Quants – The Alchemists of Wall Street – VPRO documentary


welcome if you’re close to the money you know like a oyster farmer I eat 100 oysters every week how many people need 100 oysters a week well I even because I’m their there if your touch if you’re in the business of making money and moving money around and counting money and it’s in the units of trillions of course you’re going to make more money and then you become so isolated from the real working world of the average person who doesn’t have this ability and is struggling to make it to keep his job to pay his mortgage to you know feed his kids and send them to school the best part of my job see the white shell no disease making a lot of money is like taking a drug you feel good head-to-toe it’s like it is very similar to a drug when somebody hands you a million dollar check or a five million dollar check you want more yes oh if I’m making five million I should be making fifty because I’m a genius no question in your mind that you are a genius and that the rest of the world owes you know you’re just so much better than everybody else a bottle of beer is a pound but you’re having a party so you need to have a hundred bottles of beer so how much is a hundred bottles of beer one bottle is a pound tell me how much is a hundred bottles of beer ball Wilmot Oakville the slim Stephan Alec wants one owned this couldn’t say no to her from fela hamburger and quant whoo-hoo yo yo buy food for with her fire from indoors a student of the inter said the inane Storting from the phenyl Shayla marked you go to a shop and you try and buy a hundred bottles of beer you may get a discount they may say ok for bulk so one bottle of beer is one pound a hundred bottles is not going to be a hundred pounds it might be 80 pounds and that’s the example of non-linearity doesn’t you don’t just multiply the 1 by 100 or it could be that the the shop that you’re buying the the beer from it’s late at night it’s the only shop that’s open they know that you need a hundred bottles and they say I’m sorry we’re only allowed to sell one bottle of beer but if you give me two hundred pounds then ok you can have a hundred bottles so it might be 80 it might be two hundred but it’s not going to be a hundred and that’s and that’s where the real world but that’s not in 99.9% of of Finance models acquainted somebody who uses quantitative techniques mathematics statistics computer science to try to model them the value of financial securities and had had a structure them how to hedge them Emanuel Derman oakville the Einstein from Wall Street Anand was annoyed in quantity or near the austerities not dukundra for Goldman Sachs in Baker new let i neva Kwon soap and Columbia University in New York I moved to this field in 1985 when they really went a lot of them and it was sort of a free-form business we were all amateurs now you can be a professional quant but in those days quite was sort of a derogatory word it was a bit like geek sort of him which is like another slang for sort of computer nerds or computer geeks there’s a lot more respect for quants now in a decade or so ago they were seen as these very geeky types who didn’t really understand the business well they are the business now Manhattan New York a beautiful and powerful place where I have a tremendous history in roots but also a city where money places a heavy hand on daily life now more than ever I used to be a computer programmer at a major player on Wall Street that is no longer among us for obvious reasons I was creating the plumbing of Finance I would write not the models themselves but the infrastructure surrounding the models I could do it sleeping some of my co-workers were self-satisfied complacent with a lazy state of mind in my better jobs I got to sit on the trading floor which was energizing most of my career I said in a nondescript cubicle farm but I was physically close to the quants the structures of CDOs and similar products the traders I saw what they were doing and I felt attracted they seemed to be solving difficult problems and working at the center of the action I felt like I was looking in through a window watching yet separate this really made me want to do the job the pay is good too just as they view the market itself different employers have different views on these topics I don’t want our agreement or lack of agreement on these issues to be a factor in my job search that is why I decided to stay off-camera and anonymous one of the first every equations in finance that I derived is still one of my favorites beauty is having the right level of complexity but not too much the key thing about this is it’s a it looks very simple but having a modulus and absolute value sign in it makes it makes it not what’s called nonlinear and that in itself it’s very nice and one of the problems with with finance at the moment is almost all the equations you get are linear which is boring and not realistic what financial models do for the most part is ask you for some input like what will interest rates be in the future or how volatile will interest rates be in the future or what will prepayment rates be in the future and then tell you what something will be worth today or later and financial models always ask you for some view of the future and then translate that into a price and so they can’t predict things in an absolute sense they can only predict things given your view of the future and people call that prediction but they’re putting the input into there in that sense it’s not a correct word prediction yeah I don’t think it’s a correct word and I’m people like to say that this great financial crisis global financial crisis that took place is a consequence of bad models but I don’t think I mean there are a lot of things that caused this but I don’t think models are by any means a major part I think it’s much more a question of incentives and yeah the way the whole system works rather than somebody foolish foolishly relying I mean there are people that foolishly relied on models nobody can predict with accuracy how people are going to prepay their mortgages in the future or how many companies are going to default on their bonds there’s always some view that’s driving a financial model yes oh well my my models I wrote a piece of software that you brought in all the elements of mortgages what your assumptions about defaults and pre payments or and so when you achieve that sort of golden moment where everything works it’s it’s the numbers are correct it’s easy for the individuals to use you know that is a great moment because you you walk down the aisle you see all the people using your software you know they may not appreciate all the work that went into it but you know and you you see it working and then in our case we were able to sell this software to all the major investment banks in the world I think we saw one of the ABN AMRO was one of our customers and you know all the European and Asian banks and American things Mike Osinski reactor Bennet winter high of Wall Street as polymer from software this lefty hippo day averse Nate told antique Alec a financial product a computer Bahamas Burbank Amelia distorted and viable unit clam but the but the input into these were all what’s called prime mortgages mortgages to people that to people that had jobs so they were secure they were stable people were making their mortgage payments it then grew into this vast enterprise and that you