Wired explains the “formula that killed Wall Street.”

Basically, the Li’s Gaussian copula function was too simple. The formula turns correlation, something that varies and is nearly impossible to determine, into a single constant. Not only that, the correlation measured isn’t even based on the underlying mortgages, but rather between prices of credit default swaps as determined the market, which prices these swaps based on the correlation. It’s like an extremely sophisticated way of begging the question. And, there’s more:

… because an unlimited number of credit default swaps can be sold against each borrower, the supply of swaps isn’t constrained the way the supply of bonds is, so the CDS market managed to grow extremely rapidly … At the end of 2001, there was $920 billion in credit default swaps outstanding. By the end of 2007, that number had skyrocketed to more than $62 trillion.

On Negativity

marco is right that negativity increases when people don’t have to fear the consequences; online anonymity can bring out the worst in people. His post is worth reading, but, and this is a small thing, he goes on to say this:

But one effect is clear: remaining positive and disarming yourself of negativity is the most effective way to avoid being hit by whatever others are flinging around. Osama bin Laden doesn’t hate Canada or Iceland.

Christopher Buckley remembers his father:

An article had appeared in the local paper a few days before, alerting the community to this gala event. As I perused the clipping, my eyes alighted on the sentence: “The Buckleys are a well-known American family, William F. Buckley being arguably the best known.”

I concealed my amusement, and handed Pup the clipping and waited for the reaction I knew would come. Sure enough, within seconds, he looked up with what I would describe as only faintly bemused indignation and said, “Ar-guably?”