4 ms·

If you find a creative way to do a neat hedge that solves risk problems for a bunch of customers... I definitely understand where you're coming from but "creat

by pxlpshr 18y ago

If you find a creative way to do a neat hedge that solves risk problems for a bunch of customers... I definitely understand where you're coming from but "creative financial instruments" sounds awfully familiar. And hedge funds closed doors at record rates in Dec. 08. Computer models will only get you so far when COMPLEX (read: disguised) financial instruments rely on past history, not future performance. The idea that one can CREATE LASTING VALUE through exploits, arbitrage, and 'creativity' in bloodlines as important as the financial markets seems reckless. There is a popular idea that unless something is physical and produced with sweaty work it doesn't have value. That's not the argument I was making, and I agree with your counter-point.

cturner 18y ago
Computer models will only get you so far when complex financial instruments rely on past history, not future performance. I think that sentence captures the main point of this crisis. I am concerned that current money arrangements have an inevitability built into them that a prolonged boom will create a bubbles based on highly leveraged circumstances with lots of counterparty risk. One thing you could do would be to outlaw fractional reserve banking altogether (make banks actually store what they say they have) but I'm not sure that the benefit would be worth the cost and expect it will fail anyway - if the system becomes too much of a harness then people will just operate outside of it. Regular downturns is the only thing I can think of to keep things sensible. Without them the dynamic chases the sensible people out of banking. (I don't hold with the theory that the current crisis is a result of banking liberalisation decisions by the US gvt - the US regulators relaxed the rules to stop US banking from being outplayed by the Europeans who were already consolidating.)
anamax 18y ago
> Computer models will only get you so far when COMPLEX (read: disguised) financial instruments rely on past history, not future performance. What do you have that relies on future performance? (Actually, there are many contracts, such as "10% of next year's revenue, rely on future performance in a pedantic sense, but I take the above to be something different because there are plenty of computer models that satisfy the pedantic definition used in this comment.)
- pxlpshr 18y ago
  What do you have that relies on future performance? It's not a matter of what's available but rather how one treats risk. I expect experts to have more sensibility than to bet the entire financial well-being of a company, employees, and public investors when dealing with 'invented' high-risk assets just because a computer said "Okay". Less than a decade ago everyone was freaking about because banking software might cause a financial melt thanks to a Y2K bug, little did we know the real impending crash was user-error. :) Just a thought.
  - anamax 18y ago
    > I expect experts to have more sensibility than to bet the entire financial well-being of a company, employees, and public investors when dealing with 'invented' high-risk assets just because a computer said "Okay". That's nice, but has nothing to do with what happened. "experts" decided that a particular equation with specific inputs said something relevant about "value". There wasn't a "computer" saying "okay". Said experts merely used computers to evaluate said equation.
    - pxlpshr 18y ago
      Obviously! Next time I'll be sure to be more explicit.
  - anamax 18y ago
    >>What do you have that relies on future performance? >It's not a matter of what's available but rather how one treats risk. The stated complaint was that folks weren't looking at future performance. If doing so is impossible .....

by pxlpshr 18y ago

cturner 18y ago

Computer models will only get you so far when complex financial instruments rely on past history, not future performance. I think that sentence captures the main point of this crisis. I am concerned that current money arrangements have an inevitability built into them that a prolonged boom will create a bubbles based on highly leveraged circumstances with lots of counterparty risk. One thing you could do would be to outlaw fractional reserve banking altogether (make banks actually store what they say they have) but I'm not sure that the benefit would be worth the cost and expect it will fail anyway - if the system becomes too much of a harness then people will just operate outside of it. Regular downturns is the only thing I can think of to keep things sensible. Without them the dynamic chases the sensible people out of banking. (I don't hold with the theory that the current crisis is a result of banking liberalisation decisions by the US gvt - the US regulators relaxed the rules to stop US banking from being outplayed by the Europeans who were already consolidating.)

anamax 18y ago

> Computer models will only get you so far when COMPLEX (read: disguised) financial instruments rely on past history, not future performance. What do you have that relies on future performance? (Actually, there are many contracts, such as "10% of next year's revenue, rely on future performance in a pedantic sense, but I take the above to be something different because there are plenty of computer models that satisfy the pedantic definition used in this comment.)

pxlpshr 18y ago
What do you have that relies on future performance? It's not a matter of what's available but rather how one treats risk. I expect experts to have more sensibility than to bet the entire financial well-being of a company, employees, and public investors when dealing with 'invented' high-risk assets just because a computer said "Okay". Less than a decade ago everyone was freaking about because banking software might cause a financial melt thanks to a Y2K bug, little did we know the real impending crash was user-error. :) Just a thought.
- anamax 18y ago
  > I expect experts to have more sensibility than to bet the entire financial well-being of a company, employees, and public investors when dealing with 'invented' high-risk assets just because a computer said "Okay". That's nice, but has nothing to do with what happened. "experts" decided that a particular equation with specific inputs said something relevant about "value". There wasn't a "computer" saying "okay". Said experts merely used computers to evaluate said equation.
  - pxlpshr 18y ago
    Obviously! Next time I'll be sure to be more explicit.
- anamax 18y ago
  >>What do you have that relies on future performance? >It's not a matter of what's available but rather how one treats risk. The stated complaint was that folks weren't looking at future performance. If doing so is impossible .....