The Rise of the (Financial) Machines 403
BartlebyScrivener writes "A New York Times Op-Ed quoting Freeman and George Dyson wonders if Wall Street geeks and 'quants' outsmarted themselves with computer algorithms to create the current financial debacle: 'Somehow the genius quants — the best and brightest geeks Wall Street firms could buy — fed $1 trillion in subprime mortgage debt into their supercomputers, added some derivatives, massaged the arrangements with computer algorithms and — poof! — created $62 trillion in imaginary wealth. It's not much of a stretch to imagine that all of that imaginary wealth is locked up somewhere inside the computers, and that we humans, led by the silverback males of the financial world, Ben Bernanke and Henry Paulson, are frantically beseeching the monolith for answers.'"
The quoted essay from George Dyson is available at Edge.
Risk analysis of property lending (Score:5, Funny)
1. House prices and property keep on rising. If you buy a house now you can sell it next year for say 15% more. Gear up, buy and then let out your property to make even more money. Look at all the TV proggys on making money from houses to prove this point. Whatever price you pay is not an issue. Borrow at 7 times your earnings and 125% of the said value of the property is no problem. Fill your boots and make a ton of money, guaranteed. No risk.
(Don't listed to those old type bank managers who were so unhelpful and whom banks fired years ago in favour of salesmen selling whatever they could. They knew nothing).
If in the unlikely event someone could not pay their mortgage (very rare event) the property would absolutely be worth more than their mortgage arrears. Even better sell the loans to some other sucker. No risk here.
2. As you all know interest rates are undeniably under control and will never significantly rise as our central banks are such clever chaps (and chapesses) and have everything under control. So we will see a low interest rate environment for many years, so no risk here.
3. Inflation is absolutely under control and will never get out of hand, again thanks to the geniuses managing our economy. So no worries here.
4. Gearing is good and isn't risky, if you are really clever. Gear up as much as you want and to make even more money at little risk. Better still borrow in say Yen at very low rates. The Yen will never rise against the $/£ to any degree, so no risk here.
5. Banks and bankers are very clever people and know what they are doing. Look at their pay and bonus packages to see how astute they are. Shareholders would never allow incompetents to have such large pay packages if they were not undoubtedly geniuses. With the bankers at the helm nothing can go wrong, obviously. No risk here.
Risk Calcs = 1 + 2 + 3 + 4 + 5 = naff all risk so fill your boots.
What could possibly go wrong?
garbage in garbage out (Score:1, Funny)
You can't blame the quants, they knew exactly what to expect. They were doing what the person paying them wanted them to do. Then those same people were paying off the loan officers in commission to look the other way when they knew a bad loan couldn't be paid off.
Re:This American Life (Score:3, Funny)
If you haven't listened to that show, I heavily recommend it (no matter where you live, if you speak English).
I'm sure the non-English speakers reading this appreciate the warning.
Re:let me break the news to you (Score:3, Funny)
i dont give a damn about shift key and capitalism.
Fixed.