Thursday, November 26, 2009

Could Dubai be the trigger?

Warren Pollock points out that the real danger lies, not in Dubai possibly deciding to default on its sovereign debt, but in the credit default swaps surrounding the debt, which may magnify the problem by 10 - 100+ times. If some of these huge side bets are wild ones not adequately backed by the gamester's capital, off we go - and off Pollock goes, for his well-earned beer.

Incidentally, he gives a lovely description of a quantitative analyst: a schizophrenic with an IQ of 160 who belongs in a rubber room, but since he's working for a financial firm and "no-one understands him, what he's doing must be right". Only a brighter quant could spot his colleague's errors. Quis custodiet, eh?


James Higham said...

The trouble is that no one knows exactly where all the credit swaps are.

James Higham said...

Sackers, I've put up a post on Friday snippets and I'd appreciate your take on it - whether the economics is sound or not.

Paddington said...

There is a reason why the quantitative analysts are that way, and it's not schizophrenia as much as mild autism. They are mathematically-talented people whose skills are in abstraction. They don't care if they are dealing in futures, or fluid flow. The numbers and the equations are what matters.

Blaming them for our mess, as some are doing, is like balming a dog for running after a bitch in heat.

Sackerson said...

I merely appreciated the rudeness from an artistic point of view. Though there is the issue of how managers understand their experts.