A small group of brainy math whizzes are emerging as the unlikely group who nearly brought down the finance industry. As WSJ’s Scott Patterson reports, a group called “The Quants” developed complex systems to trade securities such as mortgage derivatives, which were at the heart of the crisis.
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof. —John Kenneth Galbraith
Retail Sales in Jan rose .4% headline m/o/m, .7% ex auto's, .6% ex auto's and gasoline and .7% at the core. The headline figure was less than expected while the rest were slightly better. But, with respect to non headline sales, because Dec figures were revised lower, taking the two months together were about in line with forecasts overall. Sales rose in electronics, building materials, food/beverages, clothing, sporting goods, dept stores and restaurant/bars and fell interestingly for online retailers, health/personal care, furniture and motor vehicle/parts. Bottom line, headline sales were below expectations due to the greater than expected fall m/o/m...
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January 24th, 2010 at 3:09 pm
The problem is, if you were an actual Wizard, the securities wouldn’t have broken down. There are 2 fold major errors in the products; one a calculation error(and a very simple one), the other an error realizing the economic impact.
I never understand why one would have to point out that, “Anyone can build something that doesn’t work.”. I guess in the financial industry, you can produce a product that doesn’t work, as long as you have a good excuse.
Of course, all for millions of dollars.
January 24th, 2010 at 4:34 pm
I personally knew some of these “quants.” They were my fellow PhDs in math and physics that couldn’t find a job in academia or industry, and ended up in wall street. These are a different group from the original group (James Simons) of quants. An adaptive system such as the market will react to a large perturbation such as the infusion of algorithmic trading. The market shifts to a new paradigm and new algorithms will have to developed to adjust.
The other side of the issue is that “productive” work in quantitative science is increasingly not lucrative. Society and companies increasingly do not want to fund research, which by definition only give returns in the long term. Think about the economic activities that were generated with the invention of the transistor. The original inventors certainly didn’t get rich (comparing to the wall street traders), neither did the staff of the companies. It’s only on wall street can you obtain these obscene rewards. Society is actually benefiting at a great scale, but pays the workers in research activities a disproportionally low wage. Unless the reward system is rethought and changed, we will continue to funnel the best to short term activities such as advertising and wall street trading.
January 24th, 2010 at 5:49 pm
I would think there exists a standard-issue “bubble scenario” that could be an input to these mathematical models. I have to conclude that it was deliberately left out, which could be seen as an act of intellectual self-delusion.
January 24th, 2010 at 7:20 pm
Fraud on a national scale created tension in economic fault lines. Blaming quants seems like blaming architects for their structures failing amidst a magnitude 8 earthquake, even though the business community bribed the building regulators/inspectors to set reserves levels and lending standards just to withstand a magnitude 4.
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Great comment semiconscious.
January 24th, 2010 at 11:53 pm
The quants did not bring down the financial system. It was those who hired them, gave them free rein, and supervised them who brought down the financial system. And they will do it again.