How was Wall Street able to bring the entire economic world order to its knees, hold a gun to its head, and demand a ransom from taxpayers 'or else'?
What is finance? What does the word mean to a quant in a Wall Street firm? Not the same thing as it means to you, probably, unless you happen to know what Wall Street actually does.
This is the inaugural post of the 'Finance' group. The aim of this group is to lift the hood and shine a light onto the engine of Wall Street. What makes it go? Does it provide something useful? If so, what? And how does it do it?
Why might people with a political bent be interested in this? For the same reason we are interested in tax structure, or public campaign finance, or education. Regardless of your feelings on the matter, financial services is the driver of the our economy right now and, as we have learned, it is capable of great harm. Something this important to the future of the country should be as widely understood as possible.
So unless you are a republican, you have a desire to learn and understand and build public policy that benefits the public. You can only do that when you understand what you wish to control. Let's explore the world of high finance. Let's get our hands dirty and wipe them on our overalls. But (and there's always a but) this is not a group for ranters. This is a group for seekers and teachers. If you are a seeker or teacher, join us.
Like parts of a car engine, some aspects of finance are familiar to people, some aren't. Most people with a car (one that runs anyway) know it needs an oil change now and then. They usually even know why it's necessary to have oil in the first place.
In finance, the oil most people are familiar is the one provided to the economy by the retail banking industry. These are your neighbors, and they provide the oil of the economy in the form of loans for individuals and businesses. Bankers, by the nature of their jobs, are mostly concerned with the branches of finance that could be broadly labeled financial accounting and corporate finance.
Many investors have a passing acquaintance with that other area of finance we can call asset management. An air filter is a great name for the part in your car because it describes its function precisely, and asset management is just like that. Everybody knows what a financial asset is, and why you might want to manage them.
The function of Risk management isn't quite so obvious because risk is a slippery word. It means different things to different people. How I assess a particular risk is different from how you assess it, and that assessment is based on a wide range of variables. This is the basis of insurance (and, of course, all its financial bastard relations that brought down AIG).
Finally, we have quantitative finance. It is the new kid on the block. It is the one that draws all the smartest people from all walks of life. Mathematicians, physicists, statisticians, engineers, computer scientists. All with the common goal of making money. Lots of it. And make no mistake, these are smart people. They refer to themselves and each other as BSDs. But are they? Let's pull their pants down and find out. This is the Wall Street even Gordon Gecko wouldn't understand. But you can. Really. Like everything, it takes only a little desire and some time, and some people with a willingness to share.
If this sounds like you, join us. If you work in the industry, please join us and share what you know.