The End of Wall Street's Boom, by Michael Lewis

[NattyLight]

Article

If anyone's bored and is into financial mumbojumbo, this article is compelling. It will take a hot minute to read, but goddamn it's really something.

Let me know what you think.

[The Sisko]

Are you sure that's the right link? I'm into that "financial mumbojumbo" and would love to read it.

**Edit**Nevermind, the link works. I was just getting redirected to their mobile phone site.

[HOF44]

Long, but damn good article. I think I've found who I want to do over site on this recovery crap. Wonder if he'd help his country out.

[NattyLight]

Long, but damn good article. I think I've found who I want to do over site on this recovery crap. Wonder if he'd help his country out.

I don't know if he has the power to, but if he did, I bet you he'd give it all he got.

He seems to really get how the investments of the average American people should be the backbone of the greatest country in the world, but the inherent fault of human greed tends to overshadow idealism.

And I'll admit. I'm stupid with this stuff, so I'm going to have to read it again.

[HOF44]

Man I'm kind of surprised this article garnered such little attention. It's one of the best I have read on this debacle. Just facts, no political BS.

[A Walton]

I read this yesterday, it is a must read for anyone looking for a little knowledge into the meltdown from an insider. Entertaining as well.

[Koolblue13]

Something for nothing, it never loses it's charm.

[Tulane Skins Fan]

Good article, and I don't really understand a lot of that stuff.

I do rememer one time, my brother telling me about the interest only loan he had on his house. And he was like, "see, in five years, the value of your house goes up, and you sell the house and get a new loan." I was like, "what happens when everyone wants to sell their house five years from now?" And he was like "there will always be buyers." Oh really??

[SkinsHokieFan]

Great great article

I only wish I had the money and ability in 2005 to make money off this mess. I knew something was amiss when my painters were buying houses worth more then my parents, yet I paid them 20k a year

[The 12th Commandment]

Great article!

Whose with me in thinking the 700billion or 2trillion or whatever, is just the powers that be milking us for that much more. I've lost any faith I had in WS (not just because of this article). What a bunch of criminals and worse they don't seem to have one bit of remorse.

iheartskins (yeah I know you're only a lawyer who does what ummm lawyers do), we haven't heard much from you on this whole mess, how does it look from the eyes of the only honest (because you're a skin fan right?) guy on the street?

[gbear]

That's a good read.

I can't help but think this is rampant. Almost 2 years ago now, I was going down the Grand Canyon in a group, and the most conversations I had were with a young PHD student at Harvard. He was very convinced in his models. I can't tell you how many times I asked him to go back to the actual data and see if it followed his predicitons. From my side, it rarely did.

When I directed him to some places where he could check his predictions against what had really happened, he was surprised and promised he would do so when we got back. For the last few days of our trip, he was asking me if I ever wanted to come teach because what I was saying was so different from what he was being taught. I laughed and told him nobody would want me with my credentials and I have no desire to spend time and money to get a sheet of paper for a job that pays less than what I make now. The irony to me was how he accepted everything he had been taught because his models told him that's how everything worked...and he was bright when it came to designing models and using them. Gee the models based on the theory bore out the theory. Seems kind of like the buying of C.D.O.s in the article. It works right up until reality bites and reality doesn't care too much for models.

Long story short, I can totally see how and believe the stories in that article. Few people actually understand what they are signing & selling on either side of the deal. Sadly, most of us think only 1 or 2 steps ahead. I think the asking for explanations in laymans terms is a great practice. It's easy to get smoke screaned by jargon.

[PeterMP]

Two things strike me here:

"That’s when Eisman finally got it. Here he’d been making these side bets with Goldman Sachs and Deutsche Bank on the fate of the BBB tranche without fully understanding why those firms were so eager to make the bets. Now he saw. There weren’t enough Americans with ****ty credit taking out loans to satisfy investors’ appetite for the end product. The firms used Eisman’s bet to synthesize more of them. Here, then, was the difference between fantasy finance and fantasy football: When a fantasy player drafts Peyton Manning, he doesn’t create a second Peyton Manning to inflate the league’s stats. But when Eisman bought a credit-default swap, he enabled Deutsche Bank to create another bond identical in every respect but one to the original. The only difference was that there was no actual homebuyer or borrower. The only assets backing the bonds were the side bets Eisman and others made with firms like Goldman Sachs. Eisman, in effect, was paying to Goldman the interest on a subprime mortgage. In fact, there was no mortgage at all. “They weren’t satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford,” Eisman says. “They were creating them out of whole cloth. One hundred times over! That’s why the losses are so much greater than the loans. But that’s when I realized they needed us to keep the machine running. I was like, This is allowed?”"

