Some of you may be interested in the new book "The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It
In March 2006, the worldrs"s richest men sipped champagne in an opulent New York hotel. They were preparing to compete in a poker tournament with shy;million-dollar stakes. At the card table that night was Peter Muller, who managed a fabulously successful hedge fund called PDT. With him was Ken Griffin, who was the tough-as-nails head of Citadel Investment Group. There, too, were Cliff Asness, the sharp-tongued, mercurial founder of the hedge fund AQR Capital Management, and Boaz Weinstein, chess "life master" and king of the credit-default swap. Muller, Griffin, Asness, and Weinstein were among the best and brightest of a new breed, the quants. Over the past twenty years, this species of math whiz had usurped the testosterone-fueled, kill-or-be-killed risk takers whors"d long been the alpha males of the worldrs"s largest casino. The quants believed that a cocktail of differential calculus, quantum physics, and advanced geometry held the key to reaping riches from the financial markets. And they helped create a digitized money-trading machine that could shift shy;billions around the globe with the click of a mouse. Few realized that night, though, that in creating this extraordinary system, men like Muller, Griffin, Asness, and Weinstein had sown the seeds for historyrs"s greatest financial disaster.
You can listen to a discussion about it on yesterday's NPR 'Fresh Air' show. There's also an excerpt of the book posted on that NPR page.
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the gov't, the banks, and huge numbers of home loan borrowers all got caught up in the bubble.
who can we blame?
I know. the banks and hedge funds have mega bucks and very few votes. lets blame it all on them.
Ok?
I read this in the bookstore (it's amazing how the web teaches you to speed read . . . ) and it's pretty interesting. It's kind of surprising how unsophisticated some of the strategies seem to be . . . Shorting overvalued stocks and going long value stocks (with momentum) doesn't exactly require a genius. The section on Simons is interesting . . . He hired lots of speech recognition experts, the idea being that they were good at figuring out what came next after "large fr" and so on. Apply the same idea to stocks, and you're using information theory to pick stocks. My only criticism is that there could have been less personality and more on the strategies. The audience for this book is mathematically literate . . . there's no reason to dumb it down.