And Nassim Taleb has the cure…
Mr. Taleb Goes to Washington [The Big Picture]
First, he says, we have to unmask the charlatans of risk like Myron Scholes. To Taleb, Scholes is the Great Oz in this Emerald City because his work on options and derivatives allowed the whole of the financial system to adopt poorly understood products-like the ones that brought AIG down-that hide risk. To Taleb, Scholes’ academic work, which enabled the widespread use of complex derivatives, was like “giving children dynamite.”
“This guy should be in a retirement home doing Sudoku,” Taleb says. “His funds have blown up twice. He shouldn’t be allowed in Washington to lecture anyone on risk.”
Scholes was one of the principal partners and founders of Long Term Capital Management, the hedge fund that blew up big time in 1998… in the exact same way(under-capitalized, over-leveraged) to the fucking mess we have on our hands today.
If you can “thank” only one person for the predicament we’re in, you can thank Easy Al Greenspank. After him, you can thank Myron.
”The world changes, and we have to change with it,” said Senator Phil Gramm of Texas, who wrote the law that will bear his name along with the two other main Republican sponsors, Representative Jim Leach of Iowa and Representative Thomas J. Bliley Jr. of Virginia. ”We have a new century coming, and we have an opportunity to dominate that century the same way we dominated this century. Glass-Steagall, in the midst of the Great Depression, came at a time when the thinking was that the government was the answer. In this era of economic prosperity, we have decided that freedom is the answer.” NYTimes article, 1999