Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead • Hacker News Board

Re: Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead

#31

Post by LiveTheDream » Wed, Apr 28, 2010, 8:30 PM UTC

wmf wrote: post #28

LiveTheDream wrote: post #24

From Michael Blum's letter to Bernanke: "CDOs are like love. When they're good, they're great, but when they're bad, watch out." The linked paper itself is quite easy to read, though at 115 pages I didn't make it through the whole thing and resorted to skipping around. I'd love to see the tables of results put in perspective with a better visualization.

Were there any good CDOs? An interesting aspect (in retrospect) of The Big Short is that some people spent huge effort determining which ones were worth shorting and other people seemed to make just as much money indiscriminately shorting all of them.

From the thesis:

J.P. Morgan’s CDOs consistently underperformed, while those from Goldman Sachs were among the top performers

Also:

CDOs rated by Fitch generally had less defaults than those without a Fitch rating. However, this result is not conclusive, as a number of other factors could be responsible for the lower level of defaults in Fitch-rated CDOs.

Re: Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead

#32

Post by jacobolus » Wed, Apr 28, 2010, 9:27 PM UTC

aresant wrote: post #17

I got about 10 pages into the paper and then that there's a good reason that I didn't get into Harvard. Anybody up for compiling a summary?

The interesting part is the data itself. There’s really no shortcut to just marveling the tables directly.

Re: Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead

#33

Post by T_S_ » Wed, Apr 28, 2010, 10:26 PM UTC

Here's how to turn the Big Short into a bunch of little shorts and save us all a lot of trouble in the future: Require the banks to report each and every line item that they are long and short. A line item is simply there aggregate position in any security, loan or derivative.

The banks already have this information, obviously. All they need to do is publish it--daily. In the past this would have been "infeasible". Now it would cost them little to release it electronically and it would be feasible for a small shop to analyze the risk for an entire bank. If available, the information would lead to an industry of small analyst/investors buying and selling bank stocks, eventually providing better information about the bank's risk than the banks themselves. Under this regime, the regulators can go back to sleep or continue surfing the web.

Until now many would claim this information is the banks' by right and not ours. Is it? You and I effectively disclose this information for our houses and loans. It is deemed necessary for credit markets to function. We have no inherent right to keep it a secret. Banks are just bigger versions of us with thousands of assets and liabilities, playing with taxpayers' money it turns out. Their rights are determined by us and not nature.

Re: Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead

#34

Post by joe_the_user » Thu, Apr 29, 2010, 12:28 AM UTC

mattobrien wrote: post #14

va_coder wrote: post #13

I think it's great that she investigated the issue and wrote a well put together article, but the heart of the problem has been known for a while: * No money down loans * No proof of jobs required * Fannie & Freddie bought this junk * Repeal of Glass Steagal All the talk in the world won't change the fact that the solution requires legislators and law enforcers to have a strong backbone and prosecute those who commit…

Fannie and Freddie actually lost market share as the bubble really got going. They were prohibited from getting into most subprime, and tried to get around their regulations. Wall Street was the driver in buying up these shitty mortgages to put into MBS/CDOs -- and quite a few big banks bought mortage originators so they could get bigger margin on these deals. Unfortunately for them Wall Street couldn't find buyers f…

The market shares involved with this dynamic is irrelevant.

What mattered was the implicit guarantee provide by the government through Fannie & Freddy's involvement.

You might have notice that became explicit guarantee at the end.

Re: Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead

#35

Post by farmerbuzz » Thu, Apr 29, 2010, 12:34 AM UTC

gruseom wrote: post #20

gizmo wrote: post #6

> Ah, the innocence of youth. Ah, the smug certainty of a Wall Street Reporter. Let's not forget how miserably the WSJ (and all other media) have failed to pick up on the gross fiscal abuse on wall street. Some modesty would be in order here! Besides, the student's suggestions are rather uncontroversial. She merely suggests that "to change wall street you have to change the incentives". How can any sensible person di…

I hardly disagree about the WSJ in general but I read the end of this article differently. The author's final question is a good one: why on earth did she take a job working for the very people whose irresponsibility her research exposed? Her answer, assuming it's sincere and not quoted out of context, is indeed naive: she's doing it to change the culture of Wall Street. Well, I agree with what I imagine the author's…

"The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man."

