonsense if the actual business environment is inherently undisciplined. Disciplined business processes and carefully written code will not allow you to control the weather.