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Life and Times of an itinerant slacker in Sacramento. Thrills, Spills Galore coming soon. Not to mention lots of opinions.

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Wednesday, April 29, 2009

Modern Finance Explained

It's hard to understand about the strange financial instruments that that have caused the financial meltdown that, after our collective trillion dollar handwringings, we still can't see clearly.

One piece of the picture is the the pseudoscience known as Financial Engineering. It was the unique application of Financial Engineering genius that allowed banks to be 100% sure that the varied and sundry mortgaged - base securities they hold are sound.

How did these folks develop so many unpalatable securities and convince financial institutions to gorge on the things?

Well, like most problems in life, you can find the answer inside a cow. This article in the New York Times exposes a line of thinking in the meat industry that is a clear and understandable analogue for Financial Enginering.

In a nutshell:

Cut it up in a different way, and pretend you have created something different.

Derivatives, CDOs and CDSs, it's what's for dinner. Yesterday,It was a chuck roast.

That's my story and I'm sticking to it

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I must enjoy shouting into a vacuum, but I think about getting my act together one of these days. My mom says I am very handsome and intelligent.

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