know I guess maybe it started to blossom around early the late years of Clinton and I left in 2000 after that it just went nuts you know they were issuing subprime mortgages a lot of sub problems it was a policy of the government both Clinton and Bush agreed that the government should force the banks to issue more subprime mortgages and of course the banks were totally in agreement with that because they could on a subprime deal they would make a hundred times a profit that they would on a prime mortgage deal so they were very eager to issue these kinds of debt now whether the buyers the end clients for these bonds really knew what they were buying is a good question the CEO is actually our fantastic instrument in the way that they take all these mortgages and package them up and then you slice and dice so that you’ve got each person to take as much or as little risk as you want fantastic idea brilliant idea if you’re going to sell these things you have to have a really big profit margin because that profit margin it may be profit margin but it also is a margin for error so it may have a theoretical value of this but you’ve got to sell it for this because this covers possible errors and once people start competing we to each other the profit margin shrinks that’s what happens when this competition and then stantly everybody’s buying and selling CDOs it becomes the biggest instrument on the planet and there’s no profit margin there’s no margin for error combined with quants and quant tools saying don’t worry about it and then here I have to apologize to to the planet I don’t should I apologize to the planet I did I did warn about the dangers in credit derivatives and in mathematical modeling it is clear that a major rethink is desperately required if the world is to avoid a mathematician lead market meltdown what you’re supposed to do if you’ve got a warning you’re supposed to take your warning and write it in book form you’re supposed to write 300 pages about the dangers of etc etc I’m a mathematician what mathematicians do is they take something that is maybe 300 pages and they try and condense it into one equation and that to them is beauty 6:30 a.m. on my way to the library we’ll stay there for the next 12 hours today’s work menial computation abstract manipulation of symbols by hand with a pencil which could add up to another 25 handwritten pages I like to learn new things solve really difficult problems I like the challenge of representing a portion of reality with logical symbols and systems I must have been 13 years old when I realized that you could calculate the volume of a bowl by breaking it into smaller and smaller rectangles the flow of crowds I like to observe the motion of crowds and since relations and forces that operate upon them heavily trafficked public space the crowds appear and disappear with the rhythm of the daily schedule I have the ability to see patterns and abstract mathematical symbols what’s the obsession with this particular formula it was the formulated crushed walls as a mathematician it’s a combination of the sublime and the ridiculous I’d like to say sublime because it’s got a lot of beautiful mathematics in them but ridiculous because ultimately you have to use a thing so it just relates the probabilities of defaults happening in two different things to the behavior of two companies getting independently and then fire what’s called a correlation is it a problem that I don’t understand most of what you’re trying to explain me you don’t and down we were really dumbing it down really yeah I did oh dear suppose you’ve got some one of these CDOs and the way the CDO works you get you’ve got let’s say a thousand mortgages and all these more is are piled into this contract and then the risk is whatever key thing is you’ve got a thousand different mortgages and you have to model these thousand different moves and within this copular model there’s a there’s an assumption for how these mortgages interact with each other relationship between mrs. Jones mortgage and dr. Smith how many correlations are the innocent two-by-two combinations of these things the answer is 1000 times 999 divided by 2 which is approximately half a million and how do you know how do you know what these numbers are these half-a-million numbers you don’t so what the copular boys do is they say let’s assume the numbers are all the same it’s too complicated let’s just assume that the number is 0.6 that’s completely ridiculous you’ve got really complicated model data with these complicated interactions between all these people so that’s from the sublime mathematical modeling to the ridiculousness of just saying they’re all point sets more senior people in banks don’t necessarily have a clue what they’re doing because all these quantities multiple PhDs and the people above ages management types they won’t understand the technical ideas of the quants know all about and that itself can lead to problems because if the quant says says something well what’s the manager going to do the manager just has to believe the quant and you’ll hear stories about about krons basing their models on four or five years worth of data and you think before face that’s not really representative of the economic cycles within within the housing market and what’s that going to do for your your mathematical models work because anybody who’s over a certain age will know that well actually house prices can very easily fall there was a moment I remember in 2007 I had our friend in the business socially making a social call and I remember she said said the Fed has got a lower interest rates or we’re all screwed and I remember thinking I sold all my stocks and bonds and I went and I thought jeez this is really going to be a lot bigger than people realize if you look around you there’s a mortgage on every houses loans on every car it’s a big market your credit cards and if it was failing you know they kept issuing debt people didn’t realize people wanted to believe that the everything was always going to go up I think they were blinded by the the amount of compensation that they were getting every year they’re clean they’re clean yeah yeah yeah nobody I mean these are huge numbers to make millions 5 million 10 million oh that’s a lifetime’s worth of money you don’t ever need to work again and everybody wanted that you know I could quit working this year I made enough money in one year I’ll never have to work for the rest of my life and that was the goal of everyone it appeared to me huh this is money okay and Aspen’s talking about making money making money making money every year you’re making money and then one year you blow up now the difference between this being your money and being a hedge fund is if this is your money fantastic you’re making money you’re down here you’re bankrupt if it is somebody else’s money if it’s a hedge fund that does this every year they’re taking a percentage they’re taking some of that as profit as their bonus effectively so they make some of that they make some more they make some more all of this money they’re putting into their own bank account and then when they lose money that’s their clients money that’s a lot it’s not their money so you’ve got you can so you can see why it’s very easy for people to abuse this kind of thing I think it’s fantastic the people who take risk should be compensated for taking risk but only if they are actually taking risk themselves