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81 Comments
- odnaryperson, on 06/29/2009, -2/+35Wow, really interesting, and simply explained...
- dikky, on 06/30/2009, -2/+31the most interesting part of the article was the part at the bottom about the author
- XPpro, on 06/29/2009, -5/+29It's like saying how math killed the dot com speculator. You don't need math to figure out a florist "making $150,000 a year" just paying down the interest on her loan for a million dollar house was going to default.
If only Lehman had access to Youtube
http://www.youtube.com/watch?v=6G3Qefbt0n4
(Peter Schiff speech from November 2006) - ayeroxor, on 06/30/2009, -1/+21role?
pot, kettle... - WeberWK, on 06/30/2009, -0/+17Dugg for the name Dick Fuld.
- wonderchemist, on 06/29/2009, -1/+17Told you math was hard.
- Headinawheel, on 06/30/2009, -1/+14"Why would a house increase in value as it gets older."
Please see: Supply and Demand.
There's more to a house than just wood. - graemee, on 06/30/2009, -1/+141) Do math
2) Divided by zero
3) Profit - rarefied, on 06/30/2009, -1/+13If only they'd used math instead of maths ;-) This could all have been avoided.
- ayeroxor, on 06/30/2009, -1/+12Gee thanks, Captain Third Person To Point That Out.
- kingnova, on 06/30/2009, -11/+22Um, "credit derivative swaps"? You mean credit DEFAULT swaps? Yes CDS is a derivative contract, but when the kid uses the wrong term that early, and completely skips the roll skyrocketing energy prices played, I gotta say nice try but come back later.
- diggmehard, on 06/30/2009, -1/+10It's not math it's greed which failed Lehman Brothers. Even a dick head can tell you that you cannot extract unlimited profit from anything.
- DaNuKaSAN, on 06/30/2009, -1/+9To elaborate on what he's saying, if you buy a house in a low populated area, then as it starts to increase in urban density, the value goes up. Furthermore, any additions or maintenance you do on the house obviously increases its value. If you add a garage in a community were only a very low number of houses have garages, it adds value.
Your house can only be appraised by comparisons to similar houses...and generally the most similar are the ones within its immediate vicinity. Second, people move, populations shift. When you begin to work on such large scales it's easy to abstract to flow models. Just like in a river, the shape and topology of the river will influence the flow, except here instead of bends and rocks, we have influx of certain people, and then we have those people moving out etc etc.
Bottom line, you're not that special.
People are predictable as long as you have enough data, and it's up to date. - Vandango, on 06/30/2009, -0/+7Dugg for at 15 y/o who wrote this article. BUT WAIT, THERE'S MORE! He's studying undergrad math at Oxford, so the kid has some smarts on him.
- samk, on 06/30/2009, -0/+7It's a British thing. Not everyone speaks American.
- richmomz, on 06/30/2009, -1/+7INFINITE profit to be precise! Wooo!
- richmomz, on 06/30/2009, -0/+6Common sense > Math
- alexawesome, on 06/30/2009, -0/+6Agreed - it takes real skill to understand the complexities but also explain it simply and elegantly. Kudos to the author - and a great blurb about him at the end.
- omgwtflawl, on 06/30/2009, -0/+5http://en.wikipedia.org/wiki/Negative_amortization
Or not even paying the interest. - richmomz, on 06/30/2009, -0/+5The real problem is that these "expert" economists all left out one key variable in their calculations: common sense.
- shakeyjake, on 06/30/2009, -0/+4A CDS is a Credit Default Swap not a Credit Derivative Swap. And a CDO is a Collateralized Debt Obligation not a Collateral Debt Obligation. It's real a basic definition and getting both those wrong is a big red flag for credibility in my eyes.
I'm sure the math guys at + Plus Magazine can evaluate the probability data presented in the article. Hell they gave it a award! But anyone with a corporate finance background would immediately recognize that the author is lacking in finance knowledge. - darkened, on 06/30/2009, -0/+4This article really goes with my point that Lehman Brothers was one of the very few banks that should've bailed out. They did nothing wrong. It was the underlying securities that caused them to be devastated. They did not write the underlying securities other banks did. Between the other banks colluding with ratings agencies Lehman Brothers was one of victims of this scam.
They sentence Madoff to prison for 150 years for a few billion dollars, what about the super elite bankers and the Federal Reserve and their 10 TRILLION+ scam of us? - inactive, on 06/30/2009, -9/+13It amazes me how many people beleive econonomics, a study of human behavior, can be studied and explained the same way math or physics can be explained. With housing prices soaring at 15 to 20% a year, its seems very obvious to me this is a credit bubble and that the Fed has "printed" too much money. Why would a house increase in value as it gets older. Answer, it doesn't, the houses don't generally increase in value, it is money that decreases in value causing the higher prices. Inflation always causes malinvestment then is always preceded by a bust in which liquidation of this malinvestment must occur. This just proves many people with PHD's are completely ignorant in the way the world actually works.
- JustLoren, on 06/30/2009, -1/+5Your last statement was very red herring. It implies that when the author squared .12 he got something greater (which he didn't).
The author was saying the square of .12 (.0144) is 16 times greater than the square of .03 (.0009).
