This crisis proved that Business Schools and Finance Universities are worthless?

[Charlie_Sheen]

Quote from fhl:

no, they had models which were wrong

it is the millions of citizens who bought homes that can no longer pay their mortgages who completely ignored risk management


why is it that when a bank blows up everyone seems to think that they are idiots and rogues, but when a household blows up ( that is what you would call it when they can't pay their mortgage, isn't it?) they are a victim?

Before you let the bank's top mgt. off of the "idiot" hook because of their "models" - you may want to read ( or re-read ) the info re: the rating agencies.

1. the role the rating agencies played in continuing to rate this stuff AAA seeing how the loan approval environment was "radically changing" ( which means the models needed to be changed ) is critical. The street had tons of quants ( not MBAs - actually quantitative PhDs ) who should have known that once the environment changes, the model must change.

2. How could top mgt. not see the huge increase in subprime securitization and not ask "how is this happening?" Back to point one - realizing "no-doc" loans are playing a major part , is it "wise" to be levered 20 or 30 to 1 ?

3. Why can't some members of the bank's top mgt. AND certain members of the home buying bubble (like the flippers) both considered idiots?


This change in environment issue is potentially happening to us right now. Rumblings about changing the "uptick rule." If you have an automated model that assumes no uptick rule - you may have to change your model.

 

[fhl]

Quote from Charlie_Sheen:

Before you let the bank's top mgt. off of the "idiot" hook because of their "models" - you may want to read ( or re-read ) the info re: the rating agencies.

1. the role the rating agencies played in continuing to rate this stuff AAA seeing how the loan approval environment was "radically changing" ( which means the models needed to be changed ) is critical. The street had tons of quants ( not MBAs - actually quantitative PhDs ) who should have known that once the environment changes, the model must change.

2. How could top mgt. not see the huge increase in subprime securitization and not ask "how is this happening?" Back to point one - realizing "no-doc" loans are playing a major part , is it "wise" to be levered 20 or 30 to 1 ?

3. Why can't some members of the bank's top mgt. AND certain members of the home buying bubble (like the flippers) both considered idiots?


This change in environment issue is potentially happening to us right now. Rumblings about changing the "uptick rule." If you have an automated model that assumes no uptick rule - you may have to change your model.

before you indict every top manager of every bank, maybe you could explain to me why millions of homeowners are considered victims when they didn't more carefully consider the "model" they were using to determine if they could pay their mortgage

 

[college_trad3r]

Quote from Cutten:

How is the latter false. The ONLY people predicting this crisis were traders, speculators, and a few economic forecasters. Politicians, businessmen, corporate employees, regulators, the man in the street - they were all asleep on the job. The only thing this crisis has proved is that most people are dumb and good traders are smarter at financial forecasting.

How does this prove traders provide better price discovery?

Anybody who aspires to become a trader must realize his job does not service a greater good, except his own.

 

[ScapGF]

Quote from Anaconda:

If you honestly believe that the heads of the banks simply ignored risk management and did not think correctly, then you are the idiot.

Of course they ignored risk management. It flies in the face of the essence of finance to think that over leveraging doesn't somehow increase risk exposure. They exposed themselves wayyyyyyy too much and that is a blatant violation of the most basic risk management.

Do you honestly think that the heads of these banks adhered to sound risk management???

 

[CaptainObvious]

The crisis we're in has absolutely nothing to do with education other than, if that is the only yardstick used to determine one's ability, education alone doesn't always tell the tale.
A lack of ethics, honest business practice, lack of humility, and a lack of simple common sense are at the root of this issue. Problem is, all of those attributes are hard to measure until it's too late. Hence the complete lack of trust we're now experiencing.

 

[Anaconda]

Quote from ScapGF:

Of course they ignored risk management. It flies in the face of the essence of finance to think that over leveraging doesn't somehow increase risk exposure. They exposed themselves wayyyyyyy too much and that is a blatant violation of the most basic risk management.

Do you honestly think that the heads of these banks adhered to sound risk management???

I can see you totally missed my point. You just don't get it.

Re-read my post a few times till something clicks.

 

[Charlie_Sheen]

Quote from fhl:

before you indict every top manager of every bank, maybe you could explain to me why millions of homeowners are considered victims when they didn't more carefully consider the "model" they were using to determine if they could pay their mortgage

I am not indicting every top manager of every bank. Hence the use of the word "some" and "certain" ( which means "not all" or "not every" ) in my third point.

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3. Why can't **some** members of the bank's top mgt. AND **certain** members of the home buying bubble (like the flippers) both considered idiots?

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Just kind of interesting since you seem to be a stickler for reading things "very closely."

Have a nice day.

 

[piezoe]

Quote from college_trad3r:

There are 2 things this crisis has made clear and that is that the following statements have been disproved:

Efficient Market Theory dictates the market is efficient

Traders provide better price discovery

Both FALSE

Just one small point. The efficient market theorem is merely a model that economists use until a better model is developed. Economists are under no delusion that their models are perfect. When better models are developed they will use them. Models don't dictate to reality, rather it is the other way round. Models are just that, models. They are not the real thing, and they are only more or less good depending on how accurately they mimic the behavior of the real phenomenon they model.

An analogy: quantum theory is a model for electrons, atoms, and molecules. It is not the same as electrons, atoms and molecules. It is only good to the extent that it correctly models the real behavior of real electrons, atoms and molecules. It will be discarded if a better model is found.

It would be more correct to refer to the "Efficient Market Theorem" as the "Efficient Market Hypothesis". It's a jumping off place for intellectual argument, if you will.

 

[ScapGF]

Quote from Anaconda:

I can see you totally missed my point. You just don't get it.

Re-read my post a few times till something clicks.

No, I got your point the first time around. It's basically like the a classic pump and dump mixed with a fat bailout. No big surprise there.

However, even small banks were acting this way. And last year over 25 banks failed and did NOT get bailout type funds. So how do you explain them? They don't fit into the case you are trying to make and they most certainly threw risk metrics out of the window.

 

[TraderZones]

Quote from crgarcia:

This crisis proved that Business Schools and Finance/Economy Universities are worthless?

This post proves only that crgarcia loves to start provocative threads and sit back to watch the tube to see ifanyone bites...

Find a more useful hobby, guy!