taking risk with other people’s money you should not get compensated for I’m sorry I did that the Donald where that fits into economic theory but taking risk with other people’s money does not get rewarded sadly though it does in this business no but now there was a moment when I thought when I questioned why I was ever involved in Wall Street goodbye I need it right now on the double hi that’s something I thought that people would be more judicious and more conservative in their lending and I was involved in it and I thought well wait a second these guys are out of control totally the piece of software per se you know that’s a sort of inanimate object yes people used it but you know if people had used it and put good mortgages into it who never would have caused a problem at all but when you put you know mortgages that you have a fairly high certainty that people cannot repay and then half of all the mortgages issued in a given year that type of mortgages yes the industry has gotten out of control trillions of dollars a year basically went through that model these bonds within two and three years of being issued went from triple-a to unwrite I mean just catastrophic collapse a lot of trading firms that kept these the riskier pieces in their portfolio saw them drop to next to nothing and given the leverages the amount of leverage under the amount that the banks had borrowed they were suddenly in a financial panic Saturday after midnight still studying I know long hours will not stop when I enter a future job as a client because I was primarily a technologist I did not fully understand what was going on I think part of my motivation post-crash for becoming a quant is to gain that understanding having been through the personal experience of seeing the destruction of my firm looked again at my resume that I put out there the same headhunter called again today to see if I would like to take a job in my former field as a financial technologist I declined again of course no invitation for a quanzhou Piett people that are in the business right now probably refuse to talk to the public if they were to talk to the press they would be fired so only limited few people in the business have the option of talking to the press once you’re in the world right I mean your phones are ringing you know from the moment I woke up in the morning and I remembered you know a lot of these guys I do quite well they try to wake me up 6 o’clock oh I thought you were asleep you know can you be up till 11 o’clock you have to be wired you have to be alert every second you have to be engaged and and you have to be perfect and you have to be right all the time the software fails people lose millions or billions can’t happen you can’t you can’t be wrong you have to be perfect it says it’s a lot of stress my wife was in the business with me we both would wake up in the morning and describe similar nightmares phones were ringing we couldn’t answer them and then we sort of grew out of that and we both realized that we didn’t know what day of the week was that’s right boy there’s always videos person departures Barclays dangerously Pleasant read the planet record is brought to you by the Deaf 1.6% it wonder the up 1.2 percent so is the CAC in Paris hey Joel boy stirs banking is completely lost touch with its purpose its original purpose and is now becoming dangerous it used to be that when some of these derivatives were first invented they were to help your farmer for example hedge the value of his crop so he was he wasn’t speculating on the price of wheat he was busy growing it now there are more people trading these these commodity derivatives and then are actually involved in the production of the commodity so which is completely bizarre I know a lot and quite a lot of people in this business who are feeling a bit jaded now people are starting to ask questions my nice friends I started to ask questions about the role in society you may be making lots of money but are you is it something to tell your grandchildren oh yeah I was a banker I was there when I caused the the 2008-2009 crisis etc what are they actually doing with their lives or their or just moving this money around this isn’t necessary such a business to be proud of I think that’s probably planning 30 35 pounds responsibility is just not a one-way street when it’s successful you’re responsible well you can’t be unresponsible when the same same item is is a failure you have to have some type of responsibility and I could say I wasn’t but I was involved I made a comfortable very comfortable living and and I was proud of what I had done I never I myself never saw this kind of debacle pretty big muscle to see a little Wilder this is a you know they’re yellow on the inside different color a chef and the city loves this wild taste I only do it for one chef because if I did too many there wouldn’t be enough you know the model is Hippocratic oath I will remember that I didn’t make the world and it doesn’t satisfy my equations that’s obviously that’s it that’s about having a a mature appreciation that whatever you do that the models are never going to be perfect I will never sacrifice reality for elegance without explaining why I have done so so it’s again it’s a competition between the real world and the elegant world of mathematics and sometimes the real world is just dirty nor will I give the people who use my model false comfort about its accuracy instead I will make explicit its assumptions and oversights quanta are asked the following by some trader they say well look you’ve just measured the risk in this portfolio it’s too big okay to quant back to the drawing board I want you redoing numbers and come up with a smaller risk it doesn’t mean change the portfolio it means change the maths to make it look less risky people can use the models to hide risk though I will use models boldly to estimate value I will not be overly impressed by mathematics people make finance too mathematical so mathematical that many people who have to implement the models don’t understand what’s going on and once you have too much mathematics it’s difficult to see where the mistakes are I understand that my work may have enormous effects on society and the economy many of them beyond my comprehension so this is a serious business it’s what it’s saying the quantitative finance banking has become so enormous it’s it’s outstripped all other all other businesses and really it should just be a service for these other businesses rather than we are everybody is now working to she service the banks move is what it feels like it’s it’s completely changed the nature of the world always banking again so there’s a nice little picture of the book of me and Emanuel Derman with our with our Karl Marx beards on because obviously it’s it’s basically that the inspiration was a kind of communist manifesto you take the combined the communist manifesto with the Hippocratic oath and this is what you’ve got when I first came to the field I was sort of optimistic about using quantitative methods on the financial markets and I don’t think they’re useless but them but I’m trying to think how to say it I don’t think you can use quantitative methods to explain markets either people like borer Einstein or Schrodinger or Fineman discovered things that um that seem to be God’s true for most you know even if they’re they’re not 100 percent accurate and I’m I don’t think that’s possible in finance