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.
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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.
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An awful lot of financial engineering is about creating the opposite of transparency or about things 10 layers divorced from real assets. Both of these are definitely bad.
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MBS are directly related to repayment flows from mortgages. Modulo details, a AAA MBS tranch is "you get the first 70% of money repaid by this pool of borrowers". The B tranch is next 15%. Etc.
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As a financial engineer and a “hard-science” engineer (biomedical engineering), I can tell you “real” engineers disparage fin eng because they don’t understand it, not because they view it as necessarily negative.
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“Yeah, so Maiden Lane bought all the junk MBS type assets.” “Where did maiden lane get the money?” “From the Fed.” “Who owns maiden lane?” “The Fed.” “Where do the profits go?” “The Treasury” “What if they lose money?” “They can’t lose money.”pic.twitter.com/nFeB5HhMoV
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And runs on CSV over FTP, literally the most reliable way I have seen two computers synchronize. HTTP (and RPC ilk) is hundreds of failure modes.
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When they build crap on rotten foundations (falsified paperwork) and unsound practices (cyclic dependencies via CDSs) we get to point and laugh.
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Empirically this is debatable given the time frame. Futures and options, sure. Since then the evidence suggests not really. Finance has a function, right? Facilitate the real economy. Much of activity now goes towards speculative bets on the financialization of existing assets.
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You know, of late I feel both disciplines are more alike than one would think : infra admins do risk hedging by distributing it across several backends (simplest example is RAID), with several levels of contigency and disaster recovery plans.
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I had this thought when translating a visual novel game that dealt with ABS and other financial products with risk tiers/insurance, and it dawned on me that we infra engineers do pretty much the same thing.
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