We are the 99 Percent

[Rohirrim]

Originally Posted by StugotsIII

So they are mad because the bankers are successful?

[StugotsIII]

Originally Posted by W*GS

Only in GOP-land is collapsing the global financial system called "successful".

How did they collapse the global financial system?

[El Minion]

This is a good start:

Recipe for Disaster: The Formula That Killed Wall Street

By Felix Salmon 02.23.09

In the mid-'80s, Wall Street turned to the quants—brainy financial engineers—to invent new ways to boost profits. Their methods for minting money worked brilliantly... until one of them devastated the global economy.
Photo: Jim Krantz/Gallery Stock


Road Map for Financial Recovery: Radical Transparency Now!



A year ago, it was hardly unthinkable that a math wizard like David X. Li might someday earn a Nobel Prize. After all, financial economists—even Wall Street quants—have received the Nobel in economics before, and Li's work on measuring risk has had more impact, more quickly, than previous Nobel Prize-winning contributions to the field. Today, though, as dazed bankers, politicians, regulators, and investors survey the wreckage of the biggest financial meltdown since the Great Depression, Li is probably thankful he still has a job in finance at all. Not that his achievement should be dismissed. He took a notoriously tough nut—determining correlation, or how seemingly disparate events are related—and cracked it wide open with a simple and elegant mathematical formula, one that would become ubiquitous in finance worldwide.

For five years, Li's formula, known as a Gaussian copula function, looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his brilliant spark of mathematical legerdemain, Li made it possible for traders to sell vast quantities of new securities, expanding financial markets to unimaginable levels.

His method was adopted by everybody from bond investors and Wall Street banks to ratings agencies and regulators. And it became so deeply entrenched—and was making people so much money—that warnings about its limitations were largely ignored.

Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li's formula hadn't expected. The cracks became full-fledged canyons in 2008—when ruptures in the financial system's foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril.

David X. Li, it's safe to say, won't be getting that Nobel anytime soon. One result of the collapse has been the end of financial economics as something to be celebrated rather than feared. And Li's Gaussian copula formula will go down in history as instrumental in causing the unfathomable losses that brought the world financial system to its knees.

How could one formula pack such a devastating punch? The answer lies in the bond market, the multitrillion-dollar system that allows pension funds, insurance companies, and hedge funds to lend trillions of dollars to companies, countries, and home buyers.

A bond, of course, is just an IOU, a promise to pay back money with interest by certain dates. If a company—say, IBM—borrows money by issuing a bond, investors will look very closely over its accounts to make sure it has the wherewithal to repay them. The higher the perceived risk—and there's always some risk—the higher the interest rate the bond must carry.

Bond investors are very comfortable with the concept of probability. If there's a 1 percent chance of default but they get an extra two percentage points in interest, they're ahead of the game overall—like a casino, which is happy to lose big sums every so often in return for profits most of the time.

Bond investors also invest in pools of hundreds or even thousands of mortgages. The potential sums involved are staggering: Americans now owe more than $11 trillion on their homes. But mortgage pools are messier than most bonds. There's no guaranteed interest rate, since the amount of money homeowners collectively pay back every month is a function of how many have refinanced and how many have defaulted. There's certainly no fixed maturity date: Money shows up in irregular chunks as people pay down their mortgages at unpredictable times—for instance, when they decide to sell their house. And most problematic, there's no easy way to assign a single probability to the chance of default.

Wall Street solved many of these problems through a process called tranching, which divides a pool and allows for the creation of safe bonds with a risk-free triple-A credit rating. Investors in the first tranche, or slice, are first in line to be paid off. Those next in line might get only a double-A credit rating on their tranche of bonds but will be able to charge a higher interest rate for bearing the slightly higher chance of default. And so on.

"...correlation is charlatanism"
Photo: AP photo/Richard Drew



The reason that ratings agencies and investors felt so safe with the triple-A tranches was that they believed there was no way hundreds of homeowners would all default on their loans at the same time. One person might lose his job, another might fall ill. But those are individual calamities that don't affect the mortgage pool much as a whole: Everybody else is still making their payments on time.

But not all calamities are individual, and tranching still hadn't solved all the problems of mortgage-pool risk. Some things, like falling house prices, affect a large number of people at once. If home values in your neighborhood decline and you lose some of your equity, there's a good chance your neighbors will lose theirs as well. If, as a result, you default on your mortgage, there's a higher probability they will default, too. That's called correlation—the degree to which one variable moves in line with another—and measuring it is an important part of determining how risky mortgage bonds are.