I sort of think it’s an illusion it’s the world the financial world and their world of people is changing the whole time history doesn’t repeat itself whereas in physics history repeats itself all the time you can do the same experiment over and over again so I don’t know somewhere somewhere somewhere after five or six years in the field I began to realize that it wasn’t the same thing as doing physics in physics if you wake up in the morning and think of an equation or think of some theory you actually have a small hope in hell that you might actually be right but in finance if you write down some set of assumptions and you look at yourself honestly it may be useful but you know it’s not going to be right in some absolute sense because you’re dealing with people and and people don’t work that way another weekend trying to remember all the parts of the city I haven’t seen since I started the course longing to visit art galleries eat out every night to live the day at the library seem to have more hours than the normal 12 studying alone with other people doing the same thing I feel like a monk in a monastery it’s peaceful the library is quite old sometimes we have to cover the air-conditioner with old Soviet mathematical journals from the 60s once I dreamt of doing pure science working on rocket ships working at a small start-up company there has to be a way to be creative as a quant – like designing new financial products and the math to price them do you think it’s always possible for people to express a worry they have about the things they’re building or writing it’s possible people may not listen to them in the end most of these people are employees people don’t always listen to you but yeah it’s possible to do it and I think people should do it and I think people who use the model should should understand that but I don’t honestly believe that the models are responsible for what happened in the world I think what’s just one for what happened in the world is that they’ve been an increasing number of they’ve been an increasing number of crises since 1990 financial crises in the world since 1994 and every time people are used to people are used to constant growth and acceleration and every time it slowed down the government stepped in and tried to stimulate it again by lowering interest rates just like they’re doing now and so you get these sort of a rise and a collapse and then people don’t like the collapse so they lend money cheaply enforcer’ rise again and each time the oscillations get bigger and bigger and they doing exactly the same I have no idea what’s the right thing to do but they’re doing exactly the same thing now which is trying to stimulate the economy every time it looks like it stops growing fast it shocks me that as a person who runs many businesses that we can talk about an economy shrinking by 1% is also growing by 1% is fantastic this difference of 2% how can that difference in 2% have such a big impact on the world around us 1% plus or minus in my businesses I won’t notice the economist sir they think that they’re scientists so they come up with these what they call laws they’re not laws laws of gravity that’s a law anything that Isaac Newton comes up with it is a law but when the Economist comes up it’s just a framework an idea it may work it may not sometimes it’s that’s not a law but they think their laws and so they build up this whole edifice of theory based upon this very shaky foundations and they get all sorts of nonsense coming out of it let’s ease off I think that the natural world is something you learn to appreciate through a struggle in the financial world you know money is a man-made phenomenon right it’s like a game right where you make the rules well money is a game that people make the rules for but out there the day-to-day activity is not about making money the day-to-day activity trying to grow an animal a healthy animal or a group of healthy atoms that’s a big difference that is beautiful believe it or not that is beautiful the beautiful thing about this is it says that in the risk-neutral I’ve got to keep emphasizing this is the risk-neutral version when mu equals R if it was the real world if this was the real version it would have some dim UD T’s in it now let’s do some manipulations now some of these manipulations are straightforward six over zet in which case there are no Zed’s in there at all if you say to me the d by d big t version because we want them we are trying to find the stochastic differential equation not for log said so you’re going to end up with new minus 1/2 Sigma squared let me backtrack it a wee bit here and we have a stochastic differential equation for Z then we can also write down stochastic differential equation for F there was a very very short period of time when conser in the doghouse so to speak the people were saying but all banking is changed forever a Kwan serveth I’ve finished there’ll be no more these credit instruments and I said you know second guys you really don’t know your history you don’t know human nature this will all blow over you know in a matter of months because we’re back to the big bonus is everything goes back to as it was if people don’t complain now then it serves them right when the next financial crisis happens twelve hours to go before the evening classes start I feel United with my classmates but the enormous workload it’s actually the fees that we’re trying to maximize right of course we have to maximize returns we have to do a good job in managing their money otherwise where we’re going to do pretty poorly at collecting those fees I wanted to feel challenged again and enrolled in a quant program it cost me $60,000 tuition which means more debt that I now have to take on the incentive fee structure basically means that maximizing the twr is like maximizing fees think about that that’s kind of tricky this course is a year and a half full-time one and a half years no salary expenses living in downtown Manhattan plus paying full-time tuition so no alcohol for me not a drop at least till the end of the first semester I can’t afford to lose a day to a hangover hardly any social life for the time being most of the other students are Asian or East Europeans math is their first language and our common language we Americans are the minority maximizing the number of times that we’re going to penetrate the previous high-water mark we’re actually maximizing incentive so you can see that this this type of optimization is very hedge fund like does everybody get it so far used to be the physicists were splitting the atom whose splitting the atom these days building bridges who is people building bridges everybody wants to move into this field scientific creativity is becoming financial creativity which is all of the bogus Kwan’s are essential to modern banking because so much of it is based upon new techniques like the latest thing is the algorithmic trading that high-frequency trading for what you need math skills it used to be you know historically you just have like floor traders and brokers you know screaming and shouting down on the floor of exchanges and trading stocks you know and the order came down and they would run up and they sort of a muscle there he added we’re a different color jackets you know the classic pictures we’ve we’ve all seen Matthew Goldstein almost obscene list for PES below Reuters do same from the ears to the Kefauver format high-frequency trading on cotton the reality is so much of this doesn’t even take place there I mean that’s becoming such a lesser part of trading in what goes on it goes on in the back rooms and it goes on in these these modeling’s where these programs are put together by computer geeks basically so high-frequency trading is just about taking all this data analyzing very very rapidly and then putting on trays that may last milliseconds what worries me the most is I was disturbed to hear that some firms get faster access to the markets than other people I forget what they call it now but people get like a tenth of a second advantage big firms which i think is unfair hedge funds try and get the black boxes as close to an exchange as possible because it takes time for the signal to get from the black box to the exchange to buy or to sell now of course that is dictated by the speed of lightning now we’re talking about trading at the speed of light the classic crash was the 87 the 19th of October 1987 crash that happened within a day all that the big move the 20% fall and S&P 500 was within a day the next crash could be within minutes so what is the black box a black box is just something that has it has inside some kind of formula maybe secret or maybe not that takes in lots of data and the data might be stock prices and might be other information and it tells you what to trade what to buy and sell and my favorite is is Google search terms trading based on what people are searching for it’s not a black box in the sense that um you know if you if you saw the algorithms you could fit what you want you and me might not be able to figure it out but but wiser minds maybe could and computers can certainly read it so it’s a black box in a sense that it’s almost hard for the human mind to get their arms or you know wrap themselves around to really understand what’s going on and you know people have said for years that Goldman itself is a black box we don’t really know how it makes all this money in the billions of dollars and you know the big bonuses we hear about the New York Stock Exchange building is big facility out in New Jersey which is you know right near in New York and and basically it’s being built for high-frequency traders so they can have their equipment very close in a very can you know tightly knit factory essentially to do high-frequency trading well who gets to have their server where’s there going to be a lottery you know you know does someone pay more to get closer I mean it’s sort of a it’s sort of absurd when you think about this is what it’s come down to the battleground is ultimately going to be who has the most resources who can pay the best salaries to hire the best brains in reality we’re talking maybe about a dozen or so really top players you know and not everyone can be a customer of goldman sachs not everyone can be a customer of morgan stanley or no berkeley also it does the the high frequency trading means people more concerned with the price of something and not its value value means what it’s really it’s really worth price is just what people buy and sell for and if you buy something now sell is second or two later all you care about is the price you sold it for is greater than the price you bought it for it’s actual value who cares it sort of flies in the face of what we sort of think about what what the what the markets are really about the companies themselves almost don’t matter what they do doesn’t matter it’s just the fact which way their stocks move is all that matters and what’s sort of great thing about it that I’ve I’ve seen from the standpoint is the systemic risk that might be involved it’s so much of this trading just takes automatically and just takes place so quickly that the the human element gets more and more divorced from it I mean the human beings are obviously responsible for for writing the programs but there’s no human being intercepting between these trades and we saw this a year ago with United Airlines there was a false of bankruptcy rumor some wire service inadvertently and transmitted an old story about a UI bankruptcy filing the problem is all these news reading algorithms saw that and immediately started sell sell sell in a matter of minutes United Airlines stock is cut in half that is clearly a case where the computers have gone wild banking is taking over the entire planet and is having such a major impact on the man in the street and it really should not banking is supposed to be to take money from people with too much to give to people with too little who maybe want to start a business if you’re a business idea but that’s not what banking is about anymore banking is just about gambling on these these numbers not realizing that behind these numbers there are human beings with jobs there’s always been a joke about the New York Stock Exchange becoming a museum at some point and they’ll just have it for like a show there and people running around this is the way we used to trade stocks you know isn’t it so quaint in everything at the same time one can argue though that if there’s this big backlash in high-frequency trading we may see revival to some form of human element inside that people may say you know as flawed as human beings are we don’t want to give everything over to the machines either just walk past a crowded Wall Street full of Chinese tourists asking me if this was the actual stock exchange Wall Street as a location is not any longer what it was many banks moved their front offices uptown and their back offices to newer and cheaper spaces in New Jersey now deutsche bank is the only major firm left on Wall Street proper nearby is Goldman Sachs with no name on the door also about to move there are almost no large firms headquartered in the neighborhood that was the cradle of American Finance only the New York Stock Exchange remains its facade one of the most iconic symbols of global capitalism I’m always trying to encourage young people to do what I’m doing I mean it’s a young person’s you know it’s pretty some pretty physically intensive they really haven’t grown that much I may not make it to Christmas no I like a bigger we sell a much we typically sell a much bigger oyster right what do you find more satisfying well software is much more mental you know the pleasure in the mental exertion is pretty intense I get million lines of software’s a lot – man you have it all memorized right and there’s a pleasure of like ask ruble Scrabble doing that kind of word puzzle kind of thing uh although it’s not that healthy you sit in front of a machine you have the terminal face effect you know it’s not the same as this oh yeah this is pretty uh not good I mean day like today pretty idyllic right you’re just out in the water a nice feeling bringing food and I think we we still about 150,000 oysters which is uh that’s $100,000 you know of course I live off interest you know so I don’t this is nice to have I make some pocket money etc etc and the overhead here is pretty small you have to come to grips with nature like I these these oysters should be bigger every year the ones that I pick in September and October are ready by November why they aren’t I don’t know and there’s nothing you can do about it right we’re in software you can do something about everything you can modify you can get you can creat make you know this virtual world you can make what you want here you know you have to live constrained by the real world




