Featured Research

from universities, journals, and other organizations

The Crash Of 2008: A Mathematician's View

Date:
December 15, 2008
Source:
Wiley-Blackwell
Summary:
Markets need regulation to stay stable. We have had thirty years of financial deregulation. Now we are seeing chickens coming home to roost. This is the key argument of a mathematician at Imperial College London, in an article just published in Significance, the magazine of the Royal Statistical Society.

Attempts to insure mortgages by securitization resulted in vast quantities of toxic debt and the 2008 financial collapse, one author argues.
Credit: iStockphoto/Ahmad Hamoudah

Markets need regulation to stay stable. We have had thirty years of financial deregulation. Now we are seeing chickens coming home to roost. This is the key argument of Professor Nick Bingham, a mathematician at Imperial College London, in an article published today in Significance, the magazine of the Royal Statistical Society.

Related Articles


There is no such thing as laying off risk if no one is able to insure it. Big new risks were taken in extending mortgages to far more people than could handle them, in the search for new markets and new profits. Attempts to insure these by securitisation – aptly described in this case as putting good and bad risks into a blender and selling off the results to whoever would buy them – gave us toxic debt, in vast quantities.

"Once the scale of the problem was unmistakably clear from corporate failure of big names in the financial world, banks stopped lending to each other," says Bingham. "They couldn't quantify their own exposure to toxic debt – much of it off balance sheet – so couldn't trust other banks to be able to quantify theirs. This led to a collapse of confidence, and the credit crunch, which turned a problem in the specialised world of exotic financial derivatives into a crisis in the real world. Once the problem became systemic, government had to step in to bail the system out with vast quantities of public money."

Professor Bingham suggests that to learn more and predict financial future, we should look to our past, likening the current crisis to the 'Tulip Mania' in the Netherlands in 1636 where huge prices were paid for futures in tulips, which then turned out to be as worthless as sub-prime mortgages today.

Even Alan Greenspan, the long-serving former chairman of the US Federal Reserve, admits that mistakes were made in the past. To avoid repeating these mistakes, we need to learn from them. This needs a new mind-set, new policies, and much more proactive regulation.

Bankers complain that the risk models they used predicted problems as dramatic as today's only every few centuries. "This is like talking about the details of how to steer a boat on a river," says Bingham, "what matters there is whether or not the river is going to go over a waterfall, like the Niagara Falls."


Story Source:

The above story is based on materials provided by Wiley-Blackwell. Note: Materials may be edited for content and length.


Journal Reference:

  1. Bingham N. The crash of 2008: a mathematician's view. Significance, Dec 2008; 5:4, 173-175 DOI: 10.1111/j.1740-9713.2008.00324.x

Cite This Page:

Wiley-Blackwell. "The Crash Of 2008: A Mathematician's View." ScienceDaily. ScienceDaily, 15 December 2008. <www.sciencedaily.com/releases/2008/12/081208203915.htm>.
Wiley-Blackwell. (2008, December 15). The Crash Of 2008: A Mathematician's View. ScienceDaily. Retrieved October 30, 2014 from www.sciencedaily.com/releases/2008/12/081208203915.htm
Wiley-Blackwell. "The Crash Of 2008: A Mathematician's View." ScienceDaily. www.sciencedaily.com/releases/2008/12/081208203915.htm (accessed October 30, 2014).

Share This



More Computers & Math News

Thursday, October 30, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Mind-Controlled Prosthetic Arm Restores Amputee Dexterity

Mind-Controlled Prosthetic Arm Restores Amputee Dexterity

Reuters - Innovations Video Online (Oct. 29, 2014) A Swedish amputee who became the first person to ever receive a brain controlled prosthetic arm is able to manipulate and handle delicate objects with an unprecedented level of dexterity. The device is connected directly to his bone, nerves and muscles, giving him the ability to control it with his thoughts. Matthew Stock reports. Video provided by Reuters
Powered by NewsLook.com
Robots Get Funky on the Dance Floor

Robots Get Funky on the Dance Floor

AP (Oct. 29, 2014) Dancing, spinning and fighting robots are showing off their agility at "Robocomp" in Krakow. (Oct. 29) Video provided by AP
Powered by NewsLook.com
IBM Taps Into Twitter's Data With New Partnership

IBM Taps Into Twitter's Data With New Partnership

Newsy (Oct. 29, 2014) The new partnership will allow IBM to access Twitter’s data and analytics to help IBM clients better understand their consumers. Video provided by Newsy
Powered by NewsLook.com
Google To Use Nanoparticles, Wearables To Detect Disease

Google To Use Nanoparticles, Wearables To Detect Disease

Newsy (Oct. 29, 2014) Google X wants to improve modern medicine with nanoparticles and a wearable device. It's all an attempt to tackle disease detection and prevention. Video provided by Newsy
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:

Strange & Offbeat Stories


Space & Time

Matter & Energy

Computers & Math

In Other News

... from NewsDaily.com

Science News

Health News

    Environment News

    Technology News



    Save/Print:
    Share:

    Free Subscriptions


    Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

    Get Social & Mobile


    Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

    Have Feedback?


    Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
    Mobile: iPhone Android Web
    Follow: Facebook Twitter Google+
    Subscribe: RSS Feeds Email Newsletters
    Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins