We're not going to say that we totally let our subscription to MIT Technology Review lapse. But if we had, we'd totally be signing up to renew it now. The latest issue carries a story that gives one of the most "my grandmother would understand this" friendly accounts of the August quant bloodbath.
The basic driver of the story is the Rothman theory. It doesn't name names or pin the tail on the fund whose unwinding equity positions sparked the bloodbath—hey, why don't we know who this was yet?—but it does set out how young men armed with computers managed to bring the markets to their knees this summer.
The Blow-Up [MIT Tech Review via Paul Kedrosky]
Posted by joe, Oct 19, 2007 12:45PM
The Quants didn't bring the market to their knees, they merely exacerbated an unfolding situation. The markets were brought to their knees by the combination of reckless monetary policy leading to reckless borrowing leading to reckless lending leading to even more reckless borrowing and ultimately to a house of cards that collapsed upon itself.
Quants were idiots, they were too large and too levered with too many of the same positions other quants, but they didn't cause the crisis, only made it worse.