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patio11's profile
Patrick McKenzie
Patrick McKenzie
Patrick McKenzie
@patio11

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Patrick McKenzie

@patio11

I work for the Internet, at @stripe, mostly on accelerating startups. Opinions here are my own.

東京都 Tokyo
kalzumeus.com
Joined February 2009

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    Patrick McKenzie‏ @patio11 14 Jan 2018
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    An unpopular opinion: a mortgage backed security and the various derivatives built on top of the same are perfectly reasonable products; the only problems in 2008 were (massive) underappreciation/underpricing of credit risk.

    10:57 PM - 14 Jan 2018
    • 10 Retweets
    • 130 Likes
    • zay Jim Sokoloff Tim Riser Martin Muggli Matias Eduardo Karl Yang matthew de haast Jared Volpe Mike
    15 replies 10 retweets 130 likes
      1. New conversation
      2. Patrick McKenzie‏ @patio11 14 Jan 2018
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        This belief causes me to be a little irked when people compare the cryptocurrency ecosystem to the 2008 financial crisis. How many homes did $PICK_A_COIN build?

        4 replies 3 retweets 27 likes
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      3. Patrick McKenzie‏ @patio11 14 Jan 2018
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        A related belief: financial engineering is a serious engineering discipline, contributes substantially to consumer welfare at all economic levels, and therefore should not be employed as a slur, particularly by engineers.

        7 replies 5 retweets 77 likes
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      4. Patrick McKenzie‏ @patio11 14 Jan 2018
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        As long as I’m on the topic: the finance industry employs hundreds of thousands of technologists and, while engineers generally deride their level of competence, a single US investment bank ships more software for harder problems than probably every e.g. YC company combined.

        4 replies 17 retweets 106 likes
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      5. End of conversation
      1. New conversation
      2. Kamil Choudhury‏ @kchoudhu 14 Jan 2018
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        Replying to @patio11

        Of course they're reasonable -- no one goes out and structures these things for fun. People wanted them, and they wanted them for good reason: they disintermediated and made tradable housing risk.

        1 reply 1 retweet 5 likes
      3. Kamil Choudhury‏ @kchoudhu 14 Jan 2018
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        Replying to @kchoudhu @patio11

        Everyone rails against MBS and complex structured products, but if the banking industry packed up its ball and took it home, these same people would start complaining about 7%+ interest rates on their mortgages.

        1 reply 1 retweet 10 likes
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      2. ᐸMo /ᐳ ✪‏ @koulmomo 14 Jan 2018
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        Replying to @patio11

        This seems like you attribute the underpricing to an “honest mistake”, as opposed to incentive structures set up to lead to pressuring credit rating agencies to knowingly inflate scores.

        1 reply 0 retweets 7 likes
      3. Colin Percival‏ @cperciva 14 Jan 2018
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        Replying to @koulmomo @patio11

        The honest mistake was to believe what the credit rating agencies said.

        1 reply 0 retweets 2 likes
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      1. Patrick Foley‏ @PatrickFoley 15 Jan 2018
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        Replying to @patio11

        And that was only by the big banks. I did work for a small hedge fund that specialized in mortgage backed securities in 2006. We made software to show how many loans were 30, 60, 90, 180 days past due. They couldn't imagine doing it another way. They stayed in business.

        0 replies 0 retweets 4 likes
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      1. Dave O'Flynn‏ @daveoflynn 15 Jan 2018
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        Replying to @patio11

        I would change "underpricing" to "deliberate mispricing", but otherwise agree completely.

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      1. Cave Cattum‏ @fgcallari 14 Jan 2018
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        Replying to @patio11

        Don't forget massive leverage on that risk. A huge chunk of '06 & '07 CDO's were synthetic.

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