Slashdot Mirror
Industry Open-Sources Model For Infamous CDS
GlobalEcho writes "Credit default swaps (CDS) are infamous for bringing down AIG and requiring a bailout of hundreds of billions of dollars. Because the market for these was so murky, the US government has insisted that Wall Street create a clearinghouse for these contracts. In a fresh twist, part of the deal is that the models used to price CDS have been standardized, and that the pricing code was made open source, under a somewhat BSD-like license. The source code (originally written by JPMorgan) provides the basic pricing routines, plus an Excel interface. To my knowledge this is the first significant migration of an investment bank product platform from its usual super-secret proprietary home to the rest of the world."
My 401k was.
Microsoft has said that Open Source is communist and Anti-American! How can the business community survive, now that their broken algorithms have been published?
Maybe you haven't been paying attention. For the past four months, all the CEOs of all the banks have been singing the praises of communism. They were so convincing, in fact, that the government handed them $350 billion with no strings attached (which they promptly spent on themselves, bonuses for their lackeys, and on buying distressed companies).
The banks aren't any more anti-communism than Microsoft is. IE: They oppose it when it benefits others or non-executives, and support it when it keeps them and the rest of the American Aristocracy in beach houses and private jets.
And in that, they are no different than anyone else, except the extreme rare few who strive for objectivity and reason. Extremely endangered are they, though - I believe there are three hundred sixty four known examples of such people in the wild, and but few of them have formed breeding pairs.
Stop-Prism.org: Opt Out of Surveillance
I work in this area, and this isn't really that big of a deal, regardless of the spin they put in the announcement.
This is about publishing a reference implementation of an already widely published model so that when party A does a particular calculation, related to a settlement amount for a particular trade, and party B does the same calculation, the values match.
Qualitatively, and to a large extent quantitatively, everybody on the street has been using the same model all along. The idea of publishing a reference implementation is meant to minimize conflicts in settling trades.
The accuracy of the valuation model here is not at the heart of any of the problems that AIG -- or any other firm, for that matter -- have experienced. That's more aligned with a simple lack of oversight on exposure.
No, we got a much worse deal than communism.
Had this been a communist maneuver, "we the people" would now own these companies -- and that's something bank CEOs wouldn't stand for for one second. Instead, we got nothing in return for our money.
No, bank CEOs will never support communism. A true communist revolution would strip them of their wealth and their companies