There it is in a nutshell.

Over all this reminds me of a collaboration I walked in on when taking a new job. It was a collaboration between essentially an applied mathematician w/ no biology background and a group of pretty much straight biologist that didn't like or do math/statistics/computer sciences. The project was over a year old (the biologist had conducted over a years of experiences) when I started. I didn't have some of the experience that I have now and wasn't even intimately involved so didn't spot the problems right away.

At the end, the biologist thought they had a top notch paper worthy of something like Science or Nature. I think the math guy knew that wasn't the truth, but let them go forward w/ trying to send it. This is about when I really got involved. It became clear to me it wasn't that important and was only really borderline publishable. We ended up putting it in a much less impressive journal, but needless to say the biologist weren't happy about having a year plus work turn into something and only getting one unimpressive paper out of it.

I think the math guy always understood it wasn't that big a deal and probably wouldn't get into Nature and Science, but I don't know, maybe, he didn't and assumed the biological implications were much more significant than they were. The biologist certainly assumed that the math was much more significant than they thought.

In the end though, it reminds me of this:

"Both Daniel and Moses enjoyed, immensely, working with Steve Eisman. He put a fine point on the absurdity they saw everywhere around them. “Steve’s fun to take to any Wall Street meeting,” Daniel says. “Because he’ll say ‘Explain that to me’ 30 different times. Or ‘Could you explain that more, in English?’ Because once you do that, there’s a few things you learn. For a start, you figure out if they even know what they’re talking about. And a lot of times, they don’t!”"

Especially because I know from reading other things that it was a physicst that originally had the idea of breaking the mortgages up into securities and selling them. My guess is that most of the business people didn't understand what was going on, and its possible that the physicist that designed the scheme didn't understand all of the underlying business issues (e.g. the idea of shorting and selling insurance on the securities). If you'd asked the math guy or the biologists to explain what was really going on in the collaboration, none of them would have been able to explain all of it to any great degree. The math guy would have been good w/ the math, but not the bio, and the bio people find w/ the bio, but not the math.

[The 12th Commandment]

Especially because I know from reading other things that it was a physicst that originally had the idea of breaking the mortgages up into securities and selling them. My guess is that most of the business people didn't understand what was going on, and its possible that the physicist that designed the scheme didn't understand all of the underlying business issues (e.g. the idea of shorting and selling insurance on the securities). If you'd asked the math guy or the biologists to explain what was really going on in the collaboration, none of them would have been able to explain all of it to any great degree. The math guy would have been good w/ the math, but not the bio, and the bio people find w/ the math, but not the math.

The conspiracy theorist in me wants to know who's perpetuating this divide and conquer? I want to see (other than the Eismann's of the world) who is making money from this mess?

[PeterMP]

The conspiracy theorist in me wants to know who's perpetuating this divide and conquer? I want to see (other than the Eismann's of the world) who is making money from this mess?

Didn't we have this discussion before?

It doesn't require divide and conquer. All it requires is people that aren't careful enough to ask enough questions. This is especially true across disciplines where people in the other discipline have assumed that they've explained the problem/solution adequately.

In my example, one thing that happened was the biologist were interested in looking if you considered a large number of related, but slightly different treatments how would some subset be related to the larger set of treatments. The math guy, to determine this, wanted some of the same treatments done on different days with different combinations of other treatments to test the math. The end result is he generated, with a random component, lists of treatments he wanted done in different combinations (i.e. on different days). It turned out that his lists didn't include every possible treatment from the larger set, but in fact required more work than just doing every possible treatment (because of the replication that resulted in doing things in different combinations). His lists COULD HAVE included every possible treatment though w/o requiring more work (for the biologist- it would have been a little more work for him).

In the end, it was decided (this is about when I really got involved) that it would be nice to have some data about every possible treatment so despite having done more work than would have been required to do every possible treatment the biologist went back and did even more work to produce data for every possible treatment in the larger set. They weren't happy.

