4 ms·

Oh, sure, blame the guy that made you the billions in the first place for not knowing that you were fucking around with the underpinning factors. Real mature, W

• joe_the_user 17y ago
  There's enough blame in this situation to cover everyone involved. On the level of modeling, the fundamental flaw was assuming that stock prices could be equated to independent, normalized, random variables. When these assumptions break down, you can still "make money most of the time" but you're downside becomes unlimited. Ponzi schemes make money most of the time too... But on the level of the banks, investment houses and large investors, the problem was not realizing that an investment model is a leaky abstraction. You can't leave your investing to people who only see random variables. Prudence, the watch-word of traditional investing, encompasses more than probabilistic expectation (just as causation is more than correlation). Leaving fundamental decisions about investing to the quants is imprudent. Anyone not blinded by the shine of the new models realized this but that was a minority. Of course, along with quant-investing in particular, one must include the whole Alan Greenspan school of "Market Rationality", including the move to "fair value" accounting. And that's a big elephant.