Investors like risk, as long as they can price it. What they hate is uncertainty—not knowing how big the risk is. As a result, bond investors and mortgage lenders desperately want to be able to measure, model, and price correlation. Before quantitative models came along, the only time investors were comfortable putting their money in mortgage pools was when there was no risk whatsoever—in other words, when the bonds were guaranteed implicitly by the federal government through Fannie Mae or Freddie Mac.

Yet during the '90s, as global markets expanded, there were trillions of new dollars waiting to be put to use lending to borrowers around the world—not just mortgage seekers but also corporations and car buyers and anybody running a balance on their credit card—if only investors could put a number on the correlations between them. The problem is excruciatingly hard, especially when you're talking about thousands of moving parts. Whoever solved it would earn the eternal gratitude of Wall Street and quite possibly the attention of the Nobel committee as well.

To understand the mathematics of correlation better, consider something simple, like a kid in an elementary school: Let's call her Alice. The probability that her parents will get divorced this year is about 5 percent, the risk of her getting head lice is about 5 percent, the chance of her seeing a teacher slip on a banana peel is about 5 percent, and the likelihood of her winning the class spelling bee is about 5 percent. If investors were trading securities based on the chances of those things happening only to Alice, they would all trade at more or less the same price.

But something important happens when we start looking at two kids rather than one—not just Alice but also the girl she sits next to, Britney. If Britney's parents get divorced, what are the chances that Alice's parents will get divorced, too? Still about 5 percent: The correlation there is close to zero. But if Britney gets head lice, the chance that Alice will get head lice is much higher, about 50 percent—which means the correlation is probably up in the 0.5 range. If Britney sees a teacher slip on a banana peel, what is the chance that Alice will see it, too? Very high indeed, since they sit next to each other: It could be as much as 95 percent, which means the correlation is close to 1. And if Britney wins the class spelling bee, the chance of Alice winning it is zero, which means the correlation is negative: -1.

If investors were trading securities based on the chances of these things happening to both Alice and Britney, the prices would be all over the place, because the correlations vary so much.

But it's a very inexact science. Just measuring those initial 5 percent probabilities involves collecting lots of disparate data points and subjecting them to all manner of statistical and error analysis. Trying to assess the conditional probabilities—the chance that Alice will get head lice if Britney gets head lice—is an order of magnitude harder, since those data points are much rarer. As a result of the scarcity of historical data, the errors there are likely to be much greater.

In the world of mortgages, it's harder still. What is the chance that any given home will decline in value? You can look at the past history of housing prices to give you an idea, but surely the nation's macroeconomic situation also plays an important role. And what is the chance that if a home in one state falls in value, a similar home in another state will fall in value as well?

Here's what killed your 401(k) David X. Li's Gaussian copula function as first published in 2000. Investors exploited it as a quick—and fatally flawed—way to assess risk. A shorter version appears on this month's cover of Wired.

Probability Specifically, this is a joint default probability—the likelihood that any two members of the pool (A and B) will both default. It's what investors are looking for, and the rest of the formula provides the answer.	Survival times The amount of time between now and when A and B can be expected to default. Li took the idea from a concept in actuarial science that charts what happens to someone's life expectancy when their spouse dies.	Equality A dangerously precise concept, since it leaves no room for error. Clean equations help both quants and their managers forget that the real world contains a surprising amount of uncertainty, fuzziness, and precariousness.
Copula This couples (hence the Latinate term copula) the individual probabilities associated with A and B to come up with a single number. Errors here massively increase the risk of the whole equation blowing up.	Distribution functions The probabilities of how long A and B are likely to survive. Since these are not certainties, they can be dangerous: Small miscalculations may leave you facing much more risk than the formula indicates.	Gamma The all-powerful correlation parameter, which reduces correlation to a single constant—something that should be highly improbable, if not impossible. This is the magic number that made Li's copula function irresistible.

Continues.....

[UltimateHoboW/Shotgun]

Originally Posted by L.A. BRONCOS FAN

Do you know what you're looking at?

[L.A. BRONCOS FAN]

Originally Posted by UltimateHoboW/Shotgun

Do you know what you're looking at?

A gazillion new spam threads (most of which are circling the drain) on the front page started by you.

But what's new?

[UltimateHoboW/Shotgun]

Originally Posted by L.A. BRONCOS FAN

A gazillion new spam threads (most of which are circling the drain) on the front page started by you.

But what's new?

So the answer is no.

[NUB]

http://www.businessinsider.com/what-...t-2011-10?op=1

The problem in a nutshell is this: Inequality in this country has hit a level that has been seen only once in the nation's history, and unemployment has reached a level that has been seen only once since the Great Depression. And, at the same time, corporate profits are at a record high.

