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How “Quant” Trading Triggered the Credit Crisis

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By Barry Ritholtz - February 12th, 2010, 9:00AM

Yahoo:

Greedy CEOs, bad regulators, short sellers, debt-happy Americans, and politicians of all stripes have been blamed for the great credit crisis of 2008.

Add another name to the blame list, says Scott Patterson, staff reporter at The Wall Street Journal: Quants, which is shorthand for the elite mathematicians and computer experts who’ve come to dominate trading in recent decades.

As chronicled in Patterson’s new book “The Quants“, the runaway success of computer-driven trading in the 1980s, ’90s and early ’00s led to complacency and hubris, ending in near total disaster for Western-style capitalism.

“Mathematical constructs” such as CDOs, derivatives and mortgage-backed securities “caused banks essentially to implode,” Patterson says, placing blame for the credit crisis squarely on the quants

Source
Rise of the Machines: How “Quant” Trading Triggered the Credit Crisis
Aaron Task
Yahoo Tech Ticker, Feb 11, 2010
http://finance.yahoo.com/tech-ticker/rise-of-the-machines-how-%22quant%22-trading-triggered-the-credit-crisis-422940.html

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Comments

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.

3 Responses to “How “Quant” Trading Triggered the Credit Crisis”

  1. wunsacon Says:
    February 12th, 2010 at 10:12 am

    I see this meme as an attempt by execs/vp’s to spread blame, obfuscate, and try to stifle the urge to regulate smartly.

    Quants implement ideas. They do not decide which ideas to fund. They do not decide policy. They do not decide reserve requirements. They do not hire lobbyists. They do not write internal memos telling other associates how to cheat to fill out forms. Like math itself, quants are tools. Quants use math. Banksters use quants.

    Yeah, place the blame “squarely on the quants”. Not the many factors enumerated more persuasively in, say, Bailout Nation.

  2. GB Says:
    February 12th, 2010 at 10:55 am

    I often wonder if the technology ‘improvements’ in finance has led to a very different culture in that field. Where doing things new and exciting is more important than risk and ROI.

  3. IceTrader Says:
    February 12th, 2010 at 12:59 pm

    Is it possible to over-simplify things? Doesn’t matter how good your models are garbage in, garbage out.

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