The Formula That Killed Wall Street

[Supercilious]

Re: The Formula That Killed Wall Street

Do you have evidence of this, personal knowledge, or this came to you in your mother's basement while wearing the salad colander?

Certainly Hank benefitted from it, but being a beneficiary and being a perpetrator are not the same thing.

So you ask me to disclose here on a public forum a detailed Markopolos-style indictment? That is not going to happen. Remember how I was admonished by Fred when I said that SEC is a joke and corrupt and ranted about government officials.

Anyway is nice to know you are not only an ardent defender of Comrade Putin, but you also are a defender of Comrade Hank

For one thing - complex mathematical formulas can be used exactly as mortgage brokers with Option ARMs: so long as banksters are making money, knowing the details isn't that important.

Exactly. If that formula allowed them to make good money by moving those loans of their balance sheets and sell them to gullible investors, who cared about flaws in the risk distribution model?

And I fail to see how goofy addled mathematical risk scenarios have anything to do with foreign government accounting schemes.

I realize you are incapable to understand such a simple thing so I'll try to repeat it in a simpler formulation: the whole mortgage securities scam happened because there was a need of countries with excess dollar reserves to recycle their trade surplus in securities that were safe and offered better returns than treasuries.

For that matter, even MBS purchases were very limited.

Your pet theories are interesting, but it would be nice to see some actual proof.

Can you substantiate that claim with some numbers? How large was exactly the portfolio of agencies and CDO's held by the Chinese at its peak?

You can add to that data on Russian held agencies if you want because the Chinese were not the only recyclers, and, according to Russia Today, they made nice profits from those agencies

And about my pet theories presented without any proof while playing in my mother's basement and wearing the salad colander...

I remember I had another pet theory last summer about the tanking rubble... Do you still make nice profits from your portfolio kept in rubles (or your rubble portfolio)?

[metalman]

Re: The Formula That Killed Wall Street

So you ask me to disclose here on a public forum a detailed Markopolos-style indictment? That is not going to happen. Remember how I was admonished by Fred when I said that SEC is a joke and corrupt and ranted about government officials.

Anyway is nice to know you are not only an ardent defender of Comrade Putin, but you also are a defender of Comrade Hank


Exactly. If that formula allowed them to make good money by moving those loans of their balance sheets and sell them to gullible investors, who cared about flaws in the risk distribution model?


I realize you are incapable to understand such a simple thing so I'll try to repeat it in a simpler formulation: the whole mortgage securities scam happened because there was a need of countries with excess dollar reserves to recycle their trade surplus in securities that were safe and offered better returns than treasuries.


Can you substantiate that claim with some numbers? How large was exactly the portfolio of agencies and CDO's held by the Chinese at its peak?

You can add to that data on Russian held agencies if you want because the Chinese were not the only recyclers, and, according to Russia Today, they made nice profits from those agencies

And about my pet theories presented without any proof while playing in my mother's basement and wearing the salad colander...

I remember I had another pet theory last summer about the tanking rubble... Do you still make nice profits from your portfolio kept in rubles (or your rubble portfolio)?

just want to say... the entertainment value of you two going at... priceless.

[c1ue]

Re: The Formula That Killed Wall Street

So you ask me to disclose here on a public forum a detailed Markopolos-style indictment? That is not going to happen. Remember how I was admonished by Fred when I said that SEC is a joke and corrupt and ranted about government officials.

Perhaps you should put on glasses over the goggles.

I asked if your statement was backed by proof, by personal knowledge, or by some other method.

Markopolos was never mentioned, nor even detail. Merely provenance.

If patriotism is the last refuge of scoundrels, what is purported unsubstantiated knowledge?

Exactly. If that formula allowed them to make good money by moving those loans of their balance sheets and sell them to gullible investors, who cared about flaws in the risk distribution model?

Uh, so you're saying that Paulson did NOT know? Or he DID know? Make up your mind.

I realize you are incapable to understand such a simple thing so I'll try to repeat it in a simpler formulation: the whole mortgage securities scam happened because there was a need of countries with excess dollar reserves to recycle their trade surplus in securities that were safe and offered better returns than treasuries.

