The Democrat Thread

[NorthSideSox72]

Best dozen -word description of this season I've read anywhere.

I have to LOL at the idea that financial engineers are somehow "less productive" than any other engineers. Not sure if the author noticed, but it's not 1970 anymore.

 

[Balta1701]

I have to LOL at the idea that financial engineers are somehow "less productive" than any other engineers. Not sure if the author noticed, but it's not 1970 anymore.

I can't think of any electrical engineers who have nearly destroyed the world economy.

[Balta1701]

I have no idea how to interpret this other than the top 2 lines. But it's kinda cool

[NorthSideSox72]

I can't think of any electrical engineers who have nearly destroyed the world economy.

What does that have to do with being "productive"? And by the way, there are zillions of enginner-caused disasters, all the time. I started college as an engineering major, and we had to take a P/F class where they covered in great details some major disasters caused by engineering problems.

 

Furthermore, financial engineers have not "nearly destroyed the world ecomony". Not sure where you are getting that.

 

[Balta1701]

Furthermore, financial engineers have not "nearly destroyed the world ecomony". Not sure where you are getting that.

I lived through 2008. I think that's more than an accurate description.

 

And that has to do with being productive in the sense that if we're giving financial engineers credit for enhancing productivity through all their wonderful new ways of moving around risk or whatever you want to call it...we have to take credit away when those financial instruments implode.

 

Edit: one simple thought to sum up my feelings on the matter. If "Financial Engineers" have done anything productive at all, then we should be doing a better job at allocating capital to desirable projects now than we were 20-30 years ago, because we've had an explosion in "Financial engineering" (and in the share of our economy going to financial engineering) over the past 30 years.

 

I for one don't think we have suddenly gotten better on that measure, and if you think we have, I have an $8 trillion housing bubble to sell you.

[Balta1701]

Different topic...winner of an ad.

 

[NorthSideSox72]

I lived through 2008. I think that's more than an accurate description.

 

And that has to do with being productive in the sense that if we're giving financial engineers credit for enhancing productivity through all their wonderful new ways of moving around risk or whatever you want to call it...we have to take credit away when those financial instruments implode.

 

Edit: one simple thought to sum up my feelings on the matter. If "Financial Engineers" have done anything productive at all, then we should be doing a better job at allocating capital to desirable projects now than we were 20-30 years ago, because we've had an explosion in "Financial engineering" (and in the share of our economy going to financial engineering) over the past 30 years.

 

I for one don't think we have suddenly gotten better on that measure, and if you think we have, I have an $8 trillion housing bubble to sell you.

You have somehow mangled financial engineers in a blazing wreck with the entire financial industry, and then threw in the housing bubble for good measure.

 

[Rex Kickass]

[Balta1701]

You have somehow mangled financial engineers in a blazing wreck with the entire financial industry, and then threw in the housing bubble for good measure.

What do you mean by financial engineers then? Every usage I hear of it is referring to the guys at places like AIG, GS, the other big banks, and the ratings agencies who came up with the brilliant models that said housing prices would never go down and then sliced and diced mortgages a hundred different ways to disguise what was actually in them.

[NorthSideSox72]

What do you mean by financial engineers then? Every usage I hear of it is referring to the guys at places like AIG, GS, the other big banks, and the ratings agencies who came up with the brilliant models that said housing prices would never go down and then sliced and diced mortgages a hundred different ways to disguise what was actually in them.

the "guys" you are describing are not financial engineers - those are people who work in securitization and analysis, they are business side, not usually technical. Financial engineers are the people who write the software for financial systems of all kinds.

 

[Balta1701]

the "guys" you are describing are not financial engineers - those are people who work in securitization and analysis, they are business side, not usually technical. Financial engineers are the people who write the software for financial systems of all kinds.

That is not at all what the original author meant by that phrase.

 

Are the guys who write software for G.S. paid more than software writers for anywhere else? Or is the big money in being one of the guys at some sort of trading desk? He talks about the big money for the financial engineers. That's who he's referring to.

 

We use that word "engineers" to describe the guys on the business side because they're the ones planning and creating those complex financial instrument/tricks.

[NorthSideSox72]

That is not at all what the original author meant by that phrase.

 

Are the guys who write software for G.S. paid more than software writers for anywhere else? Or is the big money in being one of the guys at some sort of trading desk? He talks about the big money for the financial engineers. That's who he's referring to.

