Wall Street GIGO November 21, 2008Posted by Jim Satterfield in Business & Society, Economics, Government, Technology, The Big Crash of 2008.
Scientific American points out a couple of things that helped lead to our current disastrous situation. What, you might ask, would SciAm have to say about something that comes down to economics and politics? Simple. The financial industry pled for a lifting of rules for how much they needed to hold in reserve. Complex modelling was used with a basic set of assumptions in order to forecast what these institutions could do under the new rules. Those assumptions were based on old fashioned basic assumptions from classical economics. They were completely wrong. The models based on them failed miserably. The big question is whether or not the people in charge of these institutions will draw the correct conclusions in the aftermath and with their egos I just don’t know if I’d bet on it.