More than a whiff of poststructuralist angst emanates from "Archaeology of the Crisis," a report released this week by Moody's, the credit rating agency. The gist of the six-page report is that our current financial system has become so complex we no longer have any hope of truly understanding, or pricing, the real risk embodied in the complex financial instruments that tie the world's financial market participants together.

Risk traceability has declined, probably forever. It is extremely unlikely that in today's markets we will ever know on a timely basis where every risk lies.

This is a favorite theme of How the World Works, but we were still a trifle shocked to see such a message from Moody's. We've sure come a long way from the days when any critique of the "system" was met with a lecture on how innovation and risk dispersion had made global financial markets more stable. What a difference a meltdown makes! Remember, this downbeat assessment comes from an agency whose explicit market role is to evaluate risk -- a job that most observers now think Moody's and its brethren completely muffed. But instead of apologizing and promising to do better, Moody's is throwing up its hands in existential despair and declaring that, dangit, it's just too darn hard. Maybe even impossible!

How can you not love an analysis that laments the clamor for "Spurious precision in what has become an exponentially more complex system?" We're tempted to retort: come on -- isn't that exactly what we pay you for? But in truth, we agree: the complexity of modern financial markets does not admit to perfect comprehension by man or machine. Buyer beware.

Naked Capitalism points to a summary of the report by Reuters here, but you can go straight to the original text, albeit after jumping through some registration hoops, here. And it's worth it, because there are plenty more gems to be mined.

For example, the authors of the report also conclude that the overriding emphasis, on the part of all players in financial markets, on maximizing short term results, might not serve everyone's long term interests.

In plain English, it is not clear that existing compensation mechanisms effectively ensure that traders take into account the long-term interests of the bank for which they work -- i.e. its survival....

This leads to a second, somewhat disquieting, reason: in the financial industry, in contrast with other businesses, there is a point beyond which increased competition is not stability-enhancing, but rather potentially destabilizing. Heightened competition is beneficial in terms of providing a better service and eliminating poor performers in the industry; however, past a certain point -- difficult to identify -- more competition means more, and perhaps socially undesirable, risk-taking.

This is almost like saying that capitalism, as it is currently constructed, doesn't work.