Michael Lewis on Wall Street

22:49 Mon 17 Nov 2008. Updated: 17:15 28 Jan 2009
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Michael Lewis returned to writing about Wall Street in this article for Portfolio.com, and naturally it’s full of the tidbits that are so great to hear about how our economy works (or doesn’t work, depending on your perspective). There are plenty of good ones, but my favorite is this:

[Eisman] called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number. “They were just assuming home prices would keep going up,” Eisman says.
“The End”, Michael Lewis, Portfolio.com, 11 Nov 2008

Yes, those unbelievably savvy people at S&P, whose ratings department are/were supposed to be trusted with assessing the risk of investments/credit lines, simply didn’t have a “model” (that is, some black-box computer program of a mathematical formula some analyst thought would predict market movements) that could cope with the concept that house prices might, at some point in the future, not rise.

One Response to “Michael Lewis on Wall Street”

  1. Lev Says:

    Nassim Nicholas Taleb would not have been surprised (I’m finally reading The Black Swan and it certainly seems prophetic after the Crash of 2008).

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