Kurt Johnson

An emerging markets bond trader offered this wisdom during a recruiting event:

VaR is the bastard stepchild of econometrics. Econometrics is an ugly offshoot of economics. Economists are people without enough sex appeal to become actuaries.”

“There’s nothing like watching two guys with fat glasses and bad skin fight over what VaR means.”

Which reminded me of this, from an Emanuel Derman piece in HBR:

I went to work at Goldman Sachs in the field of quantitative finance, the branch of economics concerned with calculating the fair value of securities. At first I was charmed by the resemblance between the papers I now studied and the physics papers I used to read and write. Then, as I read further, I discovered that economists love formal mathematics much more than physicists do. Many economic journals encourage-or even demand-a faux-rigorous style with multitudes of axioms and lemmas in numbers that tend to be inversely proportional to their efficacy in the real world.

Why are economists trained so formally? It makes sense to axiomatize a discipline when the axioms are true (or almost so) and have strong predictive power. That’s the case for Euclidean geometry, for example, as well as Maxwell’s electromagnetic theory, where many valid, useful, and accurate predictions follow from applying the laws of deduction to a few initial assumptions.

But economists seem to have embraced formality and physics envy without the corresponding benefits of accuracy or predictability. In physics. Maxwell’s theory and quantum mechanics allow you to predict the way an electron spins about its own axis inside a hydrogen atom to an accuracy of 12 decimal places. Something that accurate isn’t just a model - it’s a law. In economics, by contrast, there are no laws at all, only models, and you’re immensely lucky if you can predict up from down.

Derman is a physicist who crossed over to help build GS’s quant competency. He published a memoir a few years ago that looks interesting…

I’ve mentioned this to a couple of people in conversation but never had a link handy until now.

Check out the articles here and here (quoted below).

The ancient game of Buzkashi [aka Bozkashi] has been played in northern Afghanistan since the days of Ghengis Khan, the Mongol warrior whose army swept across Asia in the 13th century. It is a fierce game of competition played on the steppes of Asia by expert horsemen. The Mongols lived and died in the saddle. Today, it is played in the Afghan provinces of Maimana, Mazar-i-Sharif, and Kataghan. As a rule, women are not allowed to watch.

The carcass of an animal is used. Goats are preferred, but small calves will do if goats are in short supply. A carcass is soaked in cold water for 24 hours before the game. This is done so the carcass will remain intact and not be torn to pieces as hundreds of chopendoz horsemen independently compete to grab and carry the carcass to the winning circle. Usually, a the carcass is beheaded, its four legs are cut off from the knee, and its insides emptied before soaking. Sand is sometimes packed inside for extra bulk….

Some outstanding photos are here and here. I learned about it first from P.J. O’Rourke’s hilarious travelogue All the Trouble in the World. He characterized Bozkashi as a game where one team of horsemen compete against another team in a kind of capture-the-flag with a calf carcass. However prize money went to the winning individual, not the winning team; teamwork was undermined by individual gamesmanship for the cash prize - all in all a pretty neat sports metaphor for central asian politics.

It’s funnier if you imagine it in the voice from the Guinness commercials.

From 1850 but new to me. Bastiat’s petition entitled: A PETITION From the Manufacturers of Candles, Tapers, Lanterns, sticks, Street Lamps, Snuffers, and Extinguishers, and from Producers of Tallow, Oil, Resin, Alcohol, and Generally of Everything Connected with Lighting.

Found via the excellent Mahalanobis blog.

Since this isn’t an anonymous blog I’m exercising restraint on controversial topics. However I can’t hide a little satisfaction at seeing Greenpeace get a little of their own disobediance thrown back at them. If they want to exercise their free speech rights outside on the street, fine…but when they break the law and invade private property they’ve lost their claim (real or imagined) to the moral high ground.

The London Times carries this story about Greenpeace protesters invading the IPE’s oil trading floor with noisemakers and placards in an attempt to disrupt trading for the afternoon. If you haven’t seen a big open outcry trading floor (Chicago Merc, Nymex, whatever) you should make it a point to visit one before they get too civilized and/or pushed out by electronic exchanges - listening to the interactions and seeing the pace of commerce on the floor is surreal.

“WHEN 35 Greenpeace protesters stormed the International Petroleum Exchange (IPE) yesterday they had planned the operation in great detail.

What they were not prepared for was the post-prandial aggression of oil traders who kicked and punched them back on to the pavement.“We bit off more than we could chew. They were just Cockney barrow boy spivs. Total thugs,” one protester said, rubbing his bruised skull. “I’ve never seen anyone less amenable to listening to our point of view.”
…..

“Protesters conceded that mounting the operation after lunch may not have been the best plan. “The violence was instant,” Jon Beresford, 39, an electrical engineer from Nottingham, said.

“They grabbed us and started kicking and punching. Then when we were on the floor they tried to push huge filing cabinets on top of us to crush us.”

They made their way to the trading floor, blowing whistles and sounding fog horns, encountering little resistance from security guards. Rape alarms were tied to helium balloons to float to the ceiling and create noise out of reach. The IPE conducts “open outcry” trading where deals are shouted across the pit. By making so much noise, the protesters hoped to paralyse trading.

But they were set upon by traders, most of whom were under the age of 25. “They were kicking and punching men and women indiscriminately,” a photographer said. “It was really ugly, but Greenpeace did not fight back.”

Mr Beresford said: “They followed the guys into the lobby and kept kicking and punching them there. They literally kicked them on to the pavement.”

Better luck next time - I’ve heard the Iraqi insurgency is not recycling their used VBIEDs - maybe Greenpeace should try disrupting their workplaces.

Discovering the Anonymous Lawyer blog made my whole week. This man is a genius. I’m not a lawyer but I’ve seen enough of the same mentality from friends and coworkers in big-time consulting/law firms/investment banks to see the truth in the satire.

If you don’t get it, or you think it’s mean instead of funny….you’ve probably never worked in one of these places….which probably isn’t a bad thing. It reminds me that many new investment bankers seem to love watching/reciting the movie Wall Street and/or Boiler Room. Even though these movies nominally vilify investment banking the analysts worship the movies as celebrations of their culture and lifestyle (and maybe even values). I have a feeling the Anonymous Lawyer is worshipped the same way by the hardcore law students trying to land a spot in a big 100-hour a week $180k firm.