3 ms·

Somehow related (2009) article from NYT http://www.nytimes.com/2009/10/14/opinion/14trillin.html http://www.nytimes.com/2009/10/14/opinion/14trillin.html (That

by barredo 16y ago

Somehow related (2009) article from NYT http://www.nytimes.com/2009/10/14/opinion/14trillin.html http://www.nytimes.com/2009/10/14/opinion/14trillin.html (That I personally enjoyed) “IF you really want to know why the financial system nearly collapsed in the fall of 2008, I can tell you in one simple sentence.” “The financial system nearly collapsed,” he said, “because smart guys had started working on Wall Street.” “I told you what happened. Smart guys started going to Wall Street.” (...) That’s when you started reading about these geniuses from M.I.T. and Caltech who instead of going to graduate school in physics went to Wall Street to calculate arbitrage odds.”

tansey 16y ago
Yeah, that's complete bullshit. The "smart guys" have been working on Wall St. for decades. Maybe there weren't as many high-profile funds, but they were there. They were there (and blamed) when LTCM collapsed, they were there (and blamed) when the dot-com bubble came, and it should be no surprise that they are still here and being blamed for the current crisis. The notion that smart people are to blame for the financial crisis is like saying tobacco farmers are to blame for lung cancer. The quants aren't the ones making the laws in congress that have torn down regulation for the last 30 years. They aren't the guys demanding huge increases in leverage (even in the case of LTCM, where a few of the high-profile quants did get excessive, it still wasn't their call). They aren't the guys who lowered interest rates or started the housing bubble. They're the guys who just see an opportunity to make money and they take it. If a guy cuts off your leg, throws you in the ocean, and you get eaten by sharks, are you really going to say that your death was the result of a vicious, man-eating shark? The people to blame are the usual bunch. It's congress, the white house, and the executives-- most of whom are not the "smart guys" that are being blamed. Quants are a scape goat for a bunch of people unwilling to accept that what happened is not easily traced back to a recent event, but rather requires a longer look back and a more nuanced answer. It's a lazy answer to effectively say, "Wall St. gave $70 trillion to a bunch of mathematicians who were just too darn smart for their own good, dontchaknow." Washington got hooked on Reagan-era deregulation, where each time they let the banks go a little further, they got a little more campaign funding, and around and around we go. There are tons of bubbles and crashes in the history of stock markets. Each time people think things are different, and they're always wrong. This is no different than every other time: greed and corruption. (Disclaimer: I work for a hedge fund.)
- nostrademons 16y ago
  If you read the article he linked, it seems like the author is talking about decades - he references his 25th college reunion and speaks as if it was several years ago. His point was that because the smart guys are on Wall St, they're not actually running the businesses and institutions that Wall St is investing in. So the companies that back all these financial assets are now being run by incompetent doofuses, while the people who used to make sure everything ran smoothly are now shuffling money from one dysfunctional company to another. There's a lot of truth to this - Warren Buffett has been saying the same thing for about 15 years. It used to be that the top grads in each class would become professors, or entrepreneurs, or public servants, and would use their intelligence to invent tangible things that make people's lives better. Now the top grads usually go into finance, and they still invent things, but the things they invent are increasingly opaque ways to slice up a declining pool of real assets. Assuming that you're a reasonably intelligent guy, you're actually good evidence for the point the article is making. If you didn't work at a hedge fund, perhaps you'd be working for Google, or performing basic research, or founding the companies of tomorrow. He's talking entirely about opportunity cost: the opportunity cost of having the smart people in the world allocating capital is that they aren't out in the world producing capital.
  - tansey 16y ago
    I think that's a separate argument from the one the OP is making, based on his selected quotes. I've read the article before, but I just re-read it to refresh myself. The issue I take with it is that the story pitched to the reader is: 1) Life gets expensive and Wall st. produces tons of millionaires. 2) Smart guys go to Wall St. with dreams of making enough money to become leisurely professors. 3) Extra derivatives are created by smart guys which then destroy the world. This seems ridiculous on several levels. First, virtually no one goes into massive debt by getting a PhD in the sciences; scholarships, grants, and stipends are always there to support bright students. Second, people have been doing sophisticated derivatives for a very long time; most people have no idea what an option is, much less how to price one, and that dates back to the days of Ed Thorpe. Third, I really just cannot believe that having a system where idiots manage money with the help of other idiots is less prone to disaster than idiots managing money with the help of smart guys. The one thing that the author does have right is that the financial incentives are out of whack. That comes back to the deregulation issue which I consider the cause. As for myself, I am also doing a startup and a couple research projects in my spare time, as well as going back to get my PhD starting 2011, so I guess Warren can sleep a little better knowing I'm not going to be "wasting" my life forever. ;)
deleted 16y ago
[deleted]

