Excessive and inappropriate reliance on mathematical models has led to...
1) October 1987 - crash caused by portfolio "insurance"
2) September 1998 - LTCM Collapse
3) October-December 2007 - Subprime CDO collapse
For guys that are supposed to be so smart, the quants sure do make the same stupid mistakes time and time again, don't they?
That, of course, is the enduring dilemma of the LTCM fiasco. These people who run the money world really aren't all that good.
ReplyDeleteJAMES K. GALBRAITH
Professor of Economics
University of Texas