Re:Scientists Prove Toxic Assets are Impossible to Regulate
by andreyf on Thursday October 22, 2009 @08:08PM
(#897982)
As much as I love dailykos at times, considering that on top of the factual inaccuracy you point out, the non-watered down non-hysteric version [1] was pretty popular here a little bit ago, I think this article deserves some [dead]-ing.
Re:Scientists Prove Toxic Assets are Impossible to Regulate
by greendestiny on Thursday October 22, 2009 @08:46PM
(#898040)
It's probably even worse than that, in that one probability isn't evidence of cheating, whether you have found the optimal dense subgraphs or not.
The biggest I take from this (apart from it being an interesting analysis in itself) is that if there is an assumption of randomness in creation of CDO's that should be verified at creation.
just because there's no way to prove which CDOs have been tampered with doesn't mean that you can't figure it out. there are local search algorithms that may be able to give you a pretty good answer, even if you don't know for sure. there's some extra risk in CDOs because of this, fine, but it doesn't mean that the market would be locked up, or that no one would have any clue if there was misconduct.
regulators also have extra tools to detect fraud. maybe the buyer can't tell, but if the buyer suspects, and the regulator can check the seller's internal records, examine their processes, and in general, investigate whether the seller did any tampering.