by Tyler Cowen
on March 18, 2010 at 7:06 am
in Current Affairs, Economics
You can find it here, described here, and hat tip to Greg Mankiw and Scott Cunningham.
Still digesting the content of the paper, but the choice of phrasing throughout it is wonderful. Have this sample of mixed metaphors: “The CDO market was a game of musical chairs and the winners were those who sat down early on. […] Once the conveyor belt stopped, it turned out that the hot potato, which had so efficiently been passed along the chain from mortgage broker to Wall Street and beyond, had been leaving pieces of itself along the way.”
Applying for my first job, I realized I had to be creative in listing my few qualifications. Asked about additional schooling and training, I answered truthfully that I had spent three years in computer programming classes. I got the job. I had neglected to mention that I took the same course for three years before I passed.
At my local supermarket I can buy ears of corn of x dollars for y corns and I can select the ears I want, or I can buy packages of corn (same corn, but packaged by the supermarket, at a discount vs the self-selected prices. Upon inspection of the package you can clearly see 1 lower quality ear is packaged with each package that contains 2 good ones. This is a way for the supermarket to sell it’s lower quality ears of corn without having to take a total loss on them.
This is exactly how I imagine these CDO’s were packaged, except not sold at discount and no inspection possible.
With all due respect to her work, looking over her thesis, it doesn’t look particularly outstanding or innovative. She put a lot of effort into collecting the data, to be sure, but the methodology doesn’t look particularly advanced and the conclusions have been conventional wisdom for years. It looks like A-quality work, but not something that should make national news.
Knowledge based on actual data >>>”Conventional wisdom / common knowledge”
Don’t forget what was cw / ck four years ago, and how that turned out.
She looks pretty hot.
She took common knowledge and used her Harvard contacts and access to financial data sites to make a bunch of tables. Obviously, this is worthy of being posted all over the internet.
I’d hit it, that’s for sure.
The paper is well-written, covering one aspect of our current crisis — CDOs. If your eyes glaze over with math, go to page 91.
Good paper. A couple of minor glitches. For example:
“Figure 5 shows two changes in CDO investments since 1999: the decrease in collateral backed by fixed-rate assets and the increased use of synthetic assets (i.e. CDS). Taken together, these observations indicate that CDOs began to invest in more risky assets over time, especially in subprime floating rate assets.”
That second sentence is a total non sequitur. I’m pretty sure the decrease in fixed-rate assets in CDOs shown in that chart has to do with the decline of HY CBOs. It’s definitely not related to subprime ARMs vs. prime fixed-rate mortgages, as she seems to think.
Haven’t read it but I will.
The cynic in me says they are doing the same thing to her that they did to Emily Oster – hype an undergrad thesis beyond what it would bear, leaving her to do the climbing down when it turns out to be wrong.
Ever noticed that despite the fact that most econ students are male, the wunderkind undergrad theses are by women?
I’m happy to suggest that’s because the overweighting of males in economics is comprised entirely of mediocrities (stands to reason when the profession is sampling from further down the male talent pool to get that gender disproportion going) but it really makes me wonder what goes on at Harvard.
“What a display of envy.”
Yep, we are all envious because Harvard students are so smart and we are so dumb.
IMHO it’s the title of the post which is irritating most people. Who gives a rat’s ass that it’s a *Harvard* thesis? And the last time I heard the expression “everyone is talking about,” I think it was in the context of top model somebody explaining about her latest romance and breathlessly swooning, “everybody is talking about it.”
This is an Ivy league way of explaining legalized corruption gone awry in the banking and ratings industries, participated mostly by Ivy league graduates. How about the writer provide the data for how many people who were responsible for the banking and ratings scandal/disaster, were from Ivy league schools?
A thesis topic must spring from your own energies and interests. The first step toward defining a topic, then, is to determine your primary areas of interest. The role of self-examination in this process is critical.
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Great read. I still don’t fully understand some parts of the thesis but I plan to reread a couple of more times before i form my opinion of it.
It is amazing at how far they will go! I admire you and thank you for trying to wake people up with all the great information you are putting out there.
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Very helpful blog.. Thank you for the information.
Thank u for such a nice blog
I like Greg Mankiw. I actually saw him last year and he seemed very friendly.
The article and the thesis are very interesting and certainly better work that most people are capable of. I enjoyed it very much.
Only when we have true regulation of the financial industry will these types of issues be a thing of the past. So long as the regulated get to work with the regulators (like is happening with health care right now)we will be bound to re-live the past and the near catastrophic issues we faced with these supposed asset back securities. Thanks for letting me rant!
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