And you are here why?

If you have been in a poker game for a while, and you still don’t know who the patsy is, you’re the patsy. Now, for poker, substitute Finance, and in this case, Mortgage risk. If you’re still doing it by hand, or using complex curve-fitting, etc., well, you’re the patsy. Kay Giesecke from Stanford has   a fascinating paper   where he collected 294 parameters per loan across 120 million loans (from 1995 to 2014), and used this to predict the loan performance via #MachineLearning. The entirely unsurprising result — it beat the pants off of the “traditional methods” (logistic regression, curve fitting, etc. And note, this isn’t simple stuff, it is basically what institutions have been throwing Quants at for years now). The thing is, this is   exactly   the kind of problem that is really hard to model (hence the quants) — there are too many parameters, internal and external, and the differences in performance tends to be more about making the correct guesses ...

After taking over Capitalism, the Two Cows meme has its eyes set on Corporations, and the results are pretty classic. Some below, and a long (and ongoing) list at Bored Panda

This, and I swear this is true, is definitely not from The Onion .  Veronica Dagher writing in the WSJ (and with an accompanying oh-so-helpful video ) explains how you can be broke on $400K/year.  In Chicago. (emphasis below is all mine) They live comfortably, travel frequently and pay the mortgage on a home worth more than $1 million . They send their two teenagers to public school and put away about $12,000 a year for retirement and $10,000 for college tuition ... The couple's annual take-home income is $273,000 after setting aside money for retirement and college and after paying U.S. and Illinois income taxes... They spend   $87,000 a year on their mortgage , $24,000 on property taxes, $25,000 on home maintenance and $15,000 on utilities, cellphones and other household bills...Groceries for the family of four cost $575 a week, or $30,000 a year. The family buys a new car every four years, which amounts to $15,000 a year on average, and spends $9,000 annua...

WuMo brings the pain to the The Chicago School..

Ashwin Parmeshwaram elaborates on something that I have long suspected, viz., the conventional wisdom on "Maturity Transformation" is basically bullshit . First, a definition Why do banks exist?  The conventional wisdom goes like this – depositors prefer to hold liquid risk-free assets and borrowers prefer to borrow for the long-term to invest in risky projects. Banks sit in the middle of this process and perform a sort of alchemy. By performing this alchemy, banks leave themselves open to the risk of bank runs – if all the depositors seek to withdraw their money at the same time, even a bank with otherwise sound loans as assets can go bust. This perceived risk of a bank run is why governments and central banks provide deposit insurance and liquidity facilities to the banking sector, a privilege that is not typically available to other financial intermediaries. In other words,  banks exist for the purpose of maturity transformation. Sounds nice and nifty, right? Bu...

via The Reformed Broker   (click to embiggen) (I particularly love "Merkel's Workshop")

From Deadspin , we have the highest paid public employees on a state by state basis .  As expected, its pretty much either a football coach or a basketball coach - with a few exceptions for med-school types (and the further exception of the great state of Maine and its law school dean!) From the article Most of these databases include only the coaches' base salaries, which are drawn directly from the state fund. This is how you could be led to believe that   Virginia's offensive coordinator earns more than its head coach . Far exceeding these base salaries is the "additional compensation" that almost all of these coaches receive, which is tied to   media appearances, apparel contracts, and fundraising . While this compensation does not come directly from the state fund it is guaranteed in the coaches' contracts; if revenue falls short, the school—and thus the state—is on the hook to cover the difference. Plus, even it doesn't come directly from taxpay...

You know what the Dow Jones Index is, right? And you know that the 30 companies in the index have varied over the years, right? ( Pacific Mail Steamship was in it back in 1884, but not any more...) Well, CNN has put together this handy-dandy timeline of the Dow through the years .  Go check it out (the below is just a screen-grab).  Mind you, for a much more detailed (if more complex) timeline, go here ...

From Bankers Anonymous comes this stellar infographic showing you your decision tree associated with your 2012 IRA contribution. My favorite part is, clearly Do you somehow have between $20 Million and $100 Million in your IRA? Yes --> You're Mitt Romney.   hat-tip Barry Ritholz (click to embiggen. A lot...)