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  1. Profoundly idiotic intelligence. Variable rate loans are real. The 1% increase is 1% of, say $200,000,…or $2,000 a year in mortgage payments. Real money. A crisis for most average American families. And then is becomes a 2 or 3 percent hike, and you're talking about defaults. Hundreds of thousands. Bundled collateralized mortgage, where scores or hundreds or thousands of defaults occur within the "security", and consequently we're talking about the material erosion of original value, and a financial crisis for banks and other originators and their clients. So here we are, December 2018. Interest rates are again rising, this time for the first time in a decade. There are tens of millions of variable rate loans. …. So, is another financial crisis is just around the corner? Absofreakinglutely. Easy to take advantage of if you know what you're doing. Impossible for those of us who don't.

  2. These idiotic quants magicians were continusly buying the tops of the stock market these last months while other experienced traders and I were preparing to short it and we got the top of Apple bare one perc, not only that but we also knew we should take profit temporairly in the 14X area. Are your complex models able to pull that off? You're not gonna beat a good trader's instinct yet despite they just use a handful of basic trading tools.

  3. The worst thing about this video are the morons in the comments who can't begin to understand the difficulty involved in quantitative analysis

  4. I think this is made up. Like, what are they talking about? An entry level quantitative analyst is a bachelor's degree and a 40k salary.

  5. 28:20 hmm… I'm studying mechanical engineering and I am also interested in financial engineering. But this made the point about the difference of physics and financial mathematical models…

  6. Here are the accomplices that set the groundwork for the biggest swindle in economic history. And like everything in today's age they want to frame themselves as innocent to the ultimate impact of their actions, they just exploited greed and created tools to help people profiteer.

    These men should be ashamed of themselves……..