 

We use that word "engineers" to describe the guys on the business side because they're the ones planning and creating those complex financial instrument/tricks.

I'm actually pretty sure he means what the entire financial industry means, when they say "financial engineers" - which is what I described. What you are describing, no one in finance calls engineers.

 

[StrangeSox]

the "guys" you are describing are not financial engineers - those are people who work in securitization and analysis, they are business side, not usually technical. Financial engineers are the people who write the software for financial systems of all kinds.

 

They still write the analytical software and come up with the mathematical models for it.

 

The big banks recruited heavily from U of I's engineering program.

[Balta1701]

I'm actually pretty sure he means what the entire financial industry means, when they say "financial engineers" - which is what I described. What you are describing, no one in finance calls engineers.

Financial engineering is a multidisciplinary field relating to the creation of new financial instruments and strategies, typically exotic options and specialized interest rate derivatives. The field applies engineering methodologies to problems in finance, and employs financial theory and applied mathematics, as well as computation and the practice of programming; see computational finance.

 

Despite its name, financial engineering does not belong to any of the fields in traditional engineering. In the United States, the Accreditation Board for Engineering and Technology (ABET) does not accredit financial engineering degrees.

 

Here's the page from the International Association of Financial Engineers and here's the Journal of Financial Engineering. Here's the ad for the Chicago Financial Engineering and Risk Management workshop. In all those cases, the discussion seems to be creating computer models and complex instruments to manage risk and move funds around appropriately; the same verbiage I'm using.

[NorthSideSox72]

Here's the page from the International Association of Financial Engineers and here's the Journal of Financial Engineering. Here's the ad for the Chicago Financial Engineering and Risk Management workshop. In all those cases, the discussion seems to be creating computer models and complex instruments to manage risk and move funds around appropriately; the same verbiage I'm using.

Search for job listings for Financial Engineer. They are not the ones who create instruments. They create models that give data which suggests what might work, but they do not securitize. That is other people. You may consider that a semantic difference, but I do not. There is a long walk from the engineer's desk to the people who actually sign the contracts. A computer model cannot create an instrument - that is not possible. It doesn't work that way. A security instrument is a contract, often exchange-traded, but even if its OTC, there still has to be a legally reviewed and founded contract in place.

 

[NorthSideSox72]

They still write the analytical software and come up with the mathematical models for it.

 

The big banks recruited heavily from U of I's engineering program.

This is more accurate.

 

However, remember too, that is one very narrow particular role for financial engineers. If you walk up to someone who actually works in finance, and you say financial engineer, you will get a wide swath of answers from different people whose only commonality is that they write software and play with data to suggest or perform market actions, or improve or create systems for financial companies. That includes a lot of people.

 

 

[Balta1701]

Search for job listings for Financial Engineer. They are not the ones who create instruments. They create models that give data which suggests what might work, but they do not securitize. That is other people. You may consider that a semantic difference, but I do not. There is a long walk from the engineer's desk to the people who actually sign the contracts. A computer model cannot create an instrument - that is not possible. It doesn't work that way. A security instrument is a contract, often exchange-traded, but even if its OTC, there still has to be a legally reviewed and founded contract in place.

But now that I've gotten you to go ahead and say that they are the ones who create the models, you've now directly linked them to the global collapse and the housing bubble, because the assumptions underlying those models (housing prices don't go down, the price of one house doesn't affect the price of nearby neighbors) played into their failure. The engineers aren't the only people worth ripping here, but they're certainly not blameless, and we have every right to ask whether the kind of funds being dumped into financial engineering are effective uses of talent compared with other industries.

 

Edit: Oh, I should also ad that "Financial Engineering" quite accurately seems to describe the computerized mortgage processing company thing that appeared in the late 90's and helped process mortgages regardless of whether the paperwork was accurate.

[NorthSideSox72]

But now that I've gotten you to go ahead and say that they are the ones who create the models, you've now directly linked them to the global collapse and the housing bubble, because the assumptions underlying those models (housing prices don't go down, the price of one house doesn't affect the price of nearby neighbors) played into their failure. The engineers aren't the only people worth ripping here, but they're certainly not blameless, and we have every right to ask whether the kind of funds being dumped into financial engineering are effective uses of talent compared with other industries.

Go back and read how this started. The article stated, ridiculously, that somehow financial engineers are not productive members of society. Its a laughable premise. That's what I was getting at, and its still true.

