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Assorted links
1. How bad will things get? A symposium.
3. Single-factor Gaussian copula.
4. Avner Greif responds to critics.
5. "Stairway to Heaven" revenues: one guesstimate is $562 million. And they don't even put it on iTunes.
Posted by Tyler Cowen on July 1, 2008 at 10:56 AM in Web/Tech | Permalink
Comments
I would like to believe Kaletsky is correct about the crisis, but find myself in Soros' camp.
On the broader issue, however, I am completely mystified by their attitudes and assessment of the cause. What did the central banks expect to happen when you push short term rates to such low levels for so long (including real, negative interest rates for over two years in the US and probably elsewhere)? Bubbles accompanied by bad debt is a certainty given the central bank policies that have been followed. The inflation that is erupting everywhere does not spring forth from nowhere, and it certainly is not the result of the failures of laissez faire economic policies and poor regulation.
The corruption begins at the top of the banking system, not somewhere else further down the food chain.
Posted by: Yancey Ward at Jul 1, 2008 11:17:03 AM
From the introduction to the Prospect symposium:
"The financial crisis has shown that markets are bubble-prone and that laissez-faire regulation doesn’t work. The authorities need to get a grip if we are to avoid a mega-bubble. But we may need an even deeper crisis for that to happen."
With due respect to the symposium participants, the recent bubble in housing prices and sub-prime mortgage derivatives shows no such thing. It could show that excessively low interest rates will always lead it a bubble in some financial asset, and that in this instance it happened to be sub prime mortgages.
Posted by: Timothy at Jul 1, 2008 12:13:26 PM
Clearly, what we need is better price-fixers in the governments' central banks. If they simply pulled the right economic levers the right way, then everything will be all right.
Seriously, Soros was much more useful as a disruptive force in the marketplace of money than the market of ideas.
Posted by: M. Hodak at Jul 1, 2008 12:24:01 PM
Guitar World Magazine, April 1997: "[Randy] California's most enduring legacy may well be the fingerpicked acoustic theme of the song "Taurus," which Jimmy Page lifted virtually note for note for the introduction to "Stairway to Heaven."
Posted by: Winslow Theramin at Jul 1, 2008 12:44:03 PM
And they don't even put it on iTunes.
Yes they do. From the Stairway article "was a top download in the U.S., after Zeppelin’s first downloadable album launched on iTunes."
Posted by: Mo at Jul 1, 2008 1:12:59 PM
I have to agree with the doom and gloomers regarding the economy. The worst is yet to come, as I think we're on the brink of the sequel to the Great Depression. Just like the Fed-created roaring 20s led to the Great Depression, it seems like the Fed-created Nasdaq/housing/commodities bubble is going to lead to the next Great Depression.
Just keep selling US dollars.....
Posted by: Simon Parth at Jul 1, 2008 2:23:52 PM
Anybody trying to buy "end-of-the-world" insurance must truly have rocks
in their heads. If the end of the world comes, even just as a "revolutionary
Marxist government taking over Washington," presumably the issuers of these
forms of insurance will not be functioning sufficiently to pay out.
Regarding copulas I first heard nearly a decade ago that the Swiss banks
were using them for their risk analysis. Curiously, given their spread
to nearly universal usage in the financial markets since then, I find it
odd that it is very hard to find any book, certainly any even advanced
textbook in mathematical finance, that discusses them. But then, these
books have been similarly behind in their acknowledgement of the ubiquity
of fat tails (kurtosis) in financial returns phenomena.
Regarding octopus intelligence, and more broadly that of other animals,
it has always struck me that simply looking at an animal's eyes might
not be a bad indicator of something. Those of octopi are large and
to me appear to contain definite awareness, although of course this is
highly speculative and intuitive. But I am not at all surprised by the
widespread reports of their various intellectual capabilities, whatever
the actual nature of their consciousnesses.
Posted by: Barkley Rosser at Jul 1, 2008 4:12:32 PM
Margin facilitates bubbles and so far the losses have accrued to the margin recipients and extenders. This may be the best way to prevent the next bubble. If the effects of the bubble are contained all or mostly in the financial sector that caused it, will there have been a problem?
What exactly are these symposeurs saying that is different that what has been said before? I think George Soros' suggestions have prevented 9 of the last 5 future crises.
Posted by: Andrew at Jul 1, 2008 4:52:52 PM
Barkley Rosser - "Regarding copulas ... Swiss banks ... I find it
odd that it is very hard to find any book, certainly any even advanced
textbook in mathematical finance, that discusses them. "
Yeah, Switzerland was ahead of the rest of the world here - the insurance companies as well as the banks. One of the main reasons for this is the excellent financial mathematics group at ETH. I worked in Zurich for an insurance company and when I joined in 2002 copulae were being used. In fact I think insurance companies have been ahead of banks in their understanding and modelling of dependence. I have been quite shocked at the poor quality of some of the modelling some banks have apparently been using - although its difficult to say as the press only report the worst cases and they exaggerate them.
If you are looking for an advanced text book which discusses copulae in a financial context you should have a look at
Quantitative Risk Management: Concepts, Techniques, and Tools by Alex McNeil, Rudiger Frey, and Paul Embrechts. All three authors were at ETH Zurich, but the first two have now moved elsewhere.
More generally have a root around the ETH paged I linked to above and you should find lots of interesting stuff.
Posted by: Robert Scarth at Jul 1, 2008 5:37:15 PM
Robert Scarth,
Thanks. Actually it was from Embrechts that I first heard of this,
although his 647 page book with Kluppelberg and Mikosch, _Modelling
Extremal Events for Insurance and Finance_ does not mention them.
It first came out in 1997 from Springer, but the fourth printing is
from 2003. Anyway, good to hear they have gotten a bit more public
about this. Maybe it was all proprietary there for awhile.
Posted by: Barkley Rosser at Jul 2, 2008 1:08:37 PM
"Stairway to Heaven" revenues: one guesstimate is $562 million.
I call bullshit. They attribute all of the revenue of "led zeppelin IV", the live albums and greatest hit albums to "Stairway to Heaven". These albums would still be big sellers if they didn't contain "Stairway to Heaven".
Posted by: Lemmy Caution at Jul 3, 2008 3:40:21 PM
