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Black Swan Theory
Posted on 9/30/08 at 8:38 am
Posted on 9/30/08 at 8:38 am
This is what is happening...no one involved in this (from the design side) has any historical perspective or model to rely on and any successes will be truly unique.
LINK
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Posted on 9/30/08 at 8:39 am to geauxgiacomo
over my head.
Posted on 9/30/08 at 8:39 am to geauxgiacomo
quote:
giacomo
seriously?
oh, and I find your subsequent narrative of these events to be quite amusing.
This post was edited on 9/30/08 at 8:41 am
Posted on 9/30/08 at 8:41 am to Putty
So you have seen this before and have a solution?
Posted on 9/30/08 at 8:43 am to geauxgiacomo
ordered the book sunday on half.com!
Posted on 9/30/08 at 8:43 am to morgcl
I would agree, except that this was expected by many, Black Swans are supposed to be unpredictable (or close to it)
Posted on 9/30/08 at 8:45 am to Tigahs
Given some historical perspective I think the theory still fits...this may have been predictable last week, but not last year.
Posted on 9/30/08 at 8:45 am to geauxgiacomo
quote:
So you have seen this before and have a solution?
well you chose a character from the book as your username so I take it you've read it...go back and read the chapter about the human need to provide a historical narrative...your "this is what is happening" is exactly that.
This post was edited on 9/30/08 at 8:48 am
Posted on 9/30/08 at 8:48 am to geauxgiacomo
there have been articles, books, hearings and press conferences predicting the market failure for the last 8 years. This isnt a black swan, this is the inevitability of stupidity
Posted on 9/30/08 at 8:56 am to Putty
The name is not from the book, but I did read it and I agree with your perspective, but it is kind of difficult to bring up a topic without comment..."Taleb's claim is that almost all consequential events in history come from the unexpected—while humans convince themselves that these events are explainable in hindsight (bias). This stems from the assumption that the unexpected can be predicted by extrapolating from variations in statistics based on past observations, especially when these statistics are assumed to represent samples from a bell curve."
Posted on 9/30/08 at 9:04 am to geauxgiacomo
this event is not unexpected, it has been accurately predicted for years
Posted on 9/30/08 at 9:06 am to geauxgiacomo
bullshite.
It was predictable 5 years ago when the relaxed lending standards Fannie and Freddie put in place started getting pushed to the max.
You want a list of who is at fault in this mess?
Go pull the courthouse foreclosure records the last 18 months and look at the "borrower" line.
It was predictable 5 years ago when the relaxed lending standards Fannie and Freddie put in place started getting pushed to the max.
You want a list of who is at fault in this mess?
Go pull the courthouse foreclosure records the last 18 months and look at the "borrower" line.
Posted on 9/30/08 at 9:09 am to supatigah
Explain accurate to me? Do you mean that it was predicted to happen in the future or in late September of 2008? There is a distinct difference. While I agree that people have said that the sub-prime mortgage market will have a negative impact on the economy as a whole, no one I listen to or read predicted anything of this magnitude.
Posted on 9/30/08 at 9:11 am to Tigahs
quote:
except that this was expected by many, Black Swans are supposed to be unpredictable
+1.
This is not a black swan.
ETA: however, it is very closely related to Taleb's criticism if using gaussian probability to model non-gaussian events.
This post was edited on 9/30/08 at 9:12 am
Posted on 9/30/08 at 9:11 am to Meauxjeaux
quote:
Go pull the courthouse foreclosure records the last 18 months and look at the "borrower" line.
somebody had to still loan them the money
and more importantly, somebody had to insure against the loss, and somebody traded both the mortgage (in security form) and the insurance contract. and somebody had to rate these as good investments
Posted on 9/30/08 at 9:32 am to SlowFlowPro
quote:
somebody had to still loan them the money
Well you are more right than you know here.
The key word being HAD to lend them money.
If you are a lending institution and a "qualified" borrower walked in the door and applied, you faced MASSIVE civil penalty if you did not lend the borrower the money.
