As the former U.S. Federal Reserve chairman and a key member of President Obama's economic advisory team, what Paul Volker says about Wall Street matters.
So how did so many financial giants lose so much money, so fast? And why are so many Americans now losing their jobs, their homes and their life savings? Forget shifty deals and crooked brokers: Volker says the real villain is faulty math.
In a speech in Toronto earlier this month, Volker put the blame for the crisis squarely on mathematical models used by economists and other market watchers to gauge the state of the nation's financial system. Get these models right, he says, and the economy is in good hands. That's also the gist of a recent article by Wired.
For Janet Tavakoli, a leading financial market consultant, that's just plain wrong. In her latest column on wowowow.com, Tavakoli takes Volker to task for relying on mathematical laws to determine the vagaries of financial markets driven by living, breathing human beings. Rather than seeking formulas to better capture "outliers" -- unexpected market events, or so-called black swans, that trip up conventional analysis -- regulators should be after the "outright liars" that cheated investors out of billions, Tavakoli says: