How Engineers Destroyed the Economy

[Savonarola]

I assume you are referring to David Li's "Gaussian copula" model, which is the most famous (or infamous).  He worked at both CIBC and Citibank.  Li did warn about the limitations of the model, but it was misused and abused by those who should have known better.

I found an article on the man and his model on wired.com:

http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=1

Interesting stuff; it sounds like his model wasn't that good to begin with; but gave such a straight forward answer that everyone would adopt it.

[The Brain]

I couldn't find a point in the OP article. Did it make one?

[garbon]

I couldn't find a point in the OP article. Did it make one?

Really? I found two full points in the first paragraph alone.

[The Minsky Moment]

I couldn't find a point in the OP article. Did it make one?

Look more carefully, there is a period after the end of every sentence.

[The Brain]

I couldn't find a point in the OP article. Did it make one?

Really? I found two full points in the first paragraph alone.

[The Brain]

I couldn't find a point in the OP article. Did it make one?

Look more carefully, there is a period after the end of every sentence.

Are you a racially confused gay gold digger?

[Admiral Yi]

Good article.  Thanks Sav.

[garbon]

Look more carefully, there is a period after the end of every sentence.

We had the same thought.

[garbon]

Are you a racially confused gay gold digger?

Hey, I got real hair, real fingernails, I got a job and need nobody to help me handle my business.

[DGuller]

Yes, good article.  I think it highlights very well the mortal danger of understanding the formula without understanding the uncerainty in the inputs, or the uncertainty in the assumptions.  This what separates mathematicians from mathematically literate.

[Jos Theelen]

Computers took over the trading. You need quants to service those computers. To invent formulas and put them in those computers. But the decisions to trade in one way or another way wasn't taken by the quants, but by the management. So this article is just an attempt to put the blame on other people than the bankers, the real decision makers.

It is a copy of 1987. When we had a stockmarket crisis then, traders and bankers put the blame on computers too. At that time it was called program trading. Several people tried to blame program trading for the crash in 1987.

I wonder who they try to blame the next time.

[Admiral Yi]

Computers took over the trading. You need quants to service those computers. To invent formulas and put them in those computers. But the decisions to trade in one way or another way wasn't taken by the quants, but by the management. So this article is just an attempt to put the blame on other people than the bankers, the real decision makers.

It is a copy of 1987. When we had a stockmarket crisis then, traders and bankers put the blame on computers too. At that time it was called program trading. Several people tried to blame program trading for the crash in 1987.

I wonder who they try to blame the next time.

Now that we've got that cleared up, should we put all bank CEO's in the pillory for a day or two, pat ourselves on the back and move on?

You can't intelligently reform the system unless you know what the root causes were.

[DGuller]

I think the root cause is closer to the management than to quants.  If managers had the proper risk management incentives, they would likely be more skeptical of the models that seemed to promise all gain and no risk.

[The Brain]

It's funny how other fields don't have a problem with math and engineering. Sounds to me like the problem is management.