This is interesting, but I'm struck by the sheer amount of serious analysis on this topic. It always struck me as very simple requiring no deep understanding.
There's an old saying on wall street, the harder it is to understand the deal the bigger the profit. The truth of this should be self evident. Add to that the fact that the people gambling weren't gambling with their own money. That way if they won then got big bonuses, and if they lost they simply didn't get bonuses. Clearly the only rational action in this situation is to go all in with other people's money.
Is it really that complicated? You wouldn't give your money to someone else and send them to Vegas, tell them to gamble if they win you split the profits, if they lose you lose your money.
You shouldn't invest in things you don't understand, and mind that old wall street saying.
But people do invest in things they don't understand, and pyramid schemes, and tulips, none of this is new. Sure some fancy math was involved this time, but that's only tangential.
I think everyone is concentrating on the fancy math because it's like magic, and then it's not their fault, it's not the same old story of everyone just being stupid again like in .COM 1.0, oh no - It's magic!
There's a quandary here. If someone is, say, a medical equipment VC, they have to invest in technologies they can understand only in outline, since no one is going understand everything about them.
But finance is different in the sense that any investor has to understand things down to where the money is coming from. You correctly reason that "innovation" in finance is simply a system for gambling with other people's. That's indeed more or less fraud by your reasoning.
But the tricky part is that an investor in technology has to know where the substantial engineering technology ends and the insubstantial "financial technology" begins. It's OK not to understand the first but deadly, over time, not to understand the second. So the problem can get tricky despite the underlying situation being simple.
Yeah I think you're totally right on here. I would go even further and suggest that these pseudo-scientific valuation models were cynically exploited to make it sound like the risks were calculable.
I think an analogy to medicine is appropriate - for many years the desperation and naivete of the sick was exploited by frauds selling patent medicines. Many makers of these bogus cures undoubtedly sincerely believed in their efficacy. Watching this history would make you suspicious of anyone who claimed that they could cure your illness with a drug. Despite this sordid reputation, there really are wonder drugs. If medicine can be made scientific so can finance.
If medicine can be made scientific so can finance.
Uh, one thing to be careful with in such a statement is reasoning by analogy.
Consider if someone says:
"If physics can be made scientific, so can pertual-motion-machine-construction"
Or
"If chemistry can be made scientific, so can alchemy!"
Or
"If astronomy can be made scientific, so can astrology!"
The problem is clearer. Not every "field" is subject to valid innovation since some fields are inherently bogus. It is a hard problem determining which fields can "scientifized" so you might not be wrong. But I personally think that the real scientific economists are those that have argued that you're not ever going to find a "financial innovation" which adds value to the economy as a whole.
I strongly disagree - I don't think any fields - even perpetual motion machine construction or astrology - are inherently bogus. We should demand that these fields make falsifiable predictions and then test them to find out which ones aren't false. Of course we can't conclude that they are inherently bogus when we haven't tested them. If we have tested them and found that they are false then that's all we need to know. (I'm all for testing a genuinely new perpetual motion machine, almost all "new perpetual motion machines" have already been tried or depend on principles that have already been tested and proven false.
Let me reiterate since it seems that my message was a little unclear - the purpose of the medicine and finance analogy was say that even though there were many bogus financiers making false promises about their products by using simple models where they don't apply - this doesn't mean that there could never be non-bogus financiers that take a more rigorous and transparent approach to their use of models. We should demand the construction of financial instruments which cannot be "booby trapped". This is a case for more and better financial innovation, not less of it.
Of course this takes a broad view of financial innovation to include such things as auction design, election methods, etc.
I will also retract my statement that the valuation models were pseudo-science - to the extent that they made real predictions they were scientific. But they were undoubtedly cynically exploited.
Most people think astrology is bunk science, but they can make predictions and do experiments.
Throughout history physics has had experiments whose results were incompatible with current models, which eventually lead to new theories (relativity, etc) but how do you know when contradicting information disproves your theory or will expand it.
Definition 2 is a flawed definition, perhaps some parts of astrology are wrong, but some parts of physics are wrong, we just need more time to work out the bugs in astrology -- more experiments need to be made.
I think when your model consistently gives results indiscernable from random noise in its strongest application (cf. blog.okcupid.com), you can safely conclude that it's of no more value than a model selected at random from all possible models of similar complexity.
I agree with you entirely. But from the person looking for (or getting) a mortgage, they likely didn't know the lender was going to chop up their mortgage and mix it with bits of hundreds or thousands of others' and sell it to another party. It's obvious, like you say, that the system wasn't incentive compatible and that the people writing and selling the mortgages had no reason to ensure the borrowers paid.
Sadly there are still no regulations preventing this from happening again.
What issue does the person getting the mortgage with how it's financed? You seem to try and remove the responsibility from the borrower, which is where it should be. This is most likely the biggest financial decision they will ever make and they should understand it.
Yes, but there is no way for them to know that their mortgage will be sold, that is strictly up to the financier and the third party. Therefore a borrower cannot know what is happening to their mortgage other than they have to pay it.
However this doesn't remove the irresponsibility of taking a mortgage that you cannot afford to pay, which may be your point. Sorry if I misunderstood.
The cost of filling out my cc or paypal info exceeds my personal cost of spending $20 dollars. I would literately pay $20 just to avoid the hassle.
On a related subject matter, recently I spotted something a bit off on my Verizon bill. I get phone/cable/internet from them on one bill, but I noticed an odd charge. I had to dig through the bill to find the one page that mentioned a charge from payment one on behalf the internet commerce company.
In short, it was definitely a fraudulent charge and apparently they can bill you, via Verizon, TimeWarner, At&t, etc. automatically! It has happened to a lot of people, there is nothing you need to do for them to start billing you.
