"Because the math is really complicated people assume it must be right."

March 10, 2009 12:36 PM

They are known as “quants” because they do quantitative finance. Seduced by a vision of mathematical elegance underlying some of the messiest of human activities, they apply skills they once hoped to use to untangle string theory or the nervous system to making money. "They Tried to Outsmart Wall Street." [spoiler inside]

They failed.

posted by dersins (38 comments total)

... which is why they're all poor now.

Wait, what?
posted by ryanrs at 12:39 PM on March 10 [1 favorite has favorites]

It's easy to criticize these people and wish for bad things to happen to them.
posted by I Foody at 12:49 PM on March 10

Not to be confused with Qwantz.
posted by The White Hat at 12:52 PM on March 10 [3 favorites has favorites]

I should be thankful that the quant jobs I applied to didn't work out, thus forcing me to get a job as an actual scientist. I don't make as much money, but no one blames me for our current problems.
posted by deanc at 12:58 PM on March 10 [1 favorite has favorites]

They make a lot of money but not as much as the traders who tease them and treat them like geeks.

There is something disturbing and obscene about hearing incredibly rich people behaving in this manner.
posted by JHarris at 12:58 PM on March 10 [1 favorite has favorites]

Another great article on the front page of the New York Times.
posted by swift at 1:06 PM on March 10

This is like blaming Einstein for atomic weapons.

Its fun to revile others though. It makes me feel all warm inside.
posted by sfts2 at 1:09 PM on March 10

Damn. Having started reading the article, I find my early snark doesn't quite fit.
posted by ryanrs at 1:11 PM on March 10

The New York Times shaking its editorial head over how the excesses of Wall Street destroyed the economy is a lot like them bemoaning the catastrophe of the Iraq War.

It would be a lot less insufferable if they hadn't been cheerleaders for the fiasco until it blew up in their faces.
posted by Joe Beese at 1:12 PM on March 10 [5 favorites has favorites]

Metafilter: Having started reading the article, I find my early snark doesn't quite fit.
posted by dersins at 1:13 PM on March 10 [12 favorites has favorites]

Oh, BTW...

A debt-strapped New York Times has managed to mortgage its shiny new headquarters for a quick cash infusion of $225 million. But at what cost? Some quick Excel work gives us an ugly answer:

Anywhere from 11 to 16 percent.
posted by Joe Beese at 1:15 PM on March 10

I read this earlier this morning and got the feeling that the article was half-heartedly trying to blame these people for the financial crisis, without really coming out and doing so. Almost as if there's a need to point fingers at anyone but those who are actually responsible.

I know that NYT journalists visit Metafilter, so here's an open plea to you, to get through to your editors by any means possible: Please, please write more any serious articles about Bush and friends looking the other way while the Bernie Madoffs of the financial world bled us all dry.
posted by Blazecock Pileon at 1:19 PM on March 10 [3 favorites has favorites]

Oh, BTW...

God what a shit article. But I should have known that when I clicked on a Gawker.com post whose first tag is "MATH." As in, "WHOA, EXCEL!"
posted by jckll at 1:36 PM on March 10 [1 favorite has favorites]

It seems like a lot of people are blaming math geeks for the meltdown. If I recall both CNBC's "House of Cards" and the recent Frontline tried to implicate the inventors of CDOs. About the only thing I've heard in their defense is a former economist for Freddie Mac who (perhaps in hindsight) felt management ignored the models that said subprime was a fiasco waiting to happen. It's probably a safe bet to say that management likes models when the models say they'll profit, and ignore them when the models predict long term losses.

Really, I think it's the "AAA would buy from again!!! +++" ratings agencies that bear far more scrutiny than they've been given thus far. A mortgaged back security and CDO isn't all that dangerous until that rubber stamp is applied.

Also, if we can pin this on technical traders, I'd be happy to see them go away forever.
posted by pwnguin at 1:39 PM on March 10 [2 favorites has favorites]

They didn't "try to outsmart Wall Street." Wall Street hired them to do risk modeling, then made shitty decisions with the information. That's one of the worst headline-to-content mismatches I've seen in a while.
posted by verb at 1:41 PM on March 10 [3 favorites has favorites]

Nothing wrong with the attempt to model, is there? But it seems like economic theorists come in only two basic flavors: those for whom the markets are forces of nature, not to be messed with, but to be ridden as surfers, and those to whom they are an intricate machine, to be tinkered with (Keyensian, I guess). These probably tend to fall into the latter group. Shouldn't they at least lend an ear to social psychologists? Social psychology is not in a terrific state, but guess who made these markets? Who drives them? Whose irrationality fuels the whole monster?
posted by stonepharisee at 1:41 PM on March 10 [1 favorite has favorites]

They make a lot of money but not as much as the traders who tease them and treat them like geeks.

