Well, OK, “bad data” is a “smoking gun”
for why the regulators didn’t see it coming. One
question is why it looks like people are finding so very many different “smoking
guns” that show signs of having been just used to shoot ourselves in the
foot.
The common thread for me is our deeply mistaken common purpose
and ‘standard practice’. Everyone’s objective was
to offer, promise and insure the stability of continual multiplying returns.
The big bit of “bad data” that spoils that is that the physical system
that was needed to support that endless financial multiplication, was showing emerging
diminishing returns…
The data was actually plentiful, though, hidden only by the
people who didn’t see the question!
Phil Henshaw
From: [hidden email]
[mailto:[hidden email]] On Behalf Of peter
Sent: Friday, October 24, 2008 7:20 PM
To: The Friday Morning Applied Complexity Coffee Group
Subject: [FRIAM] Greenspan - Bad data hurt Wall Street computer models -
NYTimes.com
http://www.nytimes.com/external/idg/2008/10/23/23idg-Greenspan-Bad.html?scp=2&sq=greenspan%20tsunami%20models&st=cse
The two most fascinating paragraphs are below / its also fun to note the
federal sentencing guidelines now take into account the financial impact amount
of fraud which means our merry Quants could be doing multi lifetimes in the
pokey
But at a hearing
held today by the House Committee on Oversight and Government Reform, Greenspan
acknowledged that the data fed into financial systems was often a case of garbage-in, garbage-out.
Business decisions by financial services firms were based on "the best
insights of mathematicians and finance experts, supported by major advances in
computer and communications technology," Greenspan told the committee.
"The whole intellectual edifice, however, collapsed in the summer of last
year because the data inputted into the risk management models generally covered only the past two
decades a period of euphoria."
He added that if the risk models also had been built to include "historic
periods of stress, capital requirements would have been much higher and the
financial world would be in far better shape today, in my judgment."
It was unclear from Cox's testimony just what sort of regulatory changes
he was suggesting. But he said that the SEC is now engaged in "aggressive law enforcement
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