Comments on: Deja Vu All Over Again http://cstpr.colorado.edu/prometheus/?p=4586 Wed, 29 Jul 2009 22:36:51 -0600 http://wordpress.org/?v=2.9.1 hourly 1 By: stan http://cstpr.colorado.edu/prometheus/?p=4586&cpage=1#comment-10998 stan Thu, 25 Sep 2008 14:49:47 +0000 http://sciencepolicy.colorado.edu/prometheus/?p=4586#comment-10998 Some years ago a geek, too clever by half, convinced Wall Street that it was a great idea to lend to countries because they couldn't go broke. Hubris. Other geeks came up with trading programs which very confidently predicted that the turbulence which happened on a number of trading days in Aug 2007 could never happen. Hubris. Others had the "great idea" that creative slicing and dicing could turn junk into prime investment grade debt. Hubris. Now we survey the wreckage wrought by a bunch of computer geeks employing creative applications of statistics and modeling which wildly overstate confidence levels. Hmmmm, sounds very much like a bunch of climate scientists slicing and dicing tree rings. Only the damage done will be far greater. Some years ago a geek, too clever by half, convinced Wall Street that it was a great idea to lend to countries because they couldn’t go broke. Hubris.

Other geeks came up with trading programs which very confidently predicted that the turbulence which happened on a number of trading days in Aug 2007 could never happen. Hubris.

Others had the “great idea” that creative slicing and dicing could turn junk into prime investment grade debt. Hubris.

Now we survey the wreckage wrought by a bunch of computer geeks employing creative applications of statistics and modeling which wildly overstate confidence levels. Hmmmm, sounds very much like a bunch of climate scientists slicing and dicing tree rings. Only the damage done will be far greater.

]]> By: MarkR http://cstpr.colorado.edu/prometheus/?p=4586&cpage=1#comment-10991 MarkR Thu, 25 Sep 2008 02:17:42 +0000 http://sciencepolicy.colorado.edu/prometheus/?p=4586#comment-10991 Hedge Funds are not in trouble (yet). Holders of bundled sub prime mortgages are, and weak financial institutions on the receiving end of short selling are. Also the market for the insurance of corporate loans is next for the "treatment". Hedge funds have in fact done exactly and ruthlessly, what they were designed to do. ie use leverage money to accelerate the destruction of illusory shareholder value in flawed companies. The villains are the management of financial institutions who have recklessly and negligently underestimated the risk in the loans they were trading, the sellers of loans to outragously risky borrowers, and the politicians who forced/encouraged loans to minorities without the usual lending criteria. The Capitalists (the Shareholders) are in fact the victims in all this. (Won't be mentioned on the News though) Hedge Funds are not in trouble (yet). Holders of bundled sub prime mortgages are, and weak financial institutions on the receiving end of short selling are. Also the market for the insurance of corporate loans is next for the “treatment”.

Hedge funds have in fact done exactly and ruthlessly, what they were designed to do. ie use leverage money to accelerate the destruction of illusory shareholder value in flawed companies.

The villains are the management of financial institutions who have recklessly and negligently underestimated the risk in the loans they were trading, the sellers of loans to outragously risky borrowers, and the politicians who forced/encouraged loans to minorities without the usual lending criteria.

The Capitalists (the Shareholders) are in fact the victims in all this. (Won’t be mentioned on the News though)

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