
The Quants: Formula for a Meltdown  - peter123
http://online.wsj.com/article/SB10001424052748704509704575019032416477138.html
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Confusion
The following quote illustrates the article pretty well:

    
    
       [..] advances that had earned their discoverers several
       shelves of Nobel Prizes
    

Hyperbole as a style form is all and well, but this is just misrepresenting
the truth. This journalist didn't rethink what he was writing for even a
second.

~~~
mschy
The article struck me as anti-intellectualism run amok. I didn't even see a
_hint_ of anything indicating that quants were especially to blame.

~~~
Tangurena
I see this as a scape goating of the quants. Not the mismanagers who hired and
profited from the quants. The culpability of the mismanagerial classes are
being whitewashed away.

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KonaB
Yet another article blaming the poor quants. Anyone with nonzero experience in
finance knows that quants have no power and earn no respect. Of course quants
know that models have limitations, but if you tell your boss that one should
be conservative, the only thing you will attain is to get yourself fired. The
ones to be blamed are the ones with decision-making power, and everybody knows
that quants have as much decision-making power as the IT guys.

At least they talk about Aaron Brown. In any case, I was expecting more from
the WSJ. They used to be better than this...

~~~
BearOfNH
_In any case, I was expecting more from the WSJ._

Amen to that. The article mentions "The secretive trading operations within
banks that use large doses of leverage, or borrowed money, to make huge bets
on the market". This is just not true -- and the WSJ should know that. You can
generate leverage without borrowing a dime. Options contracts can be highly
leveraged yet involve no borrowing. Futures contracts can be highly leveraged
with no borrowed money. In both cases the exchanges have put in place
elaborate mechanisms to ensure a losing side can pay up, and guarantees the
winning side will collect even in case of complete counterparty failure. There
is no borrowing here but there's plenty of leverage.

Unfortunately a lot of the bad trades behind the meltdown (AIG derivatives,
etc.) were basically private contracts, with no exchange mechanisms in place
to mitigate counterparty risk. That's also one reason nobody knew what was
really going on.

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rortian
Whoa, this really touched a nerve. I think everyone should step back and see
that this is an excerpt from a book. I thought it was an interesting snippet
but I would have like to see more.

