Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: SilentZ who wrote (468086)	4/1/2009 9:57:31 PM
From: Tenchusatsu	Respond to of 1576587

Thanks Z. I saw that article before but didn't have time to read it all until now. I run simulations all the time, i.e. models. To make a long story short, the validity of a model is based entirely on the assumptions made. And there are a LOT of assumptions that have to be made in order to boil down variables into quantitative inputs. This rule applies to ANY model you craft, from computer chips to finance to even climate change. To paraphrase what I said before, "All models represent reality ... until they don't." Tenchusatsu

To: SilentZ who wrote (468086)	4/1/2009 11:00:36 PM
From: Joe NYC	Read Replies (2) \| Respond to of 1576587

Z, Good article. Interesting part was that co-relations of defaults were derived from market pricing data of CDSs themselves, rather than from the historical records of the underlying instruments or events. One thing that was mentioned in quote (but not explained very well) was following: "When they stopped rising, pretty much everyone was caught on the wrong side, because the sensitivity to house prices was huge. And there was just no getting around it. Why didn't rating agencies build in some cushion for this sensitivity to a house-price-depreciation scenario? Because if they had, they would have never rated a single mortgage-backed CDO." What I think it means is that since the issuer can "shop" rating agencies, and the issuer pays the rating agencies, there is a potential (to say it gently) for lack of impartiality and for lack of objectivity. What I wonder is how the rating agencies are still standing as if nothing happened... Joe