11–20 of 24 posts
Once government requirements were put in place, I can only imagine the level of red tape required to make changes to what was a dynamic system before.
None of this was mentioned in the article. Does anyone have any facts on this?
Well, that explains that. Now explain this: If these MBSes were so complex that Wall Street MIT-trained quants and Wharton-trained traders and their computers didn't see it coming...how exactly did I see it coming? Me. I mean...liar loans and ARMs starting at record-low rates and housing prices that looked like the NASDAQ right around AD 2000? I mean, the reason they didn't see it was...because they did see it, but t…
In the short run, these markets selected for people who didn't properly analyze the risk. If the average CDO makes you 7% a year until one day it loses 20%, it's not a prudent investment -- but if you somehow estimate that the maximum loss is 2% instead, you will be willing to buy many more of them, and your return on capital will look a whole lot better. If you're not the only one doing this, the flow of all that mo…
http://www.marketoracle.co.uk/index.php?name=News&file=a... http://www.forbes.com/2005/02/21/cz_0221oxan_default.html http://money.cnn.com/magazines/fortune/fortune_archive/2006/...
Earlier quoted context omitted.
In the short run, these markets selected for people who didn't properly analyze the risk. If the average CDO makes you 7% a year until one day it loses 20%, it's not a prudent investment -- but if you somehow estimate that the maximum loss is 2% instead, you will be willing to buy many more of them, and your return on capital will look a whole lot better. If you're not the only one doing this, the flow of all that mo…
Not a web connection or mag subscription among the lot of them, eh? http://www.marketoracle.co.uk/index.php?name=News&file=a... http://www.forbes.com/2005/02/21/cz_0221oxan_default.html http://money.cnn.com/magazines/fortune/fortune_archive/2006/...
This is really rather simple to understand: Part of the motivation for inventing complex new derivatives is to create things that look conservative to the model but are actually risky. The personal incentives for traders are to get big returns, which implies making risky bets. But your risk management system won't let you make risky bets directly. So instead, you make risky bets indirectly through instruments specifi…
It seems to me that the root cause to the computer models failing was that the government stepped in to "help." Once government requirements were put in place, I can only imagine the level of red tape required to make changes to what was a dynamic system before. None of this was mentioned in the article. Does anyone have any facts on this?
This is really rather simple to understand: Part of the motivation for inventing complex new derivatives is to create things that look conservative to the model but are actually risky. The personal incentives for traders are to get big returns, which implies making risky bets. But your risk management system won't let you make risky bets directly. So instead, you make risky bets indirectly through instruments specifi…
Nailed it. Things like FX, commodities and equities are closed systems. These markets make their money by volume and it's not particularly interesting.
Take something like a CDS where you don't really know what the risks are and it becomes easier to set prices fairly arbitrarily. Maybe some cpty has a stellar rating. Does that mean they'll always be stellar? Who knows?!
But this is still missing the real killer. Leverage. Everyone forgot the lesson of LTCM.
It was a bitter irony that the only bank to tell LTCM "fah q!" was the first to go. It's not so ironic now that Lehman, Merrill and possibly Morgan are gone now too.
It seems to me that the root cause to the computer models failing was that the government stepped in to "help." Once government requirements were put in place, I can only imagine the level of red tape required to make changes to what was a dynamic system before. None of this was mentioned in the article. Does anyone have any facts on this?
http://en.wikipedia.org/wiki/Glass-Steagall_Act#Repeal_of_th...
It seems to me that the root cause to the computer models failing was that the government stepped in to "help." Once government requirements were put in place, I can only imagine the level of red tape required to make changes to what was a dynamic system before. None of this was mentioned in the article. Does anyone have any facts on this?
Because there is discussion that the biggest failures were where the SEC relaxed it's requirement. http://www.nysun.com/business/ex-sec-official-blames-agency-...
Earlier quoted context omitted.
Not a web connection or mag subscription among the lot of them, eh? http://www.marketoracle.co.uk/index.php?name=News&file=a... http://www.forbes.com/2005/02/21/cz_0221oxan_default.html http://money.cnn.com/magazines/fortune/fortune_archive/2006/...
It's pretty easy to ignore what you read on the web when it doesn't fit your preconceptions.