Thursday, October 30, 2008

randomness in, randomness out

What do you get when you gather millions of variables and run them through millions of risk models using the most sophisticated software and hardware available, and analyzed by the best minds you can get your hands on?

Here's a description from Fortune of a "nerve center" of just one of the asset managers in Wall Street :

The nerve center looks pretty much like any Wall Street trading floor. There are rows and rows of computers - 2,000 in all. Hunched over them are a cadre of analysts of every stripe: a physicist, a nuclear engineer, an electrical engineer and, of course, economists, MBAs, and accountants. [They] run tens of millions of risk models a day. On each of those, computers continually run through an ever-changing number of potential risk scenarios, some 200 million of them per week - everything from what happens if the U.S. starts defaulting on its debt to what happens if China stops buying it.

And now, when we're neck-deep in the meltdown, everybody is talking about how the financial crisis of the century has blind-sided most of us -- including the financial number crunchers with the arsenal that would put the weather forecasters' to shame.

On second thought, the weather forecasters also can't forecast the weather until after the hurricanes are already barrelling toward the coastal cities.

Random thoughts on politics, social issues, money, finance, sex, humor, stupidity, or just about anything, of a hatemonger, an obsessive-compulsive, and a schizophrenic forced to live in a cramped and humid apartment.