In other words, in the never-ending tug-of-war between "labor" and "capital," there has rarely—if ever—been a time when "capital" was so clearly winning.

[epicSocialism4tw]

Originally Posted by NUB

http://www.businessinsider.com/what-...t-2011-10?op=1

These people aren't concerned about making money. They're all out there talking about idealist social philosophies like communism and socialism.

They want to destroy capitalism.

[alkemical]

Originally Posted by epicSocialism4tw

These people aren't concerned about making money. They're all out there talking about idealist social philosophies like communism and socialism.

They want to destroy capitalism.

Actually, corporations want to destroy capitalism. That's the funny thing of it all, the big joke.

Corporations don't want FREE Markets, they want fixed, pirate/private markets for themselves.

Look at the way Apple & Samsung have been flinging litigation to lock up the competition from being able to compete.

****, in 7 months time frame, IBM asked me to come back to work for them after I had left. They had the job "remetric'ed" to $4/hr less than when I left. (Obviously I declined, but it's also understanding IBM culture). They were metric'ing labor rates across the GLOBE. So, this "wage", was competitive with India.

I see an unregulated labor market as one returning to the industrial revolution/current chinese/outsourced labor stage of life. I have no interest in working like a slave.

By the way, AT&T laid off their Q&A department and shipped the jobs to India. Those Indians are evaluating your American Call Center reps phone calls. AT&T wants to shut down the American Call Centers and move them to India.

Just like when Hershey bought three Mexican Candy companies, then started moving production to MX.

The end result of Capitalism is Communism. Choice A & B.

[TonyR]

Originally Posted by epicSocialism4tw

These people aren't concerned about making money. They're all out there talking about idealist social philosophies like communism and socialism.

They want to destroy capitalism.

Where do you come up with this stuff?!?

[TonyR]

Referring to the Occupy Wall Streeters and the Tea Party...

The greatest threat to our economy is neither corporations nor the government. The greatest threat to our economy is both of them working together. There are currently two sizable coalitions of angry citizens that are almost on the same page about that, and they're too busy insulting each other to notice.

http://howconservativesdrovemeaway.b...tea-party.html

[Rohirrim]

Originally Posted by TonyR

Referring to the Occupy Wall Streeters and the Tea Party...

The greatest threat to our economy is neither corporations nor the government. The greatest threat to our economy is both of them working together. There are currently two sizable coalitions of angry citizens that are almost on the same page about that, and they're too busy insulting each other to notice.

http://howconservativesdrovemeaway.b...tea-party.html

This is what terrifies Washington and Wall Street more than anything else: The possibility that the tea party and the 99% might realize that they are on the same side, against the same enemy.

[L.A. BRONCOS FAN]

Originally Posted by Rohirrim

This is what terrifies Washington and Wall Street more than anything else: The possibility that the tea party and the 99% might realize that they are on the same side, against the same enemy.

Should be a no-brainer, eh?

[baja]

Originally Posted by Rohirrim

This is what terrifies Washington and Wall Street more than anything else: The possibility that the tea party and the 99% might realize that they are on the same side, against the same enemy.

They will as things get worse people will get off thir asses and seek out the truth and the truth is there for all to see.

[L.A. BRONCOS FAN]

Originally Posted by baja

They will as things get worse people will get off thir asses and seek out the truth and the truth is there for all to see.

Yep.

Eventually the DramaLlamas of the world will no longer be able to blame their deteriorating standard of living on welfare recipients, et al.

[L.A. BRONCOS FAN]

[L.A. BRONCOS FAN]

[alkemical]

Originally Posted by baja

They will as things get worse people will get off thir asses and seek out the truth and the truth is there for all to see.

That's the point when the Empire will try to put the boot down for a little bit.

It's starting now too - see what's going on in CA.

[L.A. BRONCOS FAN]

[alkemical]

http://wearethe99percent.tumblr.com/

[alkemical]

http://wearethe99percent.tumblr.com/

[alkemical]

http://wearethe99percent.tumblr.com/page/4

[alkemical]

[DBruleU]

Originally Posted by L.A. BRONCOS FAN

Can you honestly say with a straight face you know what you're talking about? You have some extremely bad posts, but this was by far the worst as it isn't even close to what you think it is.

[L.A. BRONCOS FAN]

Originally Posted by DBruleU

Can you honestly say with a straight face you know what you're talking about? You have some extremely bad posts, but this was by far the worst as it isn't even close to what you think it is.

LMAO at you thinking you have any sort of credibility around here.