Nora,
It's a cord of many threads, we had a major problem in this country with the
politicians saying that we needed to move everyone into home ownership even if
they couldn't afford it. If that was the only part of the meltdown we would
have had some pain but not what the world ended up going through (think the
Savings and Loan Crisis of the late 80's and early 90's). The S&L crisis
caused pain in localized areas, the government had to step in and help but it
was NOTHING like what happened in 2008 & 2009.
The difference were the CDO's, CDS's and Speed bots. (every one of these
completed by Quants)
The CDO's were the combining of thousands of home loans into a package with so
many "tranches" that each offering ("tranch") in the unit represented so many
loans in the AAA class then additional loans were included with ratings all the
way down to the Subprime to complete the security that would be sold to the
public, state municipality retirement funds, mutual funds, etc.
This allowed Moody's, Standard & Poor's, and Fitch rating agencies to bless the
offering with a rating almost as pure as a Federal Fund T bill. In reality the
rating agencies had NO idea what was in this mess, the quants were figuring it
all out.
Then the industry began offering CDS's or an insurance policy on these CDO
instruments, these could be purchased for around 1% of the value of the
obligation, dirt cheap.
Some folks began studying what these CDO's really were & realized there was a
monumental problem, they began purchasing CDS's by the trainload. This game
went on for several years but when the Subprime began to crack it was finally
realized by all that it was a rouse and then the quants programs using the
speed bot trading (millions of shares traded in nanoseconds) and we had a
meltdown overnight.
There was a horrific contagion problem, Goldman Sachs alone had over a MILLION
counter-party transactions. When Buffett bought General Re there were a
quarter million counter-party transactions which he unwound immediately. The
same with Merrill, Morgan Stanley, Lehman, AGI, Bear Stearns, Royal Bank Of
Scotland, Deutsche Bank, and on and on and on this went around the globe.
When it began to unwind the possibilities of what would happen if these CDS
transactions could not be honored were unimaginable, The government had to step
in to prop up the system, few of us realize just how close we came to a true
financial holocaust. The shotgun marriages were just that, the Treasury, under
Hank Paulson, TOLD the firms what had to be done, the only major mistake was
the letting Lehman go down, that was more of a shock to the system than
Paulson, Bernanke or Tim Geithner (Tim at that time was head of the New York
Fed & involved every step of the way in the 30 or 72 hr. marathons with no
sleep) had any idea would affect the markets so severely.
I personally feel that Paulson had it in for Richard Fuld (the head of Lehman)
as Paulson had previously been the head of Goldman and I think there was bad
blood between the two, maybe not, but the government saved everybody of any
importance by buying the toxic assets or arranging marriages and handing out
money like candy...... EXCEPT Lehman.
Anyway, it was the perfect storm all created by guys known as quants that
thought they had it all figured out, each step, every segment was their
brainchild and the world was their oyster.
I know there are as many political solutions to this as there are people but I
for one would not have wanted to see what life would be like now and for for
decades to come if this wasn't underpinned by the powers......now we have
another problem that no quant will be able to solve, it will be solved by
utilizing the energy solutions we have within our country....this will get us
out of the humongous debt we have if we can only get our leaders to see the
small light still giving us hope.
I know, this isn't exactly MAC stuff but Harry ask a great question and it
really involves a large answer if you understand how important Quantitative
Analysts (Quants) have become in our everyday lives.
John
On May 26, 2013, at 11:02 AM, Nora Probasco wrote:
> Thanks for the summation, John! Let's hope the circuit breakers work!
>
> Nora
>
> On Saturday, May 25, 2013, John Robinson wrote:
> Some of the most brilliant mathematical folks on the planet, similar to Lee.
>
> They are often referred to as the guys that helped bring the meltdown to our
> financial system. Today as I worked in the yard I finished one book and
> began (for the second time) a book about "The Quants"....by Scott Patterson.
> I find it intriguing, utterly fascinating and bewildering as well that there
> are people this smart.....but wrong about their models that they felt were so
> impervious.....they can't quantify the human element and that was their
> downfall, once it began it was a feeding frenzy that fed upon one computer
> model after another.
>
> Since then they have put in circuit breakers to hopefully give the machines a
> wink that the route is over and it's time to move the other direction. It
> seems to have really helped and maybe the whiz kids have also changed the way
> their programs work....we won't know until the next time.
>
> John
>
>
> On May 24, 2013, at 4:52 PM, Harry Jacobson-Beyer wrote:
>
>> What are quants.
>> On May 24, 2013, at 11:59 AM, Jonathan Fletcher <[email protected]>
>> wrote:
>>
>>> On May 24, 2013, at 11:33 AM, Lee Larson <[email protected]> wrote:
>>>
>>>> Rand has a database. I wonder with whom he shares it.
>>>
>>>
>>> Politics has become all about databases. Surely you remember all the
>>> stories about how the quants won Obama the last election?
>>>
>>> You'll never again even be able to file as a candidate for an office
>>> without an underground bunker full of database mathemeticians calling the
>>> shots.
>>>
>>> j.
>>>
>>>
>>>
>>> --
>>> Jonathan Fletcher
>>> FileMaker 9/10/11/12 Certified Developer
>>>
>>> Fletcher Data Consulting
>>> [email protected]
>>> http://www.fletcherdata.com
>>> 502-509-7137
>>>
>>> Kentuckiana's FileMaker Developers Group
>>> Next meeting: Tuesday, May 28th, noon to 3:30-ish (Special guest!)
>>> http://www.kyfmp.com
>>>
>>>
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>>
>>
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