by barredo 16y ago

tansey 16y ago

Yeah, that's complete bullshit. The "smart guys" have been working on Wall St. for decades. Maybe there weren't as many high-profile funds, but they were there. They were there (and blamed) when LTCM collapsed, they were there (and blamed) when the dot-com bubble came, and it should be no surprise that they are still here and being blamed for the current crisis. The notion that smart people are to blame for the financial crisis is like saying tobacco farmers are to blame for lung cancer. The quants aren't the ones making the laws in congress that have torn down regulation for the last 30 years. They aren't the guys demanding huge increases in leverage (even in the case of LTCM, where a few of the high-profile quants did get excessive, it still wasn't their call). They aren't the guys who lowered interest rates or started the housing bubble. They're the guys who just see an opportunity to make money and they take it. If a guy cuts off your leg, throws you in the ocean, and you get eaten by sharks, are you really going to say that your death was the result of a vicious, man-eating shark? The people to blame are the usual bunch. It's congress, the white house, and the executives-- most of whom are not the "smart guys" that are being blamed. Quants are a scape goat for a bunch of people unwilling to accept that what happened is not easily traced back to a recent event, but rather requires a longer look back and a more nuanced answer. It's a lazy answer to effectively say, "Wall St. gave $70 trillion to a bunch of mathematicians who were just too darn smart for their own good, dontchaknow." Washington got hooked on Reagan-era deregulation, where each time they let the banks go a little further, they got a little more campaign funding, and around and around we go. There are tons of bubbles and crashes in the history of stock markets. Each time people think things are different, and they're always wrong. This is no different than every other time: greed and corruption. (Disclaimer: I work for a hedge fund.)

nostrademons 16y ago
If you read the article he linked, it seems like the author is talking about decades - he references his 25th college reunion and speaks as if it was several years ago. His point was that because the smart guys are on Wall St, they're not actually running the businesses and institutions that Wall St is investing in. So the companies that back all these financial assets are now being run by incompetent doofuses, while the people who used to make sure everything ran smoothly are now shuffling money from one dysfunctional company to another. There's a lot of truth to this - Warren Buffett has been saying the same thing for about 15 years. It used to be that the top grads in each class would become professors, or entrepreneurs, or public servants, and would use their intelligence to invent tangible things that make people's lives better. Now the top grads usually go into finance, and they still invent things, but the things they invent are increasingly opaque ways to slice up a declining pool of real assets. Assuming that you're a reasonably intelligent guy, you're actually good evidence for the point the article is making. If you didn't work at a hedge fund, perhaps you'd be working for Google, or performing basic research, or founding the companies of tomorrow. He's talking entirely about opportunity cost: the opportunity cost of having the smart people in the world allocating capital is that they aren't out in the world producing capital.
- tansey 16y ago
  I think that's a separate argument from the one the OP is making, based on his selected quotes. I've read the article before, but I just re-read it to refresh myself. The issue I take with it is that the story pitched to the reader is: 1) Life gets expensive and Wall st. produces tons of millionaires. 2) Smart guys go to Wall St. with dreams of making enough money to become leisurely professors. 3) Extra derivatives are created by smart guys which then destroy the world. This seems ridiculous on several levels. First, virtually no one goes into massive debt by getting a PhD in the sciences; scholarships, grants, and stipends are always there to support bright students. Second, people have been doing sophisticated derivatives for a very long time; most people have no idea what an option is, much less how to price one, and that dates back to the days of Ed Thorpe. Third, I really just cannot believe that having a system where idiots manage money with the help of other idiots is less prone to disaster than idiots managing money with the help of smart guys. The one thing that the author does have right is that the financial incentives are out of whack. That comes back to the deregulation issue which I consider the cause. As for myself, I am also doing a startup and a couple research projects in my spare time, as well as going back to get my PhD starting 2011, so I guess Warren can sleep a little better knowing I'm not going to be "wasting" my life forever. ;)

deleted 16y ago

[deleted]