Keep in mind that I have no idea of the significance of the "square of the probability", so I'm all in favor of more explanation as well. - DextramPennae, on 06/30/2009, -0/+4So, that is one of the methods the banks used to accommodate Gov't demands that they make more loans in riskier neighborhoods. Insure the loans and just give them out to anybody!
- TimDigg, on 06/30/2009, -0/+4econonomics...I guess that's what they teach in cananada
- schmidt349, on 06/30/2009, -0/+3Looks like the mathematicians working for Lehman Brothers forgot to chew their Garry Gum...
- r0ji, on 06/30/2009, -0/+3Hadn't noticed. Dugg for making me smirk.
- jordantneff, on 06/30/2009, -0/+3They do in AMERIKUHHHH!
- TTTrouble, on 06/30/2009, -0/+3This was a decent explanation, from what I skimmed. However, I found this previously popular article to be a lot more informative and specific.
http://digg.com/business_finance/Recipe_for_Disast ... - LocalDocal, on 06/30/2009, -3/+6No, I'm going to gave to agree with him. With him, his typo is minor, and can easily be corrected by readers.
On the other hand, how many people reading the article will realize that he actually mean 'credit default swap' as opposed to 'credit derivative swap'? - DulcetTone, on 06/30/2009, -1/+4Any estimate on how many maths?
- emazur, on 06/30/2009, -1/+3Given Lehman's connections and the fondness of the Fed to bailout companies, Lehman seemed primed to be the last company in the world to be allowed to fail. A little investigating turned up some interesting links:
"Hedge Funds and the Global Economic Meltdown" http://www.youtube.com/watch?v=xUKSU1qahgE "Lehman’s Demise Was Most Assuredly All-About J.P. Morgan" http://www.financialsense.com/Market/kirby/2008/09 ... "Lehman's Collapse Was Not As Important As You Think" http://www.businessinsider.com/jamie-dimon-lehmans ... "Lehman got Wacked" http://maxkeiser.com/2009/04/17/max-keiser-blog-le ... - Mship, on 06/30/2009, -2/+4What cant you have a piece of a plan? Or maybe a portion? If you dont use the whole plan but just use a small part of it arent you just using a piece of the plan? This is not an attack this is a serious question.
- arjunatgv, on 06/30/2009, -2/+4Did you guys see the part about the author of the article. Ultra super geek.
- jackgalt, on 07/01/2009, -0/+2Lehman deserves all the blame they get. They paid prices for those securities based on their own calculations of the risks and returns (which were clearly WRONG, just like pretty much everyone else's on Wall Street).
As for Madoff (entirely irrelevant, by the way), he essentially just stole money from people by tricking them, which wiped out the retirement accounts of thousands of people. The Federal Reserve, on the other hand, merely lent money to the banks. So far, based on the TARP money paid back, the government has earned a healthy profit for taxpayers. - ayeroxor, on 06/30/2009, -0/+2What's the most intriguing is that all of the mathses were involved! Even Geometry, which is usually only tangentially related to things that take place in these circles...
- apr400, on 06/30/2009, -0/+2five
- dfross, on 06/30/2009, -0/+2Given the shower of ***** we find ourselves in now, looks like they forgot their anti-garry gum too...
- oldgal, on 06/30/2009, -0/+2This Frontline piece may give you more insight:
http://www.pbs.org/wgbh/pages/frontline/breakingth ...
...until Lehman's failed there was no recognition that financial institutions could be too big to fail. - kukurio, on 06/30/2009, -0/+2This is America. We do math here.
- schmidt349, on 06/30/2009, -1/+3"Maths" is correct, but it isn't a plural. It stands for "Mathematical Anti-Telharsic Harfatum Septomin."
- wpyh, on 06/30/2009, -0/+2Dugg for the fact that the writer is (or was) an Indonesian (see his name) Chinese (see his face).
- TehGrisp, on 06/30/2009, -0/+1Did anyone else think it was "Dick Fluid" at first glance?
- wc3452, on 06/30/2009, -0/+1Let me fix your post for you:
"Why do idiots on the internet think it's okay to cite Wikipedia??????? Wait you got voted down, and here it comes for me." - elighcash, on 06/30/2009, -1/+2Credit DEFAULT Swap, not Credit Derivative Swap...the swap is a derivative.
- jdlondon, on 06/30/2009, -0/+1Do you think Oxford University actually allows students to quote Wikipedia!!! Automatic fail and I would expect him to be laughed out the door.
- jackgalt, on 07/01/2009, -0/+1There is actually very sound logic for home prices increasing on average over time.
When you buy a home, you also get the land. Land is a limited resource, particularly because some locations have more value than others. Since supply is limited and demand increases with the population, the value of the land (and the home that sits on it) will go up on average over time.
However, the values will not increase all the time, in all geographies, or at rates anywhere near where they had in recent years. Furthermore, in places where homes were recently overvalued (e.g., CA and FL), it may take decades for home prices to get back to the recent peak levels. - jackgalt, on 07/01/2009, -0/+1It was a terrible article with plenty of factual errors, but the Lehman building is on 50th and 7th, closer to Rockefeller Center than Times Square.
http://maps.google.com/maps?f=q&source=s_q& ... - Scottamus, on 06/30/2009, -0/+1maths is definitely harder
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