  7. What a waste of time ! If there were a mathematical formula that predicts correctly the market moves then this People would have gained money systematically until they get hiperich, and guess what, they are not.

    There is one thing that fuck up all this mathematical analysis and it's called VOLATILITY.

  8. I did maths from a top university and then did Masters in financial maths – most of the material was useless in the real world. After I just liked the general outline of finance/investing concepts which are far more easier to understand and practical. Later did a Masters in Real Estate Investment & Finance and found that even more practical to life. The only thing a company will care about if they do not understand a Quant with PhD and years of programming/modelling is if he can produce models that make the company money! If the can create correlations between certain data points to give an early trade advantage for the hedge fund. Otherwise it is all useless. In the academic world the concepts are celebrated but in the real world it is all about the $$$'s!

  9. Is this a Joke, sounds like snake oil to me, lol These guys are just peddling a lot of useless programs to dumb people. In my humble opinion sounds like a con to me. A program that will predict the future lol!

  10. This is all based on spurious "mathematics " if you like .This is not economics or finance this is based on "models" …Models are actors and it's all based on pretension or a claim which is basically a bullshit gambling theory.Physicist's have no business in monetary transactions. This country's economic and commerical system was founded on simplicity ….Trading and transacting in gold…

  11. All this bullshit napkin formula works for one reason the cartel agreement of perpetual interest curve to hell of rolling over the previous interest on unpaid fiat currency bonds, and bank loans. If one gold dollar would buy an unleveraged goods or services, than these financial weapons of self destruction would never exist. And the crowding out financial asset shuffler industry of self perpetuating leverage on hypothecated debt on hypothecated debt. Other peoples money is the child of the Central  Bank Cartel.

  12. Chronism and theft and hiding mistakes and incompetency by playing fast and loose with the economic reports to fit the flavor of the day and who is in power at that time.

  13. World should be lead by life scientists. They know how complex and chaotic the system actually is. Math and engineering first symbolizes and simplifies and isolates a problem, then solves their own problem, not the real problem, then self congratulates.That is how the planet goes down. These financialists haven’t even seen the planet and ecosystems functioning. Self proclaimed geniuses are in fact socially deprived and environmentally naive.

  14. The Truth is at 3:46 minutes and seconds, this online video became 'Erascible.' I could not go any further because my mind was filled up with 'the Brevity' – as people would say in Zimbabwe – ''…'this situation'.''.

  15. when you neighbor gets into an auto accident the correlation that you will too is 0. They are mutually exclusive. However the probability that if you default that your neighbor will too is not zero. However they were permitted to use this auto insurance zero correlation risk model to establish the risk of the CMOs

  16. At 36:53 someone says, "We Americans are the minority."  Well, now you know why you are always broke no matter how much money you make and why the wealth of this nation continues to flee our shores …or be extracted as some commentator in a fit of rare candidness said. Americans are too busy with their 'feelings' or whatever distracts them from hard work to even sit through this fascinating documentary about why they continue to get financially cornholed by the banks…

  17. As an information tech professional of over 25 years it is obvious to me there is a HUGE gap in understanding between those that create the models and those that make the REAL decisions about $$$ and people's lives. I see it everyday in my line of work. VPs making million dollar decisions based upon what a consultant (who is paid to sell product to this VP) tells him rather than his/her own employees. A VP that hears what they want to hear instead of what the room full of IT professionals (that he/she hired!) are telling them. An operations manager who gets a promotions for working around the software/audit system as the IT staff are grilled for being obstacles to "the business".

  18. What is the difference between these guy and religious people telling you you going to heaven or hell , or their is life after death where is the prove.

  19. In my view, the real problem is treating money almost as a religious item. The actual value of money is zero. It is an imaginary product like a work of fiction. It functions as a tool for trading goods. Banks have far overgrown the actual need for them. We need to start thinking more about our moral, spiritual and scientific development. Nobody is stupid enough to put a bank in the international space station, why are there so many of them on a single street in some areas?

  20. 😂😂😂The models don't much because the finance world is all fantasy🤣.
    Economy is a balanced system based on inventories. Have nothing to do with fantasies like POLITICS, ideology, notions of right and left at all!

  21. The statement at 19:35 that folks shouldn't make money risking other peoples money is pure bull. Folks investing with hedge funds are they themselves risking money. Every investment is a risk and every risk means you can lose it all and then some.

    I am not a fan of the profit model of a bunch of funds in that they literally have low to no risk as compared to the client, but that is known up front and if you do not know that then you should not be risking money period, but learning about how the investment works. That is in all walks of life whether it is investing in a house, using no interest credit on a short term basis, of funds, whatever

    The world of the individual not being responsible for the actions they take because of their own ignorance is not a world in which the individual has power as that same logic also means you are not responsible for the things that you do that are positive, its all just pure luck.

