Much of the past few years have been spent in trying to analyze the crisis, and the causes of recession. Banks have been the obvious targets for many, and more specifically, the quants. The financial world has turned very complicated, with numerous quantitative analysis, and all the models. So, its very easy to just take a look around, and find the scapegoat in people who created these complexities.
However, what may be appear very simple at first glance may not be entirely true. Over years, complexity has indeed increased in the financial tools, but along with it, the size of the industry also increased. So, whereas earlier only say top 1% of the class were selected for top markets jobs, as the industry boomed we had top 5% being getting selected. When profits rose in the industry, hiring standards nosedived (I can't elaborate this further, but one can easily get the drift), and as a result, analysts raced to bring coffee for bosses instead of working hard. The models were not the problem, over time their users were less and less sophisticated. And as it should have happened, everything went belly up. All the so called correlation hedges blew up when they have actually needed. Blaming quants for the crisis would be akin to blaming Sir Alfred Nobel for Hiroshima, or Wright Brothers for 9/11 attacks.
So next time you meet someone who blames the quants for the crisis, you will know you are meeting someone who actually caused it.
However, what may be appear very simple at first glance may not be entirely true. Over years, complexity has indeed increased in the financial tools, but along with it, the size of the industry also increased. So, whereas earlier only say top 1% of the class were selected for top markets jobs, as the industry boomed we had top 5% being getting selected. When profits rose in the industry, hiring standards nosedived (I can't elaborate this further, but one can easily get the drift), and as a result, analysts raced to bring coffee for bosses instead of working hard. The models were not the problem, over time their users were less and less sophisticated. And as it should have happened, everything went belly up. All the so called correlation hedges blew up when they have actually needed. Blaming quants for the crisis would be akin to blaming Sir Alfred Nobel for Hiroshima, or Wright Brothers for 9/11 attacks.
So next time you meet someone who blames the quants for the crisis, you will know you are meeting someone who actually caused it.
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