On Friday there was a conference on the financial crisis. It was held at Columbia University. Some very good interviews came from Economists Stiglitz, Volcker, Phelps and Bhide.
Below is an interview with Economist Joseph Stiglitz clearly stating the United States is putting good money after bad money. This is a fact we, those insignificant regular folk, have been saying for some time. Stiglitz also reviews what should be done with insolvent banks, discussion of Treas. Sec. Geithner's stress test and why a stress test based on a bad model or wrong assumptions is a problem.
At the same conference, Economist Paul Volcker acknowledges the frightening overall global economic indicators occurring. This is no ordinary crisis, the mother of all financial crises.
At least Volcker is acknowledging the issues and also he poked fun at people believing financial systems follow normal distribution patterns. (He is referring to a Gaussian distribution system which is commonly used in probability models and of course is another bad math assumption/model flaw. The world is clearly not a bell curve in time).
Volcker also pokes fun at those conspiracy theorists who think the Federal Reserve is a serial killer psychopath. He then refers to business cycles and how these are inequalities and imbalances in the system which can become like standing waves (hey Volcker, here's some more physics fer ya!) and if not prescribing corresponding corrections...can become a tsunami.
While Volcker, a very funny guy, talks about financial engineers in a disparaging way, he finally acknowledges what one really had with these financial models and financial engineering. Truly these derivatives are a more glorified Enron accounting method siphoned through these structured financial instruments. The only real differences are these guys used advanced mathematics to cook the books.
An even more damning interview on handling toxic assets with Joseph Stiglitz:
Additional videos are Economist Edmund Phelps calling for a new type of bank in which loans, invests, promotes innovation in the business sector. I agree with this although I am not sure if he is talking about a new type of Venture Capital or revamping commercial banking. He says the financial sector has lost the know-how on how to invest in the business sector. That one I believe since the financial sector has seemingly been so active in preying upon the consumer and middle class.
Finally here is Amar Bhide, from the Columbia Business School, referring to derivatives and the insanity thereof. I question whether the probability models were precise at all, for packaging up a series of securities and claiming they will vary with probability p might be a completely incorrect model, say implying each entity is an independent event, or who knows!
I believe at this point we need all of the math geeks to obtain the specific models of these CDOs in question so we can all take a look and see if they suffer from bad math.
In other words do we have a bunch of mathematical voodoo and jargon thrown out there which actually, by the mathematics itself, is completely invalid?
Who knows but finding the mathematical models themselves....discussion of these derivatives structures by the mathematics...well, someone put a link in the comments or a paper title if you know where to find the models, equations and assumptions themselves. Even code at this point....just give me the formula, give me the formula!
So for now, let's just leave it at this:
Ya all know Black Jack, Craps, Poker and Roulette also have probability distributions and models right?