folo

Really, I hope they won’t

October 6th, 2008 @ 7:37 pm - by lotus · 4 Comments

Filed Under: Herald & Examiner

4 Responses so far ↓

1. GlitterGirl says:

   October 6, 2008 at 8:00 pm

   oooh-that’s one angry sign holder!
2. Ben Cole says:

   October 6, 2008 at 9:19 pm

   Oh I hope they do. I’ll give them a little nudge, if that’s what it takes.
3. Cujo359 says:

   October 6, 2008 at 10:49 pm

   oooh-that’s one angry sign holder!

   I know how he feels. They’ve been in a position to know what could happen for years now, and yet they continued on as if everything was fine.
4. somslawyer says:

   October 7, 2008 at 12:27 pm

   They’ve been in a position to know what could happen for years now, and yet they continued on as if everything was fine.

   I’m not sure they did, in truth. I just finished reading Benoit Mandelbrot’s 2004 book The (Mis)Behavior of Markets, which bears directly on the current crisis. Mandelbrot is the father of fractal geometry, which finds an embodiment in chaos theory. His work on financial markets dating back to the 1960s indicates that standard financial analysis models substantially and uniformly underrate the risk of ruinous loss. The probability of yesterday’s 800 point stock market drop as rated by standard models is 1 chance in more than 10 to the 42nd power [1 followed by 42 zeros], which is 10 to the 31st power greater than the expected life of the universe in seconds. So by the standard models of risk, most of the last two weeks could not have happened.

   He also pointed out, as early as the mid-1990s, that financial derivatives being promoted then and later were not capable of rigorous mathematical analysis, resulting in a inability to set accurate values for the products as well as assess their failure risk. Clearly, that defect played a major role in the current situation.

   Add financial leverage (i.e., using other people’s money) to the package, and you have the current crisis.