Better than Fiction

Its title, “The Quants,” does not immediately conjure up the image of a page-turning thriller novel. But that’s what it is. Except that none of it is fiction. If you’d enjoy a narrative which reads like the financial and economic version of a Tom Clancy page-turner, this is the book.

Unlike a Clancy novel such as “The Hunt for Red October,” though, the eventual outcome of Scott Patterson’s account of the 2008 financial crash is not nearly as clear:

“The Quants” is the story about a systemic failure of Wall Street, the banking system and of U.S. government oversight – one which never should have been permitted to happen. It’s the tale of how the worldwide financial trading and banking system came within a hair of imploding upon itself, nearly taking down entire national economies.

Patterson places the culpability for this meltdown which reared its ugly head in the early weeks of August, 2007, squarely on the shoulders of “a new breed of math whizzes who conquered Wall Street and nearly destroyed it.”

They did it by transforming Wall Street into a casino-like operation wrapped in hedge funds powered by computer models driven by complex quantitative analysis techniques whose underlying structure proved to be a witch’s brew of false assumptions.

The ‘quants’ and hedge fund managers who drove these high-frequency trading models were responsible for buying and selling billions of dollars worth of highly leveraged, complex financial instruments which were light-years away from the underlying collateral from which their value was presumably derived.

Some of that collateral consisted of nothing more than exceedingly bad mortgages which had been packaged and re-packaged into securities, the value of which was no longer measurable. But no one seemed to care, because the money kept rolling in by the ton.

However, when the demanding reality of the world caught up with the fantasy built into these complex trading models, the hedging walls collapsed. And the U. S. economy narrowly missed a fatal bullet.

Photo:  by Dick Bergeron