Isaac Newton – Granddaddy of the Quants*

October 11, 2008

Today, in the NYTimes, Joe Nocera reflects on the history, psychology, and inevitability of bubbles.  That is, as long as there is some freedom to speculate.  He begins with a melancholy quotation from the great Newton, the original “master of the universe.”

I can calculate the motions of heavenly bodies, but not the madness of people.” — Isaac Newton, 1721, after the South Sea bubble burst.

Poor Izzie lost big time, but he was comfortably off with several government sinecures, nevertheless.  This contemporary economic magus quoted by JN wasn’t so lucky:

On Friday, Mr. Shiller [an economist] told me of a conversation he had with an economist friend of his. The man had spent his entire career advocating the efficient market hypothesis, which posits that all known information about a stock is already priced into it. But with the market in collapse, the economist sold all his stocks. “I feel like a Christian Scientist who has come down with appendicitis,” he told Mr. Shiller.

I wonder where Nocera had his money!  Did he see it coming?

Well, if you’re not having enough fun yet, delve into the history of the South Sea and Mississippi Bubbles, and the Ur-Panic of them all, the Tulipomania by skimming through this Victorian classic:

That’s Extraordinary Popular Delusions & the Madness of Crowds, which you can buy for pennies in used book stores on the Net.  Or you can buy this antique edition…might be a good investment!  That’s John Law on the cover.  He’s the subject of a popular biography, Millionaire, that tells of his ill fated inteventions with the French economy a generation or so before the Revolution.  Seems he was fond of risky securities.  The plot of the novel, Manon Lescaut – adopted for opera, plays, television? – is connected with the John Law schemes:  it is the device by which the star crossed (numbskull) lovers are united in the New World, temporarily free from the oppression of class society and debt.

Gleeson seems to have a preoccupation with financial alchemy:  She has another book, The Arcanum, that describes an early case of industrial espionage regarding the secret of turning dirt into  retail gold, procelaine, that is.

Are we having fun yet?

*For those of you not in the know, “quants,” short for “quantitative analysis,” is the nickname given to Wall Street nerds doing computer model predictions of the market’s behavior.


Live, from Wall Street!

September 30, 2008

I took a little walk down to Wall Street, USA at lunch just now.  I actually went into Federal Hall for the first time.  (That’s George Washington on the steps, the Stock Exchange in the background.)  I hadn’t known that the building was erected some 40 years after GW’s first innaugaral.  The original structure wasn’t so imposing.

The scene there was frenetic.  Of course, tourists are always in abundance in NYC these days, what with the dollar being so low, but the television cameras were out in force.  I had to fight my way past a crowd gathered to here the latest pronouncement from the Oracle…er, update from the trading floor.  An historic time, this, and liable to more deeply change the country than 9/11 I would say.  That threat came from without – now, as the saying goes, the enemy is us.

David Brooks, with his finger in his ear to take the nation’s pulse, is fit to be tied as he decries the Republican “nihilists.”  He can’t believe that they are acting as though it is 1984 and the “enemy” is socialism or “Mondale liberalism.”  (It’s always 1984 somewhere!) Well, soi disant conservatives on the right tend to be out of touch with history, Dave.  They yearn for the golden days of 1884!  The Republican elephant is splintering into its constituent parts:  Palin-ite religious paleo-conservatives; Wall Street money men; and strict captialist libertarians, similar to what were called in the 19th century, horrorible to say,…liberals!

The hub hub makes me think of the last days of the ancien regime.  Hope it doesn’t get to that!  History is happening right before me – real people, milling around, wondering what’s going on – hanging on the words of the suits emerging from the temples of Mammon.  Surely, many of them must be thinking, “All those words of the politicians…what do they mean?  This whole system, it’s just made of people!  It’s not rocket science, it’s not the weather.  Some people wanted to get very rich in a very easy way, and now they’re terrified.  Of course they want us to bail them out.”