Send a Tweet
Most Popular Choices
Share on Facebook 14 Share on Twitter Printer Friendly Page More Sharing
Exclusive to OpEd News:
OpEdNews Op Eds    H4'ed 2/20/09

Bail Out Miracle: How to fill a $500 trillion hole with a $2.5 trillion bailout

By       (Page 1 of 2 pages)   2 comments
Message Monica Davis

Crisis-generated unrest, crime and violence are already rising, generated by food prices and shortages, fuel availability and price, a busted real estate bubble,  and foreclosures, factory closings, layoffs, and business failure.    We are so far gone in this insanity that somebody actually thinks we can bail ourselves out of a $500 trillion hole with a  $2.5 trillion dollar bailout.  Well, David did kick Goliath’s butt……

A leading Vatican Diplomat warned “that the current financial crisis could become a catastrophe unless solutions are found that respect ethics and invoke all levels of society.”  (Catholic News Service)  Archbishop Celestino Migliore, the Vatican’s nuncio to the United Nations, told attendees at a December conference on International Financing and Development that the problem is long-standing.  He noted that, “For some time we’ve found ourselves in the middle of a financial crisis that could (and has) become a catastrophe if its effects are allowed to impact other crisis: in economics, food and energy.” (CNS, 12-01-08)

True to that prediction, we are now looking at a world-wide economic catastrophe, a crisis which continues to be inflamed by an elite group of inside statisticians, economic war gamers, fund managers and modelers, who continue to be fueled by lack of regulation and oversight from a heretofore complicit government.  Having found gold in the statistical hills, their masters have urged them to even greater heights of quantitative alchemy.

One would think that with war drums humming, angry investors simmering and unemployed millions looking to land on someone as a scapegoat, that the field of financial engineering would be in disgrace, and its practitioners looking for a safe place to find a new batch of identity papers, but such is not the case.  If anything, the field has become more exciting and alluring.  Employers in insurance, banking, engineering and other statistics-driven businesses continue to advertise for financial engineers, or “quants.” 

Statistical modeling and financial forecasting have become such an integral part of finance that computer modeling has long since replaced human calculation. And yet, for all of its ability to generate untold zillions of decisions in a nano-second, computers and the human brain  share the same fault:  limitations in forecasting ability.

A recent industry conference noted the limitations of the human brain in probability forecasting, noting “…we had better make sure that we truly understand how probabilities are actually used in decision making – rather than how stylized hyperrational actions endowed with perfect God-given statistical information would reach these decisions.”

Nobody has “perfect statistical information”—we can’t supply all known variables, conditions, or permutations, even with our computers.  Garbage In, Garbage Out, remains an awful reminder of the limitations of statistics, algorithms and forecast modeling. In essence, as far as harm is concerned, the industry continues to rely on models that are inadequate for the task of predicting the unpredictable. In an interview, long-time trader, guru and industry critic Nassim Talib said:

"I worked on Wall Street for close to two decades in trading and risk management of derivatives. I noticed that while portfolio models got worse and worse in tracking reality, their use kept increasing as if nothing was happening. Why? Because in the past 15 years business schools accelerated their teaching of portfolio theory as a replacement for our experiences. It looks like science, and they have been brainwashing more than 100,000 students a year. There is no way my experiences can be transmitted to the next generation because of these schools. We've had fiascoes in finance that they need to neglect because they contradict their models…"(Fortune magazine, “Fear of a Black Swan,” 4-3-08)

Referring to the world-wide financial meltdown which mismanaged derivatives generated, Robert Zoellick, the President of the World Bank warned that people around the world would respond to this economic downturn with anger and fear.  And, while various American politicians, financiers and bureaucrats seem to think the solution to the multi-trillion dollar crisis is to throw money at banks and failing financial institutions, we are looking at a possible $500 trillion in derivatives.

Derivatives grew into a massive bubble, from about $100 trillion to $516 trillion by 2007. The new derivatives bubble was fueled by five key economic and political trends:

1.       Sarbanes-Oxley increased corporate disclosures and government oversight

2.       Federal Reserve's cheap money policies created the subprime-housing boom

3.       War budgets burdened the U.S. Treasury and future entitlements programs

4.       Trade deficits with China and others destroyed the value of the U.S. dollar

5.      Oil and commodity rich nations demanding equity payments rather than debt

(Paul B. Ferrell , “Derivatives the new 'ticking bomb'”, Wall Street Journal, 3-10-08)


Next Page  1  |  2

(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).

Must Read 1  
Rate It | View Ratings

Monica Davis Social Media Pages: Facebook page url on login Profile not filled in       Twitter page url on login Profile not filled in       Linkedin page url on login Profile not filled in       Instagram page url on login Profile not filled in

Wanna be member of the anti-word police, author, columnist, activist and muckraker extraordinaire. Author of:

Land, Legacy and Lynching: Building the Future for Black America

Urban Asylum: Politics, Lunatics and the Refrigerator (more...)

Go To Commenting
The views expressed herein are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.
Writers Guidelines

Contact AuthorContact Author Contact EditorContact Editor Author PageView Authors' Articles
Support OpEdNews

OpEdNews depends upon can't survive without your help.

If you value this article and the work of OpEdNews, please either Donate or Purchase a premium membership.

If you've enjoyed this, sign up for our daily or weekly newsletter to get lots of great progressive content.
Daily Weekly     OpEd News Newsletter
   (Opens new browser window)

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

Europe riots, food prices rise and jobs disappear: what's next for the US?

Heating, eating or sleeping: pick one

Days from Economic Meltdown: "Dr. Doom" says up to 33% of regional banks could fail

Kids Charged As Adults: The Death of the Infancy Defense

Legacy of the Debt Industrial Complex: Wrecked marriages, stress, suicide

Tanking Economy Generating Worldwide Violence, Drug Abuse

To View Comments or Join the Conversation:

Tell A Friend