Hey, welcome back Seriati. Forgive me if I don't go through that long list of belated responses right now, but let's start with just one and see if you can muster a counter-argument with any validity:
. The actual reality was laid out in about a half dozen links in our discussion. Your appeal to authority notwithstanding, nothing about that is really on point. The models were fine, they just couldn't anticipate a non-historic event (i.e., a significant increase in the sub-prime default rate on a national rather than regional scale).
First of all, Greg, all these questions were answered on the prior thread. If you've forgotten the answers I would suggest you re-read it.
If the models were "fine", how did they result in a catastrophic failure.
They didn't, they failed to express what would happen in a non-historic event. Much like I've never seen a "standard" climate model that throws in a random catastrophic meteor strike (and there we know they happen so it's not even non-historic), the financial models did not include a consideration of a national scale increase in default rate. If you look at the historical record, stability is the only word to describe it, prior to the crisis.
How would you define the word "fine" as an expression of the quality of the model, if you hold that it extends to situations where the model says that a certain adverse outcome could not occur and literally trillions of dollars are invested under that false premise?
The model is still fine. It still predicts exactly what it claims to predict. The premises aren't false now, nor were they false then, they were
incomplete. It's literally a caveat to every computer model (which is part of why I routinely criticize over-reliance on modeled results), that they can only include historic events.
How bad would the model have to be for it not to be "fine"?
You understand the models still work right?
And what exactly do you mean by a "non-historic event"? Since the event occurred, it's pretty historic.
I'm not sure I find this a serious question. Do you literally not understand that a non-historic event would be an event that has no historical reference in any data at the time a model is created? I gave you links to the historic mortgage default rates, did you look at them?
Are you saying that the model should be forgiven its flaws because the exact same failure conditions had not occurred previously?
I'm saying the model can't predict a result that there is no historic data to support. Should we throw out Newtonian Physics on Earth because they can't predict stellar mechanics? Or can we acknowledge that incomplete processes still can add useful information.
But more significantly, a model is a tool not an agent with moral culpability. There is no forgiveness to be provided or needed.
Not only would that premise be arguable (irrational speculation in the value of assets followed by a collapse has occurred many times in history), but even if it were true that this was unprecedented, the conservative economic model never came with a warning that it provided no protection against new dangers.
Once again, you're flat wrong that this was
irrational speculation. It was completely, 100% rational, it was just wrong under these circumstances. It could not account for the large number of non-economic factors that had put pressure on the history of the underlying data (which is exactly why the real fault here is the government's as they were the ones that created and forced those pressures).
And, why do you think it "came with no warning"? I've seen the models on the collateralized mortgage products they came with pages of warnings, but then and now, and on EVERY SINGLE ONE was a disclaimer that historical results should not be relied on as a prediction of future returns. The warning was LITERALLY stamped onto the paper work, the projections and the underlying models.
People chose to make rational judgements about how much credence to give the warnings because they UNDERSTOOD the underlying data, and not, as you imply, because they didn't understand it.
Instead, it was posited to apply to all economic situations, and deregulation was broadly pushed because of a universal belief in the benefit and safety of the free market.
Which is a nonsequitor. Where you slip side ways into your world view as if that was somehow getting support from your not understanding the prior issue. If the free market had been left alone, we'd never have had this crisis, the regional mortgage lender would still be the primary holder of mortgages, and we'd have some neighborhoods were no bank is willing to lend and that are under-served. Changing that "present" to what we have now was a specific decision of our politicians.
