Sunday, September 13, 2009

Wall St. wizards ignored human nature


NYTimes

IN the aftermath of the great meltdown of 2008, Wall Street's quants have been cast as the financial engineers of profit-driven innovation run amok. They, after all, invented the exotic securities that proved so troublesome.

But the real failure, according to finance experts and economists, was in the quants' mathematical models of risk that suggested the arcane stuff was safe.

The risk models proved myopic, they say, because they were too simple-minded. They focused mainly on figures like the expected returns and the default risk of financial instruments. What they didn't sufficiently take into account was human behavior, specifically the potential for widespread panic. When lots of investors got too scared to buy or sell, markets seized up and the models failed.

1 comment :

  1. Recipients and PublicitySeptember 17, 2009 at 5:44 AM

    Well, here's one Wizard who's riding high: George Soros, the atheist Hungarian Jew who has been funding Barack Hussein Obama's and his cohorts' drive for power for years.

    This is made very clear in a recent in-depth Canada Free Press article:

    "Soros: Republic Enemy #1 (September 15, 2009.)

    ReplyDelete

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