 

Then you tried to make out what a financial engineer is, and I am telling you from a dozen years of experience working IN FINANCIAL TECHNOLOGY, that your understanding is wrong.

 

And even now, you are looking at one particular variety of engineer, and you are completely ignoring the way this actually works. Financial engineers do not create instruments, nor do they even decide (usually) what to model or why. They take data, and requirements from a business person who is looking for something, they work the data, hand over the results, and say, "here is what the model(s) say". They are ENGINEERS. They have as much blame, and credit, and productivity as, say, aerospace engineers. Both have done things that resulted in catastrophe, but the idea that either entire field if professionals is not "productive" is ridiculous.

 

[Balta1701]

Go back and read how this started. The article stated, ridiculously, that somehow financial engineers are not productive members of society. Its a laughable premise. That's what I was getting at, and its still true.

 

Then you tried to make out what a financial engineer is, and I am telling you from a dozen years of experience working IN FINANCIAL TECHNOLOGY, that your understanding is wrong.

 

And even now, you are looking at one particular variety of engineer, and you are completely ignoring the way this actually works. Financial engineers do not create instruments, nor do they even decide (usually) what to model or why. They take data, and requirements from a business person who is looking for something, they work the data, hand over the results, and say, "here is what the model(s) say". They are ENGINEERS. They have as much blame, and credit, and productivity as, say, aerospace engineers. Both have done things that resulted in catastrophe, but the idea that either entire field if professionals is not "productive" is ridiculous.

As you said, going back to the orignal text. This is the only usage of the phrase "Financial Engineers" in that column.

When we reward financial engineers infinitely more than actual engineers, we “lure our most talented graduates to the largely unproductive chase” for Wall Street riches, as the economist Robert H. Frank wrote in The Times last weekend. Worse, Frank added, the continued squeeze on the middle class leads to a wholesale decline in the quality of American life — from more bankruptcy filings and divorces to a collapse in public services, whether road repair or education, that taxpayers will no longer support.

You still need to argue a much higher standard than you're actually arguing. If financial engineers are significantly productive to society...they're helping produce something that has substantially improved society.

 

You're shifting as much of the blame for the collapse as possible away from the people who built the models, but trying to say that clearly those models have substantially improved society. My counter is that first, you can't simply split blame for the collapse onto the people who signed the contracts and away from the people who developed the models...but even if you could, then what good has it done being able to produce better models of risk if it doesn't let you better model risk? How productive have all these financial models been if the end result is an $8 trillion housing implosion?

 

I'm right back to my initial point here. If you want to argue that taking more and more computer scientists and engineers and pulling them into the financial industry to develop ever more complex models has been a good thing, then somehow the financial industry had better have become more efficient at allocating resources than it was beforehand...and I think it's way too easy to say "absolutely not".

[NorthSideSox72]

As you said, going back to the orignal text. This is the only usage of the phrase "Financial Engineers" in that column.

You still need to argue a much higher standard than you're actually arguing. If financial engineers are significantly productive to society...they're helping produce something that has substantially improved society.

 

You're shifting as much of the blame for the collapse as possible away from the people who built the models, but trying to say that clearly those models have substantially improved society. My counter is that first, you can't simply split blame for the collapse onto the people who signed the contracts and away from the people who developed the models...but even if you could, then what good has it done being able to produce better models of risk if it doesn't let you better model risk? How productive have all these financial models been if the end result is an $8 trillion housing implosion?

 

I'm right back to my initial point here. If you want to argue that taking more and more computer scientists and engineers and pulling them into the financial industry to develop ever more complex models has been a good thing, then somehow the financial industry had better have become more efficient at allocating resources than it was beforehand...and I think it's way too easy to say "absolutely not".

The quote is perfect - financial engineers versus "actual" engineers. What a joke. It seems clear to me the author knows little about financial engineering or even just plain engineering.

 

And you keep putting words in my mouth - I specifically said, as an engineer, they deserve credit, blame, etc.

 

I'm just going to say, again, that my original point was quite simple, and self-explanatory. This author, and you, did two things here. One, you misunderstood what a financial engineer is. Two, you seem to think that because certain people in finance (including some engineers) did bad things, that the entire field of people are unproductive in society. Should I say that you do nothing positive for society because some other geologist caused a false panic about some catastrophic event? Should I say all aerospace engineers are bad because planes crash?

 

The housing bubble was not created by engineers, it was for the most part created by a combination of poor decision-making by home buyers, developers/flippers, and loaning agencies and banks. And yeah, there were some engineers in there.

