Aug

13

Recycling, from Yishen Kuik

August 13, 2007 |

 With the inevitable firings that will take place at quant firms, a deluge of stat arb talent will get recycled into other related fields. And let's not forget those formerly employed as quants in mortgage land.

In a previous era, when Banker's Trust ruled Wall Street derivatives, desks were able to get away with egregious pricing against dumb-as-rocks clients. The old saw "risk flows to the dumbest guy in the room" was perfectly illustrated. When the scandals at Orange County and P&G broke, banks collapsed and desks were dismantled. Wall Streeters were scattered to insurance companies, corporate treasury desks, pension managers and other banks. With the infusion of intellectual property, clients got smarter and were finally able to figure out the vig. That correction to the imbalance of knowledge raised the "ethical" conduct bar in derivatives.

The vigor of capitalism will ensure these quants find a home, and I wonder where those homes will be and how that will reshape the industry and the game.


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2 Comments so far

  1. gabe on August 13, 2007 9:22 pm

    i hope it’s the poorhouse. letting it all ride on black is not investing. amazing the “strategy overlap” in all these billion$ shops: sell the profitable leg, keep the losers, or even double down and pray things will turn around. you don’t need much math to execute on that.

  2. Sam Kumar on August 14, 2007 6:29 pm

    Let me understand this:

    The quants will get fired for their (or their models’) incompetence and their finding new homes will invigorate capitalism?

    If they go into hard engineering may be, but not if they go to work for those they were trying get excess returns from in their old jobs.

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