11 Replies to “Deadly Mathematics”

  1. The truth is that a very select few fully understand how derivatives work. Yet, it was supposedly all those oh-so-much-smarter-than-us hedge fund managers (who also didn’t understand how they worked) that got people invest in them. And how they got Washington to agree that only smart people invested their money in them so there was no need to regulate them.

    I laughed a hearty laugh back when oh-so-clever Orange County California (a place I used to live in) went broke on them in 1994. Not only that, but derivatives played a prominent role in the S&L crisis that happened back in the late 80’s/early 90’s. Basically a lot of rich people gambled depositor’s money on derivatives, lost and then wanted their money back.

  2. I’ll have to read this later. I need to time to prepare myself to confront the magical math of economics that always looks brilliant until it’s acknowledged that it’s utter nonsense.

  3. The key to managing a derivatives portfolio is to avoid being the last man holding the bag. For when the fund is not longer marketable, and you open it up to see whats you got, you find out it is a steaming bag of dung.

    Oldest game in the world.

  4. The key to managing a derivatives portfolio is to avoid being the last man holding the bag.
    You make it sound like a pyramid scheme…

  5. I need to time to prepare myself to confront the magical math of economics that always looks brilliant until it’s acknowledged that it’s utter nonsense.

    That’s why I like Austrian economics. They have fully admitted for decades that mathematical models for economics are nearly impossible because they focus on individual human action, rather than grand things like GDP. Ludwig Von Mises states quite honestly that due to the large element of human action and desire in economics, it is far more of an art than a science anyway.

  7. That’s why I like Austrian economics.

    At this juncture, I don’t think there’s any point in supporting any economic schools of thought. I’ve come to believe that economics is just like organised religion….institutions more successful at imposing orthodoxies and punishing heretics than they are at explaining anything and rewarding only to the priestly class that operates within them. They also represent vocations that seem to be immune to the consequences of their own actions.

    Bah.

  10. Interesting article, thanks for this.

    John Hull of U of T and derivatives academia fame was a strong proponent of the copula.

    In the meantime, Goldman Sachs is up $12 today?

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