's "The Street Sweeper" Column Now Online

March 5, 2010

Don't Kill All The Lawyers

I agree with Harry Markopolos on just about everything. Except that more mathematicians would have prevented this crisis.

The Street Sweeper by Bill Singer

[M]arkopolos implies that the sole cause or the most important cause of failed regulation was a dearth of mathematicians or economists at the SEC. An understanding of numbers is critical for those charged with financial audits or forensic accounting, but we should never forget that there are lies, damn lies and statistics. Just as the law is easily perverted by unscrupulous lawyers, accounting is as easily waylaid by compromised auditors and accountants.

Long Term Capital Management (LTCM) was a hedge fund founded by Nobel Prize-winning economists, Myron Scholes and Robert C. Merton? Those two math geniuses (along with Fischer Black) developed the Black-Scholes formula for option pricing. Notwithstanding that prodigious math talent and economics background, LTCM collapsed with a horrendous thud in 1998 that nearly destroyed the international economy. . .