On Wall Street, they were all known as "quants," traders and financial engineers who used brain-twisting math and superpowered computers to pluck billions in fleeting dollars out of the market. Instead of looking at individual companies and their performance, management and competitors, they use math formulas to make bets on which stocks were going up or down. By the early 2000s, such tech-savvy investors had come to dominate Wall Street, helped by theoretical breakthroughs in the application of mathematics to financial markets, advances that had earned their discoverers several shelves of Nobel Prizes.Regarding the management teams that supervised these "quants," Peterson is mute. I tend to take the alternative view that management is responsbile for everything that happens or fails to happen within their domains. My question for the investment managers and policy makers is simply, "How could you be so dumb as to let your trading staffs run over you?" I tend to point the finger directly at the investment policies and greed of the investment managers and other senior executives rather than the traders. After all, the public can hardly hold staff traders responsibile for the devastating loses that ensued. The executive management teams of these investment institutions have a lot to answer for from my perspective. The minds behind the meltdown sit amongst the policy makers - not the traders.
Sunday, January 24, 2010
The Minds Behind the Meltdown
In an effort to assign responsibility for the Wall Street financial meltdown that began in 2007, Scott Peterson (2010) makes the case that "quants" were the demons that somehow misled investment managers and the public:
Posted by William McKibbin