The qualification guidelines are set by Fannie and Freddie.
So, the banker was essentially hog-tied to do the loan.
When F&F relaxed the guidelines so that low-doc, no-doc, low down, no down and ability to repay decisions became a free-for-all, the resultant eventual problems were set in motion and had nowhere to go but to failure.
Posted on 9/30/08 at 9:38 am to Meauxjeaux
quote:
The key word being HAD to lend them money.
If you are a lending institution and a "qualified" borrower walked in the door and applied, you faced MASSIVE civil penalty if you did not lend the borrower the money.
The qualification guidelines are set by Fannie and Freddie.
So, the banker was essentially hog-tied to do the loan.
this was only true insofar as the capital was available to loan. This stupidity about the CRE is a massive red herring.
THE MONEY WAS LOANED BECAUSE THE MONEY WAS THERE TO LOAN.
As long as global capital was flowing into the U.S. mortgage market, they were going to find someone to loan it to. The problem WAS NOT that the loans were forced. The problem was that global capital was being told that U.S. mortgage paper was as safe as frickING U.S. SOVEREIGN DEBT. If I tell you that you can get an extra 1% interest on your investment, and it's just as safe as a freaking treasury bill, you'd invest in it too.
THIS IS ALL ABOUT THE RATINGS SYSTEM.
Posted on 9/30/08 at 9:43 am to Colonel Hapablap
quote:
The problem was that global capital was being told that U.S. mortgage paper was as safe as frickING U.S. SOVEREIGN DEBT.
And why was this the case? Because liberal Democrats who were in the pockets of Fannie & Freddie intentionally allowed them to dominate the mortgage market with accounting practices that were known to be fraudulent. Money was continually shoveled to them so that political support would come back the the big wigs in Congress. Everybody else joined in the game, because there were huge profits to be made from government largesse.
The cause of the bubble was not excess global liquidity. The cause of the bubble was a belief that a steady stream of new money would keep coming into the mortgage market from Congress, such that it couldn't possibly fail because it was nothing but a gigantic pet project.
Posted on 9/30/08 at 9:55 am to Doc Fenton
quote:
And why was this the case? Because liberal Democrats who were in the pockets of Fannie & Freddie intentionally allowed them to dominate the mortgage market with accounting practices that were known to be fraudulent.
huh? No, it was because oversight of the ratings agencies was basically non-existent. They had DIFFERENT RATINGS SCALES for government debt, corporate debt, and mortgage debt. I.e., mortgage AAA is only about as safe as government BBB. There were conflicts of interest all over the place. If S&P didn't give you the rating that you wanted, you'd get Moody's and Fitch to look at it, and you'd give the business to whoever gave you the best rating. It was a massive circle-jerk of raters rubber stamping each other and competing to see who could give the best blowjob to the investment banks.
Posted on 9/30/08 at 10:02 am to Colonel Hapablap
Col, I agree, bit it started with Fannie and Freddie.
Everyone said because Fannie backed the A paper, it was golden.
Then Fannie backed the Alt-A paper and it, too, was golden.
Then Fannie and Freddie had this "other stuff" and it may not have been "golden" but, but hey, we're getting 3 points on the front end and .75 rate premium and it's pretty golden, because Fannie says so and we still don't need skin in the game from the borrower because Fannie said they'll back it.
From there the shite was rated wrong.
From there it was tranched and sold.
Affordable housing turns out to be not quite so affordable.
Everyone said because Fannie backed the A paper, it was golden.
Then Fannie backed the Alt-A paper and it, too, was golden.
Then Fannie and Freddie had this "other stuff" and it may not have been "golden" but, but hey, we're getting 3 points on the front end and .75 rate premium and it's pretty golden, because Fannie says so and we still don't need skin in the game from the borrower because Fannie said they'll back it.
From there the shite was rated wrong.
From there it was tranched and sold.
Affordable housing turns out to be not quite so affordable.
This post was edited on 9/30/08 at 10:04 am
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