I realize that you are incapable of separating cause from effect, so let me posit another possible scenario: that while countries with excess dollar reserves were searching for alternative investment strategies - the mortgage securities scam would have occurred anyway. Because mortgage securitization existed long before China was even exporting to the US.

The confluence of the 2 effects made the situation we have today, but the existence of both does not prove a conspiracy.

You're trying to say that con men are created to take money from their marks. In reality, con men exist. Marks exist. Only sometimes is one created by the other.

Can you substantiate that claim with some numbers? How large was exactly the portfolio of agencies and CDO's held by the Chinese at its peak?

I don't need to. The very sources that you use to illustrate your basement theories do that for me. Re-read your own sources.

And again, you still fail to cough up even one name to your 'smart money' theory. As with most of your statements - all air and innuendo. You must be a budding politician because you've mastered the art of speaking without committing anything.

As for the ruble - given that the rubles I'm holding are due to income from an investment, they're doing just fine. The 13% I get in Gazprom bonds will keep up the purchasing power until the oil anti-bubble breaks

How are your investments going? Oh yeah, you never say anything. You'd have to 'charge' for your advice.

Too scared of having your talk bubble pierced by reality no doubt.

[Supercilious]

Re: The Formula That Killed Wall Street

Perhaps you should put on glasses over the goggles.

I asked if your statement was backed by proof, by personal knowledge, or by some other method.

This is knowledge from confidential sources combined with commonsense logic. And in the next stage you will ask for disclosure or dismiss everything all together as bunk.... militsya sergeant reflexes...

Uh, so you're saying that Paulson did NOT know? Or he DID know? Make up your mind.

OK let me put it at a low IQ level so you can understand. The masters of the securitization process didn't care if the math was flawed or not. Those who were dumb or couldn't understand the assumptions of the formula believed in it. Those who were smart and understood it's flawed of course they knew. Any bubble has three types of participants: innovators, imitators and idiots. It is common sense to assume that at least the smart innovators knew the formula is flawed. The innovators in this case were not dumb Icelandic fishermen that just started banking careers.

I realize that you are incapable of separating cause from effect, so let me posit another possible scenario: that while countries with excess dollar reserves were searching for alternative investment strategies - the mortgage securities scam would have occurred anyway. Because mortgage securitization existed long before China was even exporting to the US.

That is pure BS. Of course mortgage securitization existed long before China even become communist, but try to think a little bit (if you can do that), if there were not huge amounts of debt to be recycled in US securities, and the treasuries had not such lousy returns who would have bough all the agencies, CDO's and all the novel miracle paper based on mortgages?

The confluence of the 2 effects made the situation we have today, but the existence of both does not prove a conspiracy.

Where did I say there was a monstrous conspiracy? There were a small group who saw an opportunity to make good money by packing mortgages and selling them to gullible investors who believed in mathematical magic and that a just a simple formula can guarantee safe, quality tailored risk and good profits. The innovators started making money and, of course, that attracts imitators and idiots. It is that simple. You call that a conspiracy? I don't. I call it a financial swindle.

You're trying to say that con men are created to take money from their marks. In reality, con men exist. Marks exist. Only sometimes is one created by the other.

You are putting words in my mouth in your propaganda rage. Of course con men and victims are created by the existence of each other. What am I saying is that there is a group of very capable con men able to pull scam after scam, and get away with it. Those who pull a only fast scam and get caught are the not-so-smart con men (these are the Madoffs and the Lays).

I don't need to.

Of course you don't need to present any evidence to support a claim. A militsya sergeant has to be believed without questioning. Otherwise he will punch you in the face (instead of punching your passport)

As for the ruble - given that the rubles I'm holding are due to income from an investment, they're doing just fine. The 13% I get in Gazprom bonds will keep up the purchasing power until the oil anti-bubble breaks

Comrade c1ue, you sound exactly as that Russian finance minister who was telling everybody about the great profits Russia got from holding agencies.... yes and we know that everything is great with the rubble and we all should invest in Russian bonds.

This siloviki BS is pathetic...