  22. I am a microbiologist and the financial market relies on mutations to become positive enough to drive investors to your firm for a chance to match the return of an investment that has already passed as a opportunity and is therefore a risk of your capital …not theirs

  23. All slaves to the banks… the great doom of humanity… instead of using those tools to fairly spread the wealth around and help all humans obtain some living security and access to healthcare! Filthy greedy scums…

  24. there is no math to human chaos which is the stock market. study physics instead, these have formula that are repeatable and make sense.

  25. What your program can do I can do in my mind
    What happened to human side of it

    We live in a simulation
    A d the markets are simulated

    And I can prove it

  26. Canada 2019 ZERO% gdp growth . realestate 1% more interest up and 50% millenials DEAD. A whole generation of Canadians LIED TOO and manipulated. THEN unemploy them by PAYING 6-10,000,000 TEMP FOREIGN MIGRANT untrained WORKERS displaced 5-10-15 MILLION Canadians LOST 10-20-30-MORE !!!.

    these snakes

  27. The trouble with owning big money and the love of it is that it's like a corrupting virus. It affects the people who hold it and then moves on to other victims. Look at the super-wealthy and ask yourself 'Do you want to be like them'?

  28. Good quote in this documentary: The original purpose of banks was to serve people, now people serve banks.

  29. sounds like a bunch of crooks trying to justify their need for giant egos + greed; now called innovation!

  30. In fact quants are a less than academic actuarial science . A small part of it , but for sure a little more
    foundation. As for sub prime , this is simply collusion between the Fed and regular retail banks to
    pay the banks a fee for each loan , and there for make more money . None of these assholes do not talk about changing the parameters , and stopping this theft . But at the end of the day , it is the ' investor ' and
    his greed that he allows himself to rationalise the bullshit .

  31. I wonder if you were to survey these quants what the average response would be to this personal satisfaction question: "Does your work fulfill or merely provide?"

  32. Wall Street, and all other similar institutions, are made up of parasitic fraudsters who do not contribute to society one iota. They are gamblers pure and simple. Their victims are the ones on whom they bet.

  33. Businesses are suppose to fullfil human needs , more people means more money more business and when fear comes it gets nasty , every new generation first learn then act in this world , as population grows more and more money gets in circulation, impact is getting bigger and bigger every decade

  34. The flash crash is an example of trading systems that lacked self defense mechanisms. That's back-office programming — not quantitative modeling. I consider the attacking program a brute force program, employing logic that was probably simpler than the software preparing your tax return. Why cover this junk when there are so many real quants?

    The 2008 catalyst had nothing to do with quants, math, or computers. Fannie and Freddie encouraged loans for every situation, no matter how pathetic. You could have a No Income No Job or Assets applicant and qualify for a loan with a juicy interest rate for investors. This example was called NINJA but there were many other absurd situations allowed.

    Want to put just 2% down? No problem, charge a higher rate for investors.

    LTV outside the guidelines? No problem, just hire a shady appraiser to inflate the appraised value.

    Losing sleep over the dozens of fake, inflated LTVs you submitted? No problem, real estate will never cease to go up.

    Have an illegal alien without a social security number but wants to own for less than the cost of renting? No problem, make an interest-only temporary ARM with a teaser rate. Underwrite it under a low-doc or no-doc category.

    At least 12 months before the collapse, everything I mention here was common knowledge in the industry. EVERYONE in the business knew.

    I thought this documentary would cover the big winners in the quant business (Navellier for example). Instead, it spins foolish conversations.

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  36. at 17:07 sounds like Osinski is saying he sold all holdings in 2007. Probably did, since most quants knew what was coming as early as 2006 but couldn't pinpoint the timing– I sold in sept 2007. somewhere in video somebody says was really all about commissions and management ignoring the evidence, not about quant programming.

  37. The world is finite, life is absurd and ridiculous (just watch this shit) all I need to know is that I won't add anymore meat to the grinder. You can paper over all the realities of existence with your fancy calculations, in the end life is still hell and you only get out when you die. Peace & quiet. All the rest is bullshit: one human or a bunch trying to dominate and scam the rest. 'For our children'. Well spoiler alert: your kids are fucked, they will have a real short life span and no good reason to have been pulled from the void, to which like you and me, they will shortly return. Leave your kids unborn: most compassionate act available.

  38. Its very few people wjo understand the global economy. best i can tell is that loans are making all the worlds money by far. its not taking nothing and making something out of it .its not how you think monet woukd be made.

  39. "Hey!!! I like your channel. It is content rich. Keep making informative videos. ▶️📺🎥🙌🏽💥"

  40. Me sorprende que es un documental hablado en inglés y subtitulado en español para hispanohablantes. Sin embargo, ni un solo comentario en castellano he visto. ¡Qué irónico!
    Por cierto, yo me dedico a crear modelos de derivados financieros.

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