There is something disturbing and obscene about hearing incredibly rich people behaving in this manner.

It's obscene to hear about anyone over the age of 14 behaving in this manner.
posted by orville sash at 1:41 PM on March 10

God what a shit article.

Could you be more specific? All you've told us is that you didn't like it.
posted by Joe Beese at 1:42 PM on March 10

Somehow I doubt that there exists an advanced-enough form of quantum math that could even hope to adequately describe, let alone predict, the extremes that human greed is capable of attaining.
posted by Thorzdad at 1:50 PM on March 10

These things are symptoms of a deeper malaise: money that was too cheap and provided in too much quantity after the stock market crash of 2000, which was itself caused by money that was too cheap and provided in too much quantity after the LTCM failure.

If these people hadn't had their models, the money would have gone into something else instead. Yes, their mistaking models for reality was dangerous, but SOMETHING equally catastrophic would have happened even if they didn't exist. Maybe it wouldn't have been real estate; maybe it would have been oil or alternative energy or high-priced art. It might even have been houses, just with a little different regime in how the money was managed. Liquidity seeks inflation, and pumping liquidity into an inflation-ridden system makes bubbles, quants or no quants. (and I'm talking real inflation, house prices going up 20% a year, not the bullshit massaged CPI numbers that have no bearing on reality.)

All of this starts and ends with the Fed; they could have stopped the bubbles in their tracks, overnight, but chose not to. Instead, they cheerled, and gave these guys all the rope they wanted. Without the endless gusher of liquidity, these guys wouldn't have been able to do nearly as much damage.
posted by Malor at 1:59 PM on March 10 [4 favorites has favorites]

The traders don't tease them - they just take the quant output as a little less factual than the quants would like them to. None of what has happened is down to the quants, or in truth the traders - most traders saw the house of cards for what it was.

It was the traders assumptions that broke the system, but making other assumptions got you fired. Markets tend to assume everybody is acting rationally - which is why we get such bubbles - everybody makes their next assumption on the basis that the last one was correct -- result, a house of cards.

Thefailure of a simple assumption; that house/commercial real estate prices would continue going up or at worst fall by 4%/pa is what broke the system. The failure of a second simple assumption; that credit/leverage would continue to be available sent the system into shock.

There is no need for derivative greeks or quantum math correlation failures to get us here. Just uncontrolled risk taking.

Assume and you make and ass out of u and me
The market can remain irrational longer that you can remain solvent

Many of the rank and file (the ones whose names you don't know, aren't in the news, and are losing their jobs) raised issues with what was being done. This crises lies firmly at the feed of the banking management, the regulators and the governments - all of whom valued growth over stability.

It's scary to think that the climate change agenda has gone up in smoke as a result of this, because to me, that stinks of the same kind of thinking - and we'll be a little worse of than not being able to afford an iphone this year.
posted by fistynuts at 2:10 PM on March 10

Reminds me a little of a short play I read last night from Dürrenmatt: "Die Physiker (The Physicists)"
posted by syzygy at 2:35 PM on March 10

Not to be confused with squant or squant.
posted by infinitewindow at 3:36 PM on March 10

This is like blaming Einstein for atomic weapons.

Its fun to revile others though. It makes me feel all warm inside.

Uh, no it's more like blaming Oppenheimer and Teller for atomic weapons.
posted by delmoi at 3:38 PM on March 10

There is something disturbing and obscene about hearing incredibly rich people behaving in this manner.

There is something totally unsurprising about hearing incredibly rich people behaving in this manner. Contrary to the Big Lies that much of what we laughingly call Capitalism is based on, The Rich are not better than us. In fact, if there were good ways of quantifying maturity, honor, honesty and other positive personality traits, the group at the very top would fare no better than those at the other end.
posted by wendell at 4:00 PM on March 10

The Rich are not better than us

The rich are very different from you and me. They have more money.
posted by dersins at 4:21 PM on March 10

the Fed; they could have stopped the bubbles in their tracks, overnight, but chose not to. Instead, they cheerled, and gave these guys all the rope they wanted.