[Serge_Tomiko]

Re: The Formula That Killed Wall Street

How could one statistical formula, Li's cupola function, cause the trainwreck of all the world's markets, the loss of over 30% of the world's wealth, and the dashing of the retirement hopes of tens of millions?

The answer lies in the way economics is being taught at our major universities. If the hyper-inflation now in Zimbabwe has not made that clear, maybe this ongoing trainwreck in the world's markets will make this clear.

The formula is just one piece of evidence that at some point, the social science of economics was corrupted by certain academics who were unable or unwilling to properly consider how people behave.

The formula is in many ways symbolic of the disease of the "quants". They irrationally believed that they could predict chaotic group human behavior using rather basic mathematical formulas. Most I have known didn't even think of their charting exercises in terms of tracking human behavior.

Especially in these days of rising statism world wide, it is important to understand this fact. We can provide all the academic exercises in the world that describe capitalism, but we cannot forget why capitalism is the only truly successful system: those who either believe they can predict or influence the majority of the people most of the time have always failed. Despite a few thousand years of poets, painters, composers and philosophers exploring what lurks in the hearts of men, we are still a long way from achieving that goal.

Hubris has gotten to this point, and that formula is but one example of this.

[cjppjc]

Re: The Formula That Killed Wall Street

Oh my god! Take it outside boys.

[kelton56]

Re: The Formula That Killed Wall Street

The formula is just one piece of evidence that at some point, the social science of economics was corrupted by certain academics who were unable or unwilling to properly consider how people behave.

The formula is in many ways symbolic of the disease of the "quants". They irrationally believed that they could predict chaotic group human behavior using rather basic mathematical formulas. Most I have known didn't even think of their charting exercises in terms of tracking human behavior.

This is it, the "Black Swan," the "unknown unknown" of the 2000s:

Namely, that all these models, which in turn were used to create all these exotic, financially engineered products which were designed to, and fervently believed to, disperse, minimize and even eliminate risk (believed by AG, the Maestro himself) , in fact concentrated and exponentially magnified risk to the point of total collapse of the world's financial system.

Li should get the Nobel at least for inadvertently discovering the method by which the financial universe could be destroyed once every trillion years or so.

Whocuddaknown...

[Spartacus]

Re: The Formula That Killed Wall Street

If you've worked in any technical field you know how it works.

The sales department sells something they don't have.

The formula is in many ways symbolic of the disease of the "quants". They irrationally believed that they could predict chaotic group human behavior using rather basic mathematical formulas. Most I have known didn't even think of their charting exercises in terms of tracking human behavior.

It's an easy out, it works to shift the blame, and IMHO it's just not true.

Quants were ordered to produce products with given properties. Their reports had qualifications and caveats. The first quants knew what the score was. Later people just followed some given formulas - following a cookbook, and were not "quants".

In the hands of the sales people the qualifications disappeared.

Before the blowup Mish posted an email from an insider at one of the rating agencies who laid it all out. This was a quant who was told to write a particular report and give a particular grade.

His own training had nothing to do with it, his caveat emptors disappeared along the path up to the sales suite. Partly because the customers' agents (the bank that bought the thing from NY or London and sold it down to German or Dutch town governments) also wanted them to disappear.

Read Michael Lewis' "Liar's Poker". Like a thousand other books (where are the customers' yachts?) it'll show you how things work. The quants had next to zero to do with it.

[Supercilious]

Re: The Formula That Killed Wall Street

Here is the best explanation on why things went wrong. It was not the formula or the quants causing all this mess:

[Shakespear]

Re: The Formula That Killed Wall Street

Quants were ordered to produce products with given properties. Their reports had qualifications and caveats. The first quants knew what the score was. Later people just followed some given formulas - following a cookbook, and were not "quants".

I suspect you hit it on the nail here.

In petroleum engineering me do a lot of modeling of the subsurface oil/gas reservoirs. We know it is a black box we are dealing with and surprises will happen. Complex processes are complex. So any prediction today is also provided with probabilities (if done to the highest standard, which does not happen most of the time). Once done it is a crap shoot.