From M.Wuerker @ Politico (hat-tip Barry Ritholz ) That is all...

From Jess @ visual.ly comes this hand visualization of all the Billionaires on Earth. And, in case you're wondering why Oprah is specifically called out, its 'cos shes (clearly) the only female black billionaire out there...

Pew research finds (and the census backs up ) this ridiculously depressing piece of data The median wealth of white households is 20 times that of black households and 18 times that of Hispanic households, according to a Pew Research Center analysis of newly available government data from 2009. These lopsided wealth ratios are the largest since the government began publishing such data a quarter century ago and roughly twice the size of the ratios that had prevailed between these three groups for the two decades prior to the Great Recession that ended in 2009. I really have nothing else to add to this. Sigh.

You've all heard of The London Whale , right?  The dude(s) at J.P. Morgan's Chief Investment Office in London who managed to lose $6 Billion on botched investments ? The gory details on what happened are out, and they are dry - seriously dry - reading.  But there is one part that stands out - the role of spreadsheets in all this. From FT Alphaville - [...] the model operated through a series of Excel spreadsheets, which had to be completed manually, by a process of copying and pasting data from one spreadsheet to another[...] Yeah, you got that right.  Our Financial Overlords use Excel and copy/paste in their overlord-ian activites.  (We are so doomed) You pretty much know where this is leading, right? an operational error in the calculation of the relative changes ... [s]pecifically, after subtracting the old rate from the new rate, the spreadsheet divided by their sum instead of their average, as the modeler had intended. Brilliant. Turns out that th...

“The greatest triumph of the banking industry wasn’t ATMs or even depositing a check via the camera of your mobile phone. It was convincing Treasury and Justice Department officials that prosecuting bankers for their crimes would destabilize the global economy.” -Barry Ritholtz Source The Daily Beast

This via Barry Ritholz @ The Big Picture Learning to Be A Central Banker in 10 Easy Steps Start with one policy – for example – interest rates. Place the policy ball in your right hand and begin by   lowering   rates. which causes the ball be tossed-up into the air, in an arc, and land in your left hand. Note how, when the policy ball is in your left hand and you raise rates, the ball returns in an arc to your right hand. Repeat several times to get the feel. (Note this doesn’t work if you are left-handed) Now with he first policy ball in your left hand, take a second policy ball in your right hand, say the value of the US dollar. Notice how when you   lower   interest rates while the PBoC, and other official buyers in BRICs and GCC countries buy Long Bonds, the 2nd policy ball, the Dollar, feels heavy as if it wants to fall to the ground. Exerting appropriate pressure, you must force it up to arc, after which it should fall back down landing in the left hand...

Lisa Pollack explains Internatinal Transfer Pricing (with particular reference to the ongoing saga of Starbucks in the U.K. ) via that famed mouthpiece - Mr. Potato Head. Oh, you do know about whats going on with Starbucks in the U.K., right?  For those who haven't been following the sordid saga, the (extremely) short version is that despite having been in business in the U.K. for 14 years, and making around £400 million/year, they've paid a grand total of £8.6M. Over 14 years .  They get away with it because they do fun stuff like royalties paid to Starbucks Netherlands, coffee purchased from Starbucks Switzerland, and no doubt " Because International Finance ". This is actually a bit more than forum shopping - its basically moving finance widgets around the global chessboard which can be done for good or for evil - and thats what is called Transfer Pricing .  And this is where Mister Potato Head comes in.  I've excerpted the article below - go read the...

Performed by the Austerity Allstars...

From The Big Picture , more evidence that the financial crisis was entirely, and completely, foreseeable . We’ve known for   4,000 years   that debts need to be periodically written down, or the entire economy will collapse. And see   this . We’ve known for   2,500 years   that prolonged war bankrupts an economy. We’ve known for   1,900 years   that rampant inequality destroys societies. We’ve known for   thousands of years   that debasing currencies leads to economic collapse. We’ve known for   hundreds of years   that the failure to punish financial fraud destroys economies, as it destroys all trust in the financial system. We’ve known for   hundreds of years   that monopolies and the political influence which accompanies too much power in too few hands is dangerous for free markets. We’ve known for   centuries   that companies will try to pawn their debts off on governments, and that it is ...