-George Bernard Shaw

Re: Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead

#36

Post by megablast » Thu, Apr 29, 2010, 12:39 AM UTC

gizmo wrote: post #6

> Ah, the innocence of youth. Ah, the smug certainty of a Wall Street Reporter. Let's not forget how miserably the WSJ (and all other media) have failed to pick up on the gross fiscal abuse on wall street. Some modesty would be in order here! Besides, the student's suggestions are rather uncontroversial. She merely suggests that "to change wall street you have to change the incentives". How can any sensible person di…

The WSJ is mainly concerned with Wall Street. Most of Wallstreet makes out very well with their current culture. She is right, short term gains are rewarded, as they are in most industries. The difference if you can make millions on WS in a very small amount of time. And, if given the chance, most people would as well.

You seem to want to blame WS, but as an engineer, should I be overly concerned if the fashion industry fails, or the building industry? Sure, I hate seeing people lose their jobs, but am I going to change how I live? People on WS are no different.

Damn, I mean we hear all this talk of environmental problems, but the majority in the US still drive to work, a large number of those in huge trucks.

The People on WS are going to do what everybody else is going to do. It is just they have an opportunity to make so much more than most poeple.

Re: Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead

#37

Post by megablast » Thu, Apr 29, 2010, 12:41 AM UTC

T_S_ wrote: post #33

Here's how to turn the Big Short into a bunch of little shorts and save us all a lot of trouble in the future: Require the banks to report each and every line item that they are long and short. A line item is simply there aggregate position in any security, loan or derivative. The banks already have this information, obviously. All they need to do is publish it--daily. In the past this would have been "infeasible". N…

There are a couple of companies that already do this for the banks. They get all the information on longs and short trades throughout the day, from all the big investment firms, and produce a market snaphshot. One of these companies is called Dataexplorers.

You can pay money to get this data now.

I am not sure how this would stop anything?

Re: Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead

#38

Post by megablast » Thu, Apr 29, 2010, 12:45 AM UTC

mrduncan wrote: post #2

I posted this about a month ago, didn't seem to get much interest then unfortunately. In any case, here is a link to the actual thesis: "The Story of the CDO Market Meltdown: An Empirical Analysis." - http://www.hks.harvard.edu/m-rcbg/students/dunlop/2009-CDOme...

Thanks, thought it looked familiar. I downloaded the thesis at the time, and forgot to read it.

Re: Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead

#39

Post by bd_at_rivenhill » Thu, Apr 29, 2010, 4:16 AM UTC

megablast wrote: post #37

T_S_ wrote: post #33

Here's how to turn the Big Short into a bunch of little shorts and save us all a lot of trouble in the future: Require the banks to report each and every line item that they are long and short. A line item is simply there aggregate position in any security, loan or derivative. The banks already have this information, obviously. All they need to do is publish it--daily. In the past this would have been "infeasible". N…

There are a couple of companies that already do this for the banks. They get all the information on longs and short trades throughout the day, from all the big investment firms, and produce a market snaphshot. One of these companies is called Dataexplorers. You can pay money to get this data now. I am not sure how this would stop anything?

Dataexplorers appears to be focused on the securities lending business, which is a tiny segment of the market compared to what the parent is proposing. Also, I see nowhere on the site where they claim to "get all the information on longs and short trades throughout the day, from all the big investment firms, and produce a market snapshot", can you please provide a reference to the place where this claim, or a similar one, is made? Most likely they are simply analyzing all long and short trades in the market on a given day to provide information about expected lending fees, which is a far cry from being able to assemble an accurate picture of the securities held by various financial institutions for their own accounts.

Re: Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead

#40

Post by bd_at_rivenhill » Thu, Apr 29, 2010, 4:20 AM UTC

T_S_ wrote: post #33

Here's how to turn the Big Short into a bunch of little shorts and save us all a lot of trouble in the future: Require the banks to report each and every line item that they are long and short. A line item is simply there aggregate position in any security, loan or derivative. The banks already have this information, obviously. All they need to do is publish it--daily. In the past this would have been "infeasible". N…

This suggestion would be the equivalent of requiring that all software firms provide all of their source code for free public viewing. The information about the aggregate positions that a bank holds for its own account can be used by a trading firm to make tremendous amounts of money at the bank's expense. In fact, Goldman was basically accused of doing this to Long Term Capital management in the book "When Genius Failed".