In fact, you HAVE to preemptively call your ISP to tell them to lock your account so that 3rd parties can't aoutmagically bill you!
However, why can't we have legitimate charges which are this easily billed? Why can't I sign up once for an advertising project or something, and then it divides X amount of dollars every month to websites I visit?
1) Sure, find a non-paypal way to send me 20 dollars plus your credit card number and I'll fill it out for you.
2) That's called "cramming" and you should report it to the FCC so that (hopefully, someday) they can put those guys out of business.
3) That's called "micropayments" and people have been talking about it for over a decade. There are major technical and political problems to implementing it and, ultimately, I think most people would prefer to get ads on their web pages than having to pay a penny to view it.
2) That's called "cramming" and you should report it to the FCC so that (hopefully, someday) they can put those guys out of business.
Already done it, apparently the (scam) company was started by an ex-high level At&t insider. But yeah they sure did find a way to take 20 dollars from me without me having to do anything.
And yes it is micropayments, I guess I'm just surprised and angry that the closest I got to micropayments was a scam.
The fact that they can absorb 100% of microwave radiation is interesting, it would be very interesting if the could turn it into electrical current instead of heat.
How does a fundamentally shy person succeed in business? Most people don't percieve me as shy, but I started out being introverted. I get along pretty well with people at work, and I'm fine in one-on-one situations. But I don't say much at team meetings, and still have no clue how to give effective speeches/presentations. Still can't be in group situations professionally without feeling attacks of paralyzing gut-level fear. What do you think I can do about it?
As the reply attempt to explain that's introversion. All the introverts I know, me included, have no more trouble (probably less in fact) with giving presentations, public speaking, any kind of large audience.
Also we tend to get along much better then "fine" and "OK" with people at work and other places. It's simply that all of these activities are mentally draining, whereas being alone is energizing. That's introversion.
However, low self-esteem, in fact any kind of self-esteem level is independent of shyness. There's plenty of people that are anything but shy, who are also clearly in a very bad place self-esteem wise.
And if you're in bad place emotionally and/or psychologically you should not take on entrepreneurship.
This reminds me of a recent study in bird personalities. It turns out there are very big differences from bird to bird in terms of curiosity and risk taking and other things.
And there is a huge body of scientific work about bird behavior EXCEPT that now it turns out the birds studied, trapped, tagged, etc, would have been a self selecting group of atypical super curious risk takers.
And all of this science is now suspected to be skewed.
And the fact that there are BOTH lucky and unlucky birds and people tells us that there's more than one way to optimize fitness.
Curiosity, optimism, luck work some times, and other times get you killed.
Now in the modern industrialized world, you're probably better of being open and optimistic and all the rest. But then again we've had an unprecedented multi-decade period of peace stability and economic growth.
If we are heading into a new great depression this might change.
Or imagine you're in some kind of accident or disaster, perhaps a building fire, and being a pessimist and super focused you bail at the first hint of smoke and single mindedly make it down the stairs as fast as possible and you're out and alive. Still a worried unlucky pessimist but alive. The lucky optimist on the other hand might have tried the elevator, when the heat expended both the elevator and the shaft, it got stuck, and the lucky optimists got cooked.
I think in your search for a contrary example, you're looking at it in the wrong way. The focus of the unlucky pessimist will lead them unerringly to the stairs, whether or not that's the best option. The lucky optimist won't foolishly do what no one should ever do, but instead notice that the open elevator shaft has a ladder that someone else just safely used to escape. Being lucky doesn't mean you have to be stupid.
The unlucky pessimist will stand in line while the lucky optimist will notice that what she needs is easily obtained out of the line.
Take this thought experiment to its extreme and the unlucky should have gone extinct. The fact that both lucky and unlucky personality types persist, suggest both have advantages.
I suppose you can sort 50 blogs in some way. But I doubt there are a total of 50 biotech blogs worth reading. 50 is a large number if you're looking for intelligent writing.
I expect the MSM to try and keep their audience entertained with this inane charging your electronic crap is killing the earth meme. But I would think HN is the one place this meme would not be able to infect. Am I wrong?
I don't know whether to point out the article is arguing against that it's killing the earth or question if you even opened the link before responding. I thought hn was the one place the latter was avoided (and hey, why comment if you disapprove of the thread's popularity?).
I did read the article, but already knew the meme is stupid and wrong and thought the same of the HN readership, thus I'm surprised to see it in any form, pro or against.
And I comment when I disapprove of a thread because the flag and shut up mantra has never sat right with me. I prefer to explain why I dislike something.
If all you did was explain why you disapproved of things you'd be giving undo (reasonably) attention towards something you felt was stupid. Why waste the time when you're not obliged? That's all I'm curious about - you could find another topic more important and make that topic popular.
There's an old saying on wall street, the harder it is to understand the deal the bigger the profit. The truth of this should be self evident. Add to that the fact that the people gambling weren't gambling with their own money. That way if they won then got big bonuses, and if they lost they simply didn't get bonuses. Clearly the only rational action in this situation is to go all in with other people's money.
Is it really that complicated? You wouldn't give your money to someone else and send them to Vegas, tell them to gamble if they win you split the profits, if they lose you lose your money.
You shouldn't invest in things you don't understand, and mind that old wall street saying.
But people do invest in things they don't understand, and pyramid schemes, and tulips, none of this is new. Sure some fancy math was involved this time, but that's only tangential.
I think everyone is concentrating on the fancy math because it's like magic, and then it's not their fault, it's not the same old story of everyone just being stupid again like in .COM 1.0, oh no - It's magic!