Comments on: Greed vs. Stupidity

By: ClintJCL

ClintJCL — Fri, 03 Apr 2009 22:19:53 +0000

I didn’t finish read this, but I do want to post a disagreement with one part of this:

“One of my guiding principles is never blame on malice what can be blamed on stupidity.”

That’s a dangerous guiding principle.

By: South Park On How Banks Get A Bailout | Prose Before Hos

South Park On How Banks Get A Bailout | Prose Before Hos — Fri, 03 Apr 2009 20:45:01 +0000

[...] the Fed, Treasury Trying to Defend Bank Gaming of Public-Private Partnership, More Rebranding, Greed vs. Stupidity, Bush admin role in AIG? Don’t say I did not tell you so…, and Keep the Wolf at the [...]

By: kranky kritter

kranky kritter — Fri, 03 Apr 2009 19:55:37 +0000

Hmm, part of your hypothesis seems to be that we will be more successful trying to make people less stupid than trying to make them less greedy. I’ll have to think about that one for awhile. But I can’t help but worry that smarter people will be more greedy on average, blunting whatever net positive effect we mgith have hoped for. :-)

I am also a firm believer in positing ignorance before malice. At the same time, I feel pretty strongly that in this instance there must have been many actors aware of both the various unsustainable trends underlying things and the likely fact that the risk they were offloading on others was potentially far greater than advertised. Whether such folks were smart folks who decided not to care or dumb folks who decided not to worry does not seem especially material. But it does seem apparent that there was plenty of not caring, because there are lots of folks out there who made a ton of money and who are as of today still way ahead even counting fractional losses in the last year.

It’s not realistic to me to think that any reasonably intelligent person involved in these escapades could have failed to notice that the entire market (from high prices to bad mortgages to risky packages to fraudulent ratings) was ultimately built on the impossible premise that RE prices could continue to indefinitely grow 2 or 3 times as quickly as average American income.

So the most parsimonious explanation to me is that such folks were simply making too much money to consider seriously worrying about it. That sounds like greed to me.

I recall one moment in the CNBC doc House of Cards vividly. The narrator asked one of the insiders how much blame he felt. And it seemed pretty clear to me that the notion was a pretty novel one to him. What I am seeing on the part of powerful finance insiders appears to be the economic equivalent of the Nuremburg defense.

By: Mike A

Mike A — Fri, 03 Apr 2009 19:48:18 +0000

“But when big events â€” like the rise of China â€” fundamentally altered the world economy, their tools were worse than useless.”

To J. Harden’s point, mathematical models are only as good as the assumptions used to develop them. Complex probability formulas incorrectly applied will yield incorrect results. I don’t think the point of the article was to state these people were “duh” stupid. I think the point is that smart people who apply models without taking into account changes in the underlying assumptions are behaving in a stupid manner.

By: ExiledIndependent

ExiledIndependent — Fri, 03 Apr 2009 19:10:52 +0000

Greedy and stupid. Dangerous combination.

By: Aaron

Aaron — Fri, 03 Apr 2009 18:26:45 +0000

Thanks for taking the time to look at the root causes of this whole mess, instead of just the symptoms. This was very useful for understanding things.

By: J. Harden

J. Harden — Fri, 03 Apr 2009 17:49:32 +0000

It was the GCF: “Gaussian copula function” — obviously what we need is more transparency when using the bivariate normal risk distrubition via Sklar’s theorem. Freak’in retards! — my dog could have figured out that to remove consideration of many different marginal risk distributions by transforming the marginal variates to uniforms, and then specifying dependence as a multivariate distribution on the uniforms — is about the DUMBEST thing you can do.

Or it could have just been greedy mortgage brokers, I’m not sure.