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Subject:  Re: Countdown to the next financial bomb Date:  10/7/2012  1:14 AM
Author:  WatchingTheHerd Number:  405451 of 536876

I think all of your conclusions are valid.

5) A lot of the story focuses on the challenges that Ina faced because of her sex over the years. It is NOT clear how or if the sexism has improved over the years. What is clear is that darn few women are in influential positions on Wall Street.

A review of the past 20 years of buildup and implosion in the financial world (Born with CFTC, Bair with 2008, Drew with this JPMC trade, and others I'm sure we'll find out about eventually...) seems to make it perfectly clear that while there are women "on Wall Street", in reality, there are NO "powerful women on Wall Street." Some are in the right positions and drawing the big bucks, but when the real players get together in the room to make the really DUMB decisions, the women players involved mysteriously but consistently seem uninvited to the back room. This board has had numerous threads over the years citing studies about how males nearly ALWAYS over-estimate their ability to judge risk and over-weigh the plus side of a decision without properly weighting the downside.

To try to mitigate that very human dynamic, banks also rely on a variety of statistical models, including those known as “value at risk” models, which theoretically provide bankers with a certain degree of probability about how much they could stand to lose on any given day under adverse circumstances. Those V.A.R. models did little to help bankers when the unforeseeable happened in 2008, which is why they are generally viewed with some skepticism these days. Sometimes the models miss key information, sometimes the people who use them miss what the models are telling them and sometimes traders manage to work around them.

JPMC was the original developer of these VAR models in the early 1990s and shared them with other players in the industry in the mid-1990s as a measure of good-will and a sense of "let's keep us all out of trouble." If I recall correctly from reading one of the books I've reviewed here or magazine coverage of some of the same events, for some large institutions, these VAR measures became their own perverse measure for traders to determine if they were risking ENOUGH rather than risking TOO MUCH. In other words, many firms became so convinced of their risk taking prowess and the accuracy of these models, that the numbers were used to ensure they weren't "sitting on their hands" letting "easy money" get made by competitors. In reality, the VAR numbers came to ENCOURAGE taking additional risks rather than ensure a firm stayed within limits defined by its management. Of course, no execs outside the trading divisions of these firms could explain how these VAR models worked with a gun pointed to their head, much less how the underlying trades were structured. In essence, the VAR calculations became an extremely complex, precise work of fiction that had virtually no basis in reality and had negligable impact in convincing management to apply the brakes.

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