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A comment on The real cause of the financial crisis -- An MIT Blackjack Team perspective. Parent comment

Re:The real cause of the financial crisis -- An MIT Blackjac... by wmorein on Wednesday January 14, 2009 @10:02AM (#433672)
One interesting thing to me is that even if you do this (correlate compensation with longer term results) a lot of the same problems still happen. Take, for example, the first big hedge fund blowup: Long Term Capital. Shortly before they blew up, they kicked most of the third party money out of the fund and even levered up their own individual positions (see the book "When Genius Failed").

I'm not saying that misalignment of incentives doesn't play a significant role in a lot of what we are seeing now, but never underestimate hubris.

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Re:The real cause of the financial crisis -- An MIT Blackjac... by three14 on Wednesday January 14, 2009 @12:03PM (#433861)
We can't solve hubris, but perhaps we can highlight it to investors.

Funds that too hard to value or are highly leveraged should switch from regulation by the SEC to regulation by state gambling commissions. It would be tricky to find the right cutoff, though, but if an investor would have to travel to a Native American reservation to buy credit default swaps, they might start thinking about whether they really understand what they're investing in.

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Re:The real cause of the financial crisis -- An MIT Blackjac... by eru on Thursday January 15, 2009 @03:43PM (#435691)
How about the following regulation:

No restrictions on what funds can do, no government bailouts, but full disclosure so that clients may impose their own restrictions.

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Re:The real cause of the financial crisis -- An MIT Blackjac... by Retric on Wednesday January 14, 2009 @12:05PM (#433863)
A lot of strange things happen when the players have diffrent amounts of information.

EX: Would you bet 1 billion dollars with slightly less than even odds?

Well if you don't have a billion dollars then your real risk could be much lower vs. your potential gain. The real question is who would trust you to actually have a billion dollars? That's the real sucker, unless he also lacks a billion dollars.

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Re:The real cause of the financial crisis -- An MIT Blackjac... by russell on Wednesday January 14, 2009 @11:56AM (#433853)
If they hadn't paid out that dividend, LTCM would have had enough in reserves to survive, but no one seems to have learned from that, least of all Alan Greenspan.
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