Joel Spolsky, or maybe Steve Yegge (or maybe both), wrote an article once about how you should always understand your business at a level of abstraction lower than what you actually deal in. If you write in C, know what a C compiler does. If you sell clothes, know something about your distributors. And so on.
Does anyone else think this may have all been avoided if investors had followed that rule? If you trade C.D.O.s, know what they're made of; if you trade mortgages, know who they're sold to?
Or maybe nobody knew this because it was deliberately hidden. I'm just assuming that on this vast a scale, it's more likely incompetence than corruption.
He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number.
I mean, what if there's a sqrt or something like that in the model. Imaginary numbers are fun to pay off, but no fun to receive :)
Also: perhaps the model was built up using empirical data and they just never really had a chance to update the model when home prices were going down... I don't find it all that weird for them to produce data-driven forecasts ;)
The public lynchings of Gutfreund and junk-bond king Michael Milken were excuses not to deal with the disturbing forces underpinning their rise. Ditto the cleaning up of Wall Street’s trading culture. The surface rippled, but down below, in the depths, the bonus pool remained undisturbed
and the exact same thing will happen again. symptoms will be treated, root causes ignored.
It seems to me that when you make money by investing, you can never really know if you are lucky or smart. But of course, we'd rather see ourselves as smart, and the ones who see themselves as lucky are not going to want full-time jobs on Wall Street.
So if a bunch of people make investment decisions over and over again and get rich (or make their employers rich), they will see themselves as very very smart. When the market reverses and wipes them out, most of them will see themselves as very very smart people who just had a little bit of bad luck.
This is really very good, especially if you read Liar's Poker (makes me want to re-read it). He even meets up with Gutfreund which makes for interesting reading.
Great read. I too recommend Liar's Poker if only for its inside look at how Lewis Ranieri created the mortgage backed security market that fueled our economic downturn.
It isn't explained in depth but it's interesting to see how Ranieri fought for it from within Solomon Bros.
agree. best article i've read in 2008, hands down. phenomenal prose, somehow he seems to write in a way that could make any subject compelling. This is what the author of Bringing down the house should aspire to be.
I have; even the painfully dated "Next: The Future Just Happened"; Lewis is even worth reading when he's writing about Marillion, the UK's answer to Kenny Loggins.
If you're an entrepreneur and you haven't read Moneyball, [insert snark here].
I was disappointed by The Blind Side, his football book, but it was at least well-written and enjoyable.
I even have a huge bound volume of classic econ texts with his commentary in it. I will probably never really finish it, but I'm a huge fan and a completeist, so, he got me.
"The New New Thing" is among his best, and the most directly relevant for the HN crowd -- a really insightful look at Silicon Valley history in the mid 90s and the story behind SGI, Netscape, and Jim Clark.
I liked The Blind Side, but found it more entertaining than insightful, and I think he papers over the most interesting conflict in the story --- whether Michael Oher's benefactors were in fact gaming the college football recruitment system.
Indeed. I apologize for posting this. It consumed a good 2h reading for me if you include the jumps to searching and reading about concepts or names I wasn't familiar with. :)
the problem was a feedback loop. everyone thought of course these guys knew what they were doing, otherwise why would people give them money? and promptly give them some money...etc.
getting one big client is hard, getting the next ten is much much easier.
arbitrage failing to fix a hole is a sure sign of wrongful government intervention. for example: the yen carry trade that made and is now breaking iceland. in a real free market the arbitrage between yen interest rates and ISK interest rates would have eventually closed. instead, governments forcibly controlled interest rates.
Does anyone else think this may have all been avoided if investors had followed that rule? If you trade C.D.O.s, know what they're made of; if you trade mortgages, know who they're sold to?
Or maybe nobody knew this because it was deliberately hidden. I'm just assuming that on this vast a scale, it's more likely incompetence than corruption.