The quants have been in the news for a long time. Things were leaking out for a long time that this was all a crap shoot. The big question and what should be focused on in my opinion is "Where was the oversight ? ". They are the ones to keep the game as far from a Wild West Casino as possible. Looks like will never get that far and as always no one is responsible :-)

So what do they come up with, "Lets get Li, he is the source of the problem".

Li reminds me of Bush's Attorney General Alberto Gonzales and Mr. Yoo, who came up with all sort of magic incantations to allow Bush to do what ever he wanted. In the process destroying the foundation of the US Republic. Nice job, off they go into the sunset.

[c1ue]

Re: The Formula That Killed Wall Street

This is knowledge from confidential sources combined with commonsense logic.

Ooooh kay. In other words, just your word.

It is common sense to assume that at least the smart innovators knew the formula is flawed.

Um, as someone who has worked in a real corporation, I have long since learned to never associate as enemy action something which arises due to sheer momentum and compartmentalization.

For that matter, why are investment banks and management consulting firms always looking to hire the 'best and brightest' out of schools? Because the kids lack the experience to know any better and are easily manipulated into believing ridiculous things.

That is pure BS. Of course mortgage securitization existed long before China even become communist, but try to think a little bit (if you can do that), if there were not huge amounts of debt to be recycled in US securities, and the treasuries had not such lousy returns who would have bough all the agencies, CDO's and all the novel miracle paper based on mortgages?

You again attribute China as the cause because they had the biggest pile of dollars. Perhaps what you're trying to say is that China really bought a giant pile of MBS' as opposed to Treasuries. If that were the assertion, then your thesis might be more believable.

But instead you keep harping on demand finding supply. Well, why is it that the documented demand seemed to be mostly European banks? Was there some giant pile of dollars that Europe needed to get better returns on?

Or maybe you're just creating something out of nothing.

Where did I say there was a monstrous conspiracy?

You yourself spoke of 'real smart money'. Now you're saying it was just a group of swindlers. Before it was the bankers behind the scenes controlling everything. Flip flop. Flop flip.

Of course you don't need to present any evidence to support a claim.

I'm not the one making claims here. You are.

I asked first. Still hearing an echo...

we know that everything is great with the rubble and we all should invest in Russian bonds.

Yes, please point out a single instance where I ever said investing in Russian stocks and/or bonds was a good idea. In fact I was on record many times saying I would never do such a thing.

Yes, I've broken that record by recently tapping into some senior Gazprom debt. Call me Russia Buffet

All through this interchange the facts remain the same: that is, no facts provided by you.

And again you've responded in typical secret punctuation man fashion: attacks and no data. I'm waiting for the CFR.org link next.

[Supercilious]

Re: The Formula That Killed Wall Street

c1ue this is a thread where people want to discuss about the securitization mess. What you are doing is trolling in rage, your contribution on this thread has been just attacks against me. That is annoying and not only for me. Why don't you open a thread at Rant and Rave and tear me apart there, because you don;t even seem to be interested in reading correctly what am I saying?

You can start with my comments on an old thread
Meanwhile please stop trolling with rage. Take your complaints at Rant and Rave or put me on your ignore list.

[*T*]

Re: The Formula That Killed Wall Street

The quants have been in the news for a long time. Things were leaking out for a long time that this was all a crap shoot. The big question and what should be focused on in my opinion is "Where was the oversight ? ".

Anyone read Feynman's account of his investigation of the Challenger shuttle disaster? It's very similar. Along the lines of:

Engineer: There is a problem with the cold temperature and rubber which could cause catastrophic failure
Senior engineer: There may be a problem that could cause failure
Mid mgmt: There is an outside chance of a problem but it's unlikely to cause failure
Mgmt: Problems are unlikely, failure is unlikely
Decision maker: Failure is unlikely, engineers said so, let's launch!

[Shakespear]

Re: The Formula That Killed Wall Street

This will be like the Tobacco industry, 40-50 years later we will know exactly what they knew and didn't know.

However the new generations will careless as they will just file it away as "Something like that can't happen today" :rolleyes:

[Rajiv]

Re: The Formula That Killed Wall Street

Richard C. Cook was the whistleblower on the Challenger Mission, and seems to be doing a good job on the Economic Collapse as well