The financial formula that felled wall street this time

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http://www.ft.com/cms/s/2/912d85e8-2d75 ... z17VTRfgRR


A very interesting article about a man from China who invented a formula for life insurance risk projection and found that it could apply to wall street...and soon it was applied to wall street and the big banks thought since we now know the exact calulation for risk...there is no need for risk managment which led to brazzen subprime lending in the housing market. But the forumula was wrong. It did not take into consideration exactly how connected everything was in the world of finance...so when the subprimers defaulted on morgtages, it all happened at once or in the same time period...before long, banks were in trouble and then credit dried up and the cancer spread into what it is now.

Well what I told you is a VERY simplified version of that which is explained in great detail of the formula and how it worked and how the banks adopted it and soon the reality that when it comes to wall street, you cant apply a formula which works for life insurance risk projection.
Check out the link above...it is the most detailed explanation I have ever seen for how wall street fell in 2008.

The bad part is some folks are saying that the housing market may never be able to recover .Statistiics show that the fall is not over cause there are still wave after wave of record foreclosures. Which means that credit is not likely to thaw out anytime soon, and buisness need credit to operate, but since credit is so scarce to anyone who does not have a perfect score...buisness owners are forced to lay off people and not hire anymore.
Which is what causes the unemployment rate to be so high (not conuting those who ran out of unemployment but still dont have a job)
The unemployment rate leads to less spending which causes companies to fail which causes more unemployement and the unemployment rate causes a backlash of loan defaults which again continues to keep the credit frozen...and it keeps spiraling downhill until something finacially strong enough stops the cycle or there is nothing left whichever happens first.
The formula did not have the capacity to predict exactly how interrelated it all is. Had they stayed with the tried and true methods of risk management instead of following some half-cocked life insurance formula because they smelled quick money, we would not be in this mess. As for the chinese guy who cooked up this formula which created this clusterfux...he went back to China and cannot be found.

no evil deed goes unrewarded, no good deed goes unpunished. on this hellworld we call earth, to l-i-v-e is to be e-v-i-l, in some manner.

This is technically not true. LTCM was "rescued" by a consortium of banks/investment banks, though the government was certainly involved in the process no taxpayer dollars were, at least not directly. I say "not directly" since who knows what concessions were sought and maybe granted by the SEC, Fed and Treasury?

A curious footnote to the LTCM debacle: The only investment bank that told the consortium to stuff it and walked away from the entire thing was Lehman Brothers, putting up nothing, not even vague promises about saving the financial system from the mess. And then when the REAL bailouts started a decade later, Bank of America buys Merrill Lynch, Bear Sterns gets acquired in a shotgun marriage, with Chase, and the US taxpayers now sorta but not really own/are AIG.

And Lehman? Flushed down the crapper of Chapter 11 bankruptcy. Buh-bye. Coincidence? Some say yes, some say no, but I'm bettin' the next time a bunch o' banks are called upon to pony up $$ for whatever reason everybody's gonna stay at the table.

I never thought that evil is live spelled backwards...were doomed.
Grabs chest, looks up "lookout lucile, I'm coming"

My mom swears up and down because the man was from China, that the chinese goverment sent him to screw america. She has a real China rant going on since the lead in the toys, and plastic in the dogfood, and million and 1 recalls for unsafe products from China. The fact that our gold backing the US dollar, and steel was sold to China and that China holds our tresury bonds...she thinks that China is going to take over.

the folks who parse the good book for clues to the end times, have long argued whether "magog" [the country of the north which is supposed to take over the world] is really china or russia. or maybe both?

Thats a tough one...do think it is the northern climate that makes people want to take over the world...you know like the vikings?

gosh, i am a lousy one for any kind of analysis of things in general. my late japanese mother told me about how crowded and tiny her home country was, and how understandable it was for them to seek more real estate by invading other countries.

Oh for the love of....

If you want to look at what caused the recession, look no further than the Federal Government, specifically the Community Reinvestment Act where Government forced banks to make extremely risky loans.