The Egocentricity of the Present Part 14 of 22

Thats what happened. There will be lots of theories as to how it happened. Mine is fairly straightforward: however many quants from MIT or Cal Tech or UT San Antonio you bring in to build models that theorize away risk, there is no overturning the fundamental law that the price of an asset is determined by what someone is willing to pay for it. Mathematical models Scalping the E Mini Futures & Forex complement judgment and experience but are no substitute for them. Judgment and experience, including our own vivid experience here in Texas in the 1980s, teach us that in booms and bubbles, prices overshoot and during busts, they overcorrect.

To a great extent, the bubble in housing was a classic case of the bigger-fool theory and efficient-market theory run amok. The excesses in subprime lending in the United States were fed by an excessive amount of faith in technically sophisticated approaches to risk management and a misguided belief that mathematical models could price securitized assets, including securities based on mortgages, accurately. These valuation methodologies were so technical and mathematically sophisticated that their utter complexity lulled many people into a false sense of security. In the end, complexity proved hopelessly inadequate as an all-encompassing Short-Term Forex Trading measure of risk, despite its frequent advertisement as such. The risk models employed turned out to be merely formulaic descriptions of the past and created an illusion of precision. Such approaches could not and cannot replace the forward-looking judgment of a seasoned professional.

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Selling Our Services to the World Part 3 of 17

Now is the time for speculative and dreaming or designing men. They relate their dreams and projects to the ignorant and credulous, and dazzle them with golden visions. The example of one stimulates another; speculation rises on speculation; bubble rises on Penny Stock Secrets bubble. No operation is thought worthy of attention, that does not double or treble the investment. Could this delusion always last, the life of a merchant would indeed be a golden dream; but it is as short as it is brilliant.

And to think, Washington Irving had never met a subprime mortgage, or a CDO, a CLO, an SIV or a credit default swap! It is indeed true that those who ignore history are condemned to repeat it. That is the bad news. Financiers, dazzleing the credulous, including regulators, repeated history in spades, despite their claim to unprecedentedly clever and new risk-management tools and mathematical sophistication. It was as short as it was momentarily brilliant. But that is done, and now we must do what we can to remedy the situation. One thing, however, is clear. The answer, to be curt, is not to compound the bad by repeating the oft-prescribed remedy of inflating our way out of our Part-time Trading Profits predicament with a wing-and-a-prayer promise that it can always be reined in later. It is for this reason that I have maintained a strong reluctance to further general monetary accommodation.

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