Scholes Advises 'Blow Up' Over-the-Counter Contracts

Scholes Advises 'Blow Up' Over-the-Counter Contracts

www.bloomberg.com

March 6 (Bloomberg) -- Myron Scholes, the Nobel prize- winning economist who helped invent a model for pricing options, said regulators need to “blow up or burn” over-the-counter derivative trading markets to help solve the financial crisis.

The markets have stopped functioning and are failing to provide pricing signals, Scholes, 67, said today at a panel discussion at New York University’s Stern School of Business. Participants need a way to exit transactions and get a “fresh start,” he said.

The “solution is really to blow up or burn the OTC market, the CDSs and swaps and structured products, and let us start over,” he said, referring to credit-default swaps and other complex securities that are traded off exchanges.

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Myron Scholes, God bless him. While he has the evidence to suggest he is a brilliant theoretician, his Nobel Prize having bought him many high profile positions, this has got to be the last person you'd want giving you advice that could impact your bank account or career.

His name was mentioned more than any other during graduate school, as his pricing models basically built the derivatives industry, and now he wants to burn down his own creation and start over. I bet he feels just like God did before the flood.

Is his advice sound or is this another trick from the Ivory Tower than doesn't pan out on the Street?

www.bloomberg.com
(visit the link for the full news article)

The problem with the derivatives market is that it is worth about a quarter of a quadrillion(not making that up) dollars. What he is suggesting won't work it basically starting from scratch.

Sounds to me like he knows he is about to go down in history for having everything to do with the collapse of the worlds economy.

reply to post by huckfinn


Well lets see we are in a current spiral downwards with no end in site. There are perhaps $100 TRILLION out there in derivatives. No one knows there true worth.

If we were to eliminate them it would spell doom for many but would give the overall economy a fresh start.

They only exist on paper and computer programs, its not like bulldozing houses to eliminate the glut of them. This could work for the greater good.

Is anyone going to do anything about corruption?
I mean, where did it all start?
Abolition!

You are 100% right DangerDeath.

To bring confidence and trust back to the markets we need to see people like Joe Cassano from Aig and his accomplices who sold the derivatives, people from country wide and other corrupt loan originators who fraudulently manufactured info on applications,

people from moodys and the other rating agencies that gave these high seals of security and approval on the transactions, investment bankers and money managers that concentrated the clients monies on these to gain higher bonuses.


We need to see tens of thousands of white collar criminals join the crack dealers in jail.

[edit on 6-3-2009 by Desolate Cancer]

reply to post by Desolate Cancer


The problem is, they are running the system.
Left hand washes right hand.
We shall see dancing and swinging and no ripe fruit will fall to the ground

So we just 'blow it up' and go for another round in 30 years time? No thanks. We need a financial system that isn't based on greed and deceit then we might see an end to this madness.

Originally posted by Chris McGee
So we just 'blow it up' and go for another round in 30 years time? No thanks. We need a financial system that isn't based on greed and deceit then we might see an end to this madness.

Deceit yes you are 100% right.... But Greed is good and at the heart of finance. People dont invest money or setup up 401k to not make money off of them, right? If it wasnt for greed then there would be no market for anything.

It may sound cliche but greed is a necessity, it really is what makes the world go round.