Now, it was really nobody's fault. Nobody just bothered to take into the whole picture. The biologist knew how many treatments there were in the total set, they knew they were being asked to do things w/ some duplication (beyond just for error), and knew that the number was greater than the total number of treatments, but never checked to determine if that the sets they were doing actually included every treatment. The math guy certainly never guaranteed that the sets he was asking them to do included every treatment in the larger set, and since he wasn't actually doing the biology experiments probably never gave it much thought, and probably wouldn't have thought the work to generate sets so that every treatment was done in a manner that still gave him the combinations of treatments that he wanted was worth his effort.

The amazing this is that I'm now gone (and so are most of the people that were actually doing the work), but the two head people are still collaborating.

[Koolblue13]

I have a great (and long) pdf I would like to post about Strauss and Howe and I don't know how to do it. Any help?

[PeterMP]

I have a great (and long) pdf I would like to post about Strauss and Howe and I don't know how to do it. Any help?

Is it on the web somewhere? Does it have a title? Do a google search and see if you can find where it's already posted and then put the link up.

[The 12th Commandment]

Didn't we have this discussion before?

I don't think it was me. Excepting when I'm running a fever, which I am, I don't get too involved in these threads because I really don't understand finance.

Appreciate your response though. And I'll be asking questions, rest assured.

You could also scan it KB.

[zoony]

Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. Why bother to overturn your parents’ world when you can buy it, slice it up into tranches, and sell off the pieces?

I said as much in another thread a few months back.

This nations' MBA programs and Law Schools are a joke. Students are taught how to make money, not how to add value to the economy or run a business.

[Predicto]

I said as much in another thread a few months back.

This nations' MBA programs and Law Schools are a joke. Students are taught how to make money, not how to add value to the economy or run a business.

I wish Law School taught you how to make money. Mostly it teaches you a zillion dry principles of law that were developed in 1836 and are rarely applied today.

And how to avoid answering questions directly. And how to think of more questions to ask.

[Koolblue13]

Is it on the web somewhere? Does it have a title? Do a google search and see if you can find where it's already posted and then put the link up.

Good call.:doh: <--me.

Anyway, it's a free down loadable book by James Goulding about the writings of Howe and Strauss. It's called Winter is Coming.

S&H have basically been predicting everything that has happened with a spooky amount of success and they did it in 97'.

I would suggest if you have the time, to download this and enjoy the read. It's basically a cliff note of their books.

http://www.jamesgoulding.com/wic.htm

[zoony]

I wish Law School taught you how to make money. Mostly it teaches you a zillion dry principles of law that were developed in 1836 and are rarely applied today.

And how to avoid answering questions directly. And how to think of more questions to ask.

The comment might be a bit harsh, in that it sounds like I'm affixing blame entirely on education. Or that I think folks who have MBAs or Law Degrees aren't legitamite, etc. I don't mean to imply that-

What IS ABUNDANTLY clear, however, is that this nation is graduating financial piranhas at an astounding rate, almost all of who hold an MBA or a Law Degree, or both.

Not interested in making the pie or adding to it, but taking their piece. Guess who pays in the end for their behavior? We do.

It should be renamed from Masters of Business Administration--- to maybe "Masters of Making Money"- or something similar.

.....

[PeterMP]

The comment might be a bit harsh, in that it sounds like I'm affixing blame entirely on education. Or that I think folks who have MBAs or Law Degrees aren't legitamite, etc. I don't mean to imply that-

What IS ABUNDANTLY clear, however, is that this nation is graduating financial piranhas at an astounding rate, almost all of who hold an MBA or a Law Degree, or both.

Not interested in making the pie or adding to it, but taking their piece. Guess who pays in the end for their behavior? We do.

It should be renamed from Masters of Business Administration--- to maybe "Masters of Making Money"- or something similar.

.....

I was going to comment on your previous post, but I think this is right. People getting an MBA are paying alot to learn how to make money. I don't blame schools for teaching them how to make money in the context of the current system.

We, as a country (and even global society), need to change the system so that more of the money goes to people that actually do things that increase/add the value of things instead of those that move money around.

MBA schools will then adjust what they teach.

[PeterMP]

The other thing that strikes me here is that this essentially an industry wide-mistake (yes, I guess some people didn't do it, but those appear to have been the much smaller companies/individuals to the point they weren't a significant part of the banking/investment industry). I think this is becoming more common accross the board w/ globalization/bigger companies.

It's also good to keep in mind that sometimes when most other people are zigging it's good to zag.