 

As for productivity, financial engineering has create immense amounts of wealth, jobs and yes, positive impacts on society. If you refuse to see that, then you might as well write off every field there is as being non-productive.

 

[Balta1701]

As for productivity, financial engineering has create immense amounts of wealth, jobs and yes, positive impacts on society. If you refuse to see that, then you might as well write off every field there is as being non-productive.

Ok, could you provide some specific data showing how we're more effectively assessing risk or allocating financial resources right now than we were 30 years ago?

 

The example I'd give as a counter-point is that I had a bunch of engineers come up with a way of cutting bridge costs by 50%, leading to a massive building boom. 5 years later though, 30% of the bridges collapse because it turns out they'd assumed that concrete had an infinite strength. Yeah, it might have massively increased road building, and yeah the engineers didn't actually personally green-light the projects, but the projects wouldn't have happened had there been an effective model.

[NorthSideSox72]

Ok, could you provide some specific data showing how we're more effectively assessing risk or allocating financial resources right now than we were 30 years ago?

 

The example I'd give as a counter-point is that I had a bunch of engineers come up with a way of cutting bridge costs by 50%, leading to a massive building boom. 5 years later though, 30% of the bridges collapse because it turns out they'd assumed that concrete had an infinite strength. Yeah, it might have massively increased road building, and yeah the engineers didn't actually personally green-light the projects, but the projects wouldn't have happened had there been an effective model.

I fail to see how specific numbers could show how any type of engineer had done this, in the broad sense except for one - how many of them are employed. They are employed if they provide some sort of value to the firms that hire them. And given the huge increases in numbers of financial engineers and other financial technologists in recent years, and the fact that those areas are even now one of the few where job growth is still occurring... I'd say that's pretty convincing evidence.

 

[Balta1701]

I fail to see how specific numbers could show how any type of engineer had done this, in the broad sense except for one - how many of them are employed. They are employed if they provide some sort of value to the firms that hire them. And given the huge increases in numbers of financial engineers and other financial technologists in recent years, and the fact that those areas are even now one of the few where job growth is still occurring... I'd say that's pretty convincing evidence.

Not necessarily, because that could simply mean that the growth in that sector is being accomplished at the expense of another sector. If, for example, the financial sector was growing while the manufacturing sector was shrinking, you could just be offsetting overall productivity shifts. And...the real rub comes in the fact that a large financial sector appears to introduce significant instability and increased risk into the full economy.

 

If resource allocation and risk assessment have actually improved, and have done so to such an extent that I should just ignore the $2 trillion and $8 trillion bubbles that have popped within the last decade, then there ought to be obvious increases in productivity somewhere in the economy. Otherwise, I'm just transferring growth from one sector to another. And when I look at the productivity growth data...there doesn't seem to be an obvious trend to me.

 

(This graph runs through 2005...Productivity drops during the peak of the expansion and the bursting and I believe it has climbed back the other way as businesses have gotten more out of their workforce during the Great Recession).

[NorthSideSox72]

Not necessarily, because that could simply mean that the growth in that sector is being accomplished at the expense of another sector. If, for example, the financial sector was growing while the manufacturing sector was shrinking, you could just be offsetting overall productivity shifts. And...the real rub comes in the fact that a large financial sector appears to introduce significant instability and increased risk into the full economy.

 

If resource allocation and risk assessment have actually improved, and have done so to such an extent that I should just ignore the $2 trillion and $8 trillion bubbles that have popped within the last decade, then there ought to be obvious increases in productivity somewhere in the economy. Otherwise, I'm just transferring growth from one sector to another. And when I look at the productivity growth data...there doesn't seem to be an obvious trend to me.

 

(This graph runs through 2005...Productivity drops during the peak of the expansion and the bursting and I believe it has climbed back the other way as businesses have gotten more out of their workforce during the Great Recession).

Dude, you yourself said earlier that if it was more productive, we should have more of them. Now you are saying having more of them doesn't mean more productivity? Which is it?

 

And again, would you please stop with the "Oh we should just ignore the various bubbles" sarcastic crap? NO ONE IS SAYING THAT. At all. It might actually be possible to have a real discussion on this, if you didn't spend your time inaccurately re-stating (actually manipulating) other people's points before tearing into said fake points as if anyone said them.

 

[Steve9347]

I have no idea how to interpret this other than the top 2 lines. But it's kinda cool

Good for Cheerios.