My recent post on the sorry state of financial engineering seems to have touched a raw nerve in the FE community.
I will not attempt to respond to anonymous comments since the US Constitution gives every citizen the right to look his accusers in the eye. People who wish to remain in the dark usually have nothing to contribute themselves, and that’s fine of course. Besides, I am not here to try to win a popularity contest. Are you?
The most interesting puzzle is why someone who apparently teaches FE himself would bad-mouth his own occupation. It seems counterproductive and nonsensical at best. Perhaps you should reflect on this for a while before rushing in with sour grapes. By the way, please leave Baruch College out of this. Institutions don’t teach classes, professors teach classes. I wrote this on my own time, and nobody else but me needs to feel responsible. Taking responsibility is, however, what we are really talking about.
I wrote that post four years ago but was waiting for this easily predictable cesspool (the credit crisis) to point out that if financial engineers had been actually doing what they claimed to be doing, this mess would never have happened.
In the early days of bridge building and aerospace engineering, many bridges and airplanes crashed. That’s ancient history for you guys, but very relevant. Thereafter, the field improved rather quickly and, magically it seems, bridges and airplanes stopped crashing. The same thing could happen to structured deals.
In the end, it will not be possible for financial engineers to walk away clean from a trillion dollar disaster by saying they had nothing to do with it. They had a lot to do with it. What matters now is not to try and exculpate ourselves like the French cop in Casablanca, but to start getting to the heart of the matter. This means that we need to engage the field and find out how to become relevant to the mainstream segments of American finance.
These people manage other people’s money (yours, for instance) with essentially zero knowledge of structured finance and of what they are, in fact, investing in. They don’t have a Ph.D. in anything and are just trying to feed their families, and yours too. Why don’t you help them figure out what the Hell is going on out there, instead of speculating on the transcendental meaning of copula functions, and on how to invent the next one?
I would love to be proven wrong about FE graduates. What is it they say in Missouri? Don’t tell me, show me.
— Sylvain Raynes
3 Comments
Wouldn’t you agree that it was not the excess of FE that caused the mess but of lack of it? That is, most of the infrastructre (including regulatory) was run by people who didn’t have a clue of the risks embedded in sructured products? I work for a bank that knows a thing or two about multiname credit, and I like to think that the reason it’s stills strong and standing is partly due to that. We certainly understand what the LLN means for the correlation on a CDO of ABS. I presume people in the RAs also knew this, but there other forces beyond their control.
As Bob Merton recently said, let’s not dumb down the system to accommodate managers and regulators who don’t have a clue.
Which bank is that Bob?
Dr. Raynes,
Since you don’t seem to care for MFEs, as someone interested in a career in finance, what graduate degree would you recommend (such as MBA in finance or Masters in finance)?
Thanks!