Quote Originally Posted by Ken White View Post
I may be mistaken but I believe the reason we no longer have the worlds strongest financial system can be laid at the feet of two entities. The US Congress and political class who encouraged stupidity and the Financial whiz types -- who all used mathematical models to prove what they were doing was valid...
First off, we should disabuse ourselves of the notion of a national financial system. CDOs and credit default swaps are global, hence the global financial crisis. Second, proprietary use of a single, public domain mathematical tool which, otherwise used in numerous applications, is only relevant given a very narrow set of circumstances , is the principle culprit for the risk miscalculation leading to the debt collapse in 2007-9. And by proprietary use, we can easily say misuse was the culprit--including bad inputs, faulty assumptions about the performance of some independent variables (the value of the underlying asset of the derivative, for example), etc. This doesn't mean there isn't a simple way to sum up the cause of this latest disaster, it just means that simple should also be specific.

Ha also said:I'm dubious. I've watched too many war games, computerized and not, get manipulated and too many results that were unpalatable discarded. People don't play fair. Really messes things up, sometimes.
Yet you can discern the manipulation, presumably on its face if you did so without need of deeper analysis. And that's the point. We can't simply use (or abuse) these models without scrutiny, and even in a hard to catch case (like the financial crisis) there's plenty of evidence of what went wrong and why--only too often after the fact. The moral of the story is you learn, improve the model, use it better in the future or discard it if necessary.

Thus, I say again, when you feel the urge to apply numbers to any human activities and particularly the chaotic activities -- be careful...
A good lesson, but one that assumes some value in using numbers in the first place.