Our life is an illusion. In this world of ours, reality is skin deep only

Clashes in olden times left physical signs of destruction. In our illusion prone world, a man can be left penniless with no obvious sign of external destruction. Our present day global financial system is a system backed by illusory money – is this not a great illusion?

Do you see the first image as a courtyard or a terrace?

"Illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality against which they are dashed to pieces." ~ Sigmund Freud

In response to Kent Thune queries on when is illusion good? Is everything an illusion to some degree that can not be avoided? Does our perception become distorted as we age? Does that mean that we create illusions by "filling in the gaps of missing information" with our learned perceptions? Is it simply easier and more convenient to see something that is not there because the alternative (reality) is less pleasing?

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One thing that strikes me is the 'meager value' of wealth that we pursue. The 'form of capital' today is a great illusion. The way huge amounts of wealth move from one place or party to another via a few 'cyber specks' is an uninterrupted illusion. Markets are efficient in destroying wealth and excess. A thousand, a million, a billion or a trillion - these are all in cyber space. This movement is unique, enabling people to be crafted from billionaires to paupers. Note here that an almost- millionaire is a pauper vis-a-vis a billionaire. BSC ex-CEO, Jimmy Cayne, sold his 5,658,591 shares on the 25th of March at $10.84. This was his total position of full common stock at BSC. At the high of the year, the value of his stake was about a billon$. At $10.84 it was $61.33. The wiping out of $950m of wealth is remarkably effortless.

Time and leverage are of the essence in the illusory world of today. Any individual, corporation or nation can go through the extremes of this illusion if they understand that the limits of their mathematical models are bound to fail at some point or another. Illusions surpass limits of mathematical models. John Merewether's efficient Market Hypothesis failed as it was based on assumptions, that the markets have become more efficient, hence the disaster LTCM. Particularly, the uncertainty associated with riskier assets has decreased, and therefore spreads between riskier and less risky assets should decrease. The fund, comprised of $140 billion in assets (almost all borrowed), had more than one trillion dollars in exposure through derivatives. Today's ABS and subprime crisis arises out of a similar genre.

A billion today is rarely ever physically transferred. In actuality, it has no physical presence. It comes easily and disappears into thin air. It is this 'illusion' that MER, C, BSC, JPM and MS now have to live with. Asset valuations are mathematically capitalized in 'cyber specks'; although this illusory cyber wealth is backed by physical assets, the ease of destruction of 'cyber wealth' is mind boggling. It leaves no charred grounds, no ruins. Physical wars against semi-developed nations are soon going to be meaningless. Once cyber credit disappears, nations go bust. If Afghanistan or Iraq were a cyber connected economies, for example, the shape of war would be very different. The 'loss of cyber speck dominated wealth ' can change the lives of people. It is far more destructive than physical war - it leaves no ruins but destroys people to the core.

Is it not a big illusion that a company like BSC gets smashed but its 1.2 billion glittering headquarters and its thousands of employees did not see any physical affect? Clashes in olden times left physical signs of destruction. In our illusion prone world, a man can be left penniless with no obvious sign of external destruction. Our present day global financial system is a system backed by illusory money – is this not a great illusion? 'Illusory money' has a destructive ability and its capability to obliterate the valuations of underlying physical assets is superior than any other method of obliteration. Those who handle this 'illusion' well (Goldman Sachs is a great example here) make money on both sides of the market.

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