Wait, what?

What action (inaction) of the Fed are you talking about?

Greenspan was concerned about the "wealth effect" of paper profits causing crazed consumer spending and raised the rates before the dot-com bubble burst. The Federal Funds rate was 6.5% in mid 2000. It was dropped after the burst but raised again to a high of 5.25 in mid-2006 when sub-prime was entering the lexicon.

Greenspan was worried more about inflation than over-leveraged banks, but what should the Federal Reserve (or were you talking about the USFedGovt in general) have done?

My simplistic view is that there was too much money on the top & too much demand on the bottom. Money to lend available because T-bills were paying shit & demand because "upgrading" every two years when the first US$1/2 million profit of selling a primary residence is tax free and the interest is tax free means and not taking advantage of that in a rising market looks like leaving money on the table.

The trick was matching that supply which was risk-averse to the risky demand though Mortgage-Backed Securities and all the derivative bullshit which either hid or hedged the risk depending on who you believe.
posted by morganw at 4:35 PM on March 10

There was a much more disturbing interview with a physics quant on one of the "This American Life" programs about the economic disaster. He seemed to think it was really cool to have invented this little bit of financial legedermain and completely irresponsible about the consequences. It was still just some code he was really proud of. I could almost hear him giggling about it. Ha ha. Keep them penned up in academia, and don't let them out into the real world.
posted by cogneuro at 4:41 PM on March 10

Hedge funds to cut 20,000 jobs in 2009

Transcript of Interview with Tim Geithner on Charlie Rose Show Tonight

Nationalize? Hey, Not So Fast

Where has the U.S. bailout money gone?

Fed Eliminates Compensation Limits for TALF Program

Subsidizing failure
posted by ornate insect at 5:23 PM on March 10

I did some reading on CNBC and Jim Cramer and the various crooks and charlatans that drove the hedge fund industry.

I'm tending to blame them a whole lot. Friggin' Cramer boasts about breaking the law to turn his profits.

Not one of them will suffer any consequence. It is to cry.
posted by five fresh fish at 5:27 PM on March 10

“It’s not like building a bridge. If you’re right more than half the time you’re winning the game.”

Au contraire, It's exactly like building a bridge. All you need is one collapse to discredit your techniques and bankrupt your company.
posted by justsomebodythatyouusedtoknow at 5:27 PM on March 10

I suspect that while the rest of us are pointing fingers trying to determine who was responsible for the financial meltdown, the next cabal of never to be known predators are getting unimaginably wealthy on bailout funds.
posted by digsrus at 7:58 PM on March 10 [2 favorites has favorites]

There is something disturbing and obscene about hearing incredibly rich people behaving in this manner.

Meet car salesmen, or more generally, meet any salesmen. Most of the lack the scientific background of math phd and engineers, but they do have something to teach you about people. Some of them, most of them maybe, don't even care about the good they are selling you , it could be arms or plutonium as long as there's a gain for them.

Yet they are not the problem, they exploit a system that allows too much irresponsability.
posted by elpapacito at 12:40 AM on March 11

3fs Could you cite something for your tortious assertion re Cramer?
posted by sfts2 at 6:37 AM on March 11

morganw: The Fed could've raised rates. Period. It kept 'em way too low, way too long -- essentially flooding the market with cheap money (your 'too much at the top' problem), which encouraged people to invest in pretty much whatever. It also made mortgages cheap and inflated the housing bubble.

And I know it's popular to blame Bush et. al. for all this, but deregulation of derivatives began under Clinton.
posted by janet lynn at 7:40 AM on March 11

sfts2. Hell, just Google "Jim Cramer Lie" and enjoy the reading.
posted by five fresh fish at 7:56 AM on March 11

This article seems to be suggesting they're a bunch of useless, er, quants.
posted by MuffinMan at 8:52 AM on March 11

deregulation of derivatives began under Clinton

janet lynn : I know its cool not to like derivatives ever since Warren Buffet said so, and the man does have a point but mortgage backed securities have been around since the days of Liar's Poker and this goes all the way back to the AMTPA in 1982.

Back, when OMG!!!! - a republican was in control

That last bit was just for lols, but shame he didn't just stick to star wars
posted by fistynuts at 11:29 AM on March 11