RE: [OPE] The micro dimension of the Financial Crisis.

It says
--------
These complex financial instruments were actually designed by mathematicians and physicists, who used algorithms and computer models to reconstitute the unreliable loans in a way that was supposed to eliminate most of the risk.

"Obviously they turned out to be wrong," Partnoy says.

Asked why, he says, "Because you can't model human behavior with math."
----------------

Question to the list:
did the maths used on these instruments assume normal / negative exponential
PDFs, or did they take into account power law distributions?

Clearly the withdrawals from a bank can not really be a powerlaw, since
the withdrawals must be bounded, but they could be approximately
a power law over some range making calculations assuming a normal distribution
faulty.

Paul Cockshott
Dept of Computing Science
University of Glasgow
+44 141 330 1629
www.dcs.gla.ac.uk/~wpc/reports/

-----Original Message-----
From: ope-bounces@lists.csuchico.edu on behalf of GERALD LEVY
Sent: Sat 11/8/2008 12:39 PM
To: Outline on Political Economy mailing list
Subject: RE: [OPE] The micro dimension of the Financial Crisis.
 

> Even more, it revels that behind the financial instruments called "derivatives", rests the minds of
> mathematicians and physicists that built complex mathematical models that at the end reveled
> incapable of modelling human conduct.
 
 
Hi Alejandro:
 
What the mathamatical models were incapable of revealing, rather, was *market behavior*.
Without markets and capitalism (or 'market socialism'), the problem disappears.
 
The news story itself, I thought, was extremely shallow in its analysis. It simply
took the liberal economic perspective on the crisis: it was due to "greed",
"incompetence", and the lack of regulation. Hence, the crisis could have been
easily avoided and is remedied by more "competent" state policy.
 
Yet, this presents Marxians with a challenge - to explain in simple language
understandable to all that the causes of the crisis are deeper and that what
is needed is an anti-capitalist solution or else the resolution of the
crisis will be paid for at the expense of the working class.
 
In solidarity, Jerry
 
 
 

_______________________________________________
ope mailing list
ope@lists.csuchico.edu
https://lists.csuchico.edu/mailman/listinfo/ope