Comments on: It’s Not Gambling If the Casino Has Access to the US Treasury

By: Ian Welsh

Ian Welsh — Mon, 29 Jun 2009 01:31:44 +0000

The outliers weren’t outliers.

By: BooRadley

BooRadley — Mon, 29 Jun 2009 01:26:10 +0000

Thanks masaccio.

By: PascoBill

PascoBill — Sun, 28 Jun 2009 22:56:48 +0000

Thanks for this article. Interesting points made. I would add something regarding risk and predictive models. One of the purposes of managing risk is that a given investor or trader doesn’t know what is going to happen. A good risk management strategy takes multiple possible outcomes into account. Yes, some risks can’t be managed (all-out war, collapse of currency or financial institutions, global plague). But that’s not what happened with the AIG’s and Bear-Stearn’s. They didn’t manage a normal bubble / bubble-burst event. Nor do home owners, in most cases (I know I don’t have a short position against the value of real estate). But I have a book on my shelf (”The Day the Bubble Bursts”, Olly Newland) written in 2004, about the upcoming end of the real estate bubble. However, the “financial elites” were only long real estate values. They didn’t hedge, nor manage the risk of prices dropping, at all. It had little or nothing to do with sophisticated models. From what I’ve heard, the model was based upon “real estate prices will continue to climb forever”, which would be a Black Swan, if it happened. Most, if not all financial trends end, at least in real terms, and risk management takes that into account.

By: DrZen

DrZen — Sun, 28 Jun 2009 22:29:56 +0000

An avalanche is a rare occurrence though. The problem with CDOs wasn’t so much the models but that issuers lied through their teeth about the mortgages they were packaging. If the loan tapes are ever examined, quite a few people are going to find themselves in jail.

By: wmd1961

wmd1961 — Sun, 28 Jun 2009 19:07:17 +0000

What’s cool about the Mandlebrot set is that it is just an quadratic equation being applied to points in the plane. For those inclined to this stuff Julia sets are more general, and help one understand the detailed theory behind the applet.

By: foothillsmike

foothillsmike — Sun, 28 Jun 2009 18:49:30 +0000

Why is congress banging their heads over paying for health care when these guys have defrauded us so thoroughly. It is time to have a transaction tax and to eliminate the tax deductability of all pay in excess of ???

By: Elliott

Elliott — Sun, 28 Jun 2009 18:39:52 +0000

you do realize my head exploded there, don’t you? *s*

By: Knut

Knut — Sun, 28 Jun 2009 18:38:01 +0000

What I don’t understand is why Congress doesn’t establish the bridge-builders model, which is to overbuild precisely to avoid Black Swans, and in admission that the models do not cover all the contingencies.

By: masaccio

masaccio — Sun, 28 Jun 2009 18:18:15 +0000

It is cool, isn’t it? What I love about the whole fractal thing is that it can be used to model a lot of interesting things from real life. I have a book with tons of equations that can be used to draw all sorts of things.

One interesting thing about the Mandelbrot set is that the way you generate it is to take points in a plane and apply an equation to them, and then put the result into the equation again, another iterative process. If the iteration converges to a single point, then you say that point is in the Mandelbrot Set. So one interesting thing is to plot the points being tested as the iteration goes on. It looks like fireworks.

By: marymccurnin

marymccurnin — Sun, 28 Jun 2009 18:14:14 +0000

I anticipate inflation so that the debts of the banks can be devalued.