Quants: The Alchemists of Wall Street

Quants: The Alchemists of Wall Street

2010, Economics  -   58 Comments
Ratings: 8.01/10 from 77 users.

Quants: The Alchemists of Wall StreetQuants are the math wizards and computer programmers in the engine room of our global financial system who designed the financial products that almost crashed Wall st.

The credit crunch has shown how the global financial system has become increasingly dependent on mathematical models trying to quantify human (economic) behavior.

Now the quants are at the heart of yet another technological revolution in finance: trading at the speed of light.

What are the risks of treating the economy and its markets as a complex machine? Will we be able to keep control of this model-based financial system, or have we created a monster?

A story about greed, fear and randomness from the insides of Wall Street.

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Gary Cockrell
5 years ago

A tyranny of "experts". Interesting and more but actually, purely political, like "climate change". Computer models are very useful in advancing guesses about the future but not very useful, at all, in actually making accurate predictions.

Lynn Blystone
7 years ago

The 2008 meltdown was caused by the finest managerial and financial talent money could buy with the collusion of the government. A couple of bus loads of east Bakersfield gang bangers running the firms and institutions could not have done a worse job. But they probably would have been better at collecting loans. Now the clones of the managers and financial people with the same government collusion are at it again.....

9 years ago

Rubbish.. The crash was due to regulation driving business off shore and excessive credit growth from FED

9 years ago

Another excellent documentary regarding quants, and their impact on the financial markets, and how it is evolving. Works hand in hand with the documentary The Wall Street Code. I advise everyone interested in global economics to check out both these docs.

Nathan (aka) yhwhzson
10 years ago

The idea of mathematicians running the financial world makes absolute sense to me now. Quantifying people's behavior economically or better yet in general makes absolute sense to me as to why the world is in the condition that it finds itself in.

For example, Cisco systems has a commercial where robots are running a factory, when all of a sudden one of the robots break down. Then one of the other robots reach over and repairs that robot.

It left me with a riddle. If the robots, which are the multinational corporations dream employees, can work without break/vacation or sick leave and can even repair one another. WHO WILL BUY THE PRODUCTS? Or better riddle, WHO WILL BE ABLE TO BUY THE PRODUCTS?
Answer No-BOT-y

Seeing as robots are not consumers, and consumers won't have jobs to earn money to purchase products.

Welcome to the machine world. It is synonymous with a mathematical world. A world that does not figure in the main equation, the lives of people, or any other living organism.

But most importantly, It doesn't figure in the equation of GOD &/or JESUS CHRIST!

11 years ago

The scary takeaway from this documentary, even though I live largely by occassionally daytrading in the markerts (so I tend to know a s-load about it as I play with my own money regularly so have to walk a thin line between "Yeah... a holiday!" and "Oh dear! No petrol for car this month!") as well as my more practical day job, is the line;

"there are more people trading derivatives related to commodities than actually growing them"

That must be true, given the numbers in the financial 'industries' (which aren't industries at all since they don't MAKE anything!) compared to the numbers of people in modern farming (which is!).

Scary... maybe we can eat 'quants' when times get hard!

People compain that nobody MAKES anything any more... I think I kinda spotted the reason!

11 years ago

Very interesting. To think I thought I was doing something interesting with a few models concerning corn futures and stock picking. Even experimented with genetic and neural network modeling. These folks are/were in a class by themselves. This was a truely insightful vid. I shall refer over to the Occupy movement as a recommendation. A deeper more clear description of the underlying process and issues involved with machine/corporate access to markets and financial products.

12 years ago

I was looking for a documentary about aliens. Guess I found one.

12 years ago

Thank for the film. I love this kind of documentaries (economy, business related and similar). Well made.

12 years ago

I know what to be done about the .6 thing for human factor relationship. generate numbers close below and above of the exact figure. the problem is not the general .6 .. is just that in real life that will oscillate up and down

12 years ago

These guys on the Street are just a bunch of parasites

12 years ago

TriforceV, algorithmic trading actually provides liquidity to the market resulting in increased efficiency. There is nothing wrong with algo trading, while it is a bit like picking up dimes in front of a bulldozer - people are individuals, allowed to make their own decisions. Don't like it? Move to China.

Want to know the true cause of the current financial problems? Democratic legislators.

Miguel N. Cabrera
12 years ago

BRAVO,BRAVO, an excellant program which I enjoyed watching. I think it took alot of guts for these guys to admit their involvement in the meltdown of the global economy. These so-called financial wizards had very little understanding of the mathematics created by the quants. But more than just the mathematics it was just plain GREED that flushed the global economy down the cesspool.
As the saying goes "Power and Money corrupts", the more wealthy these chumps on Wall St. became, the more GREEDY they became until critical mass was reached. Then BOOM!!!! All hell broke loose.......
Now here we all are, millions of us unemployed, millions of us who lost their homes to foreclosures. What is that saying all ya "It's insanity to do the same thing over and over again, and expect different results."
If Washington D.C. politicians allow Wall St. and all those Financial Institutions to continue with their same old business practices then Americans are doomed to relive the last two years all over again and again and again and again and again and again.....................................................

Joe Blow
12 years ago

"What is their contribution to society I wonder?"

They add liquidity to the market, which allows non-automated traders to transact large amounts of equity at a better price than they might normally get.

Farm Animal
12 years ago

An excellent documentary outlines the use of technology to exploit opportunity. Just as a factory owner enjoys a new machine to increase profits, now a computing machine has a chance of doing the same thing with the financial markets. The human elements and changing dynamics will need constant attention, but it increases the success level with fewer people just the same. Any gambler will seek ways to improve their odds.

I see no reason to blame this tool, or the creators of it. The banking industry abused their investors in the same manner that a government abuses the taxpayer. A series of major deregulation bills (USA) stimulated reckless behavior. Well paid legislators repealed the laws to eliminate legal penalties. A runaway train with no brakes.

12 years ago

Waldo, you are living on a different planet. You clearly don't understand how democracy and political power is being hijacked by political fraudsters (the Greenspans of this world). See 'Inside Job' and read Noam Chomsky.

12 years ago

Mathematicians over complicating things. Granted the subject matter is difficult, but that guys was being fancy and showing off in my opinion.

12 years ago

I just happened on this article, i have no clue how old this article is; but i am adding this comment because i would like to get in touch with you. I am also a prior software engineer, turned trader. I am also interested in algorithms to be successful in my trades. Would like to share our experiences. If you see this commment post here and we can start a discussion, if you are still in interested in algorithm writing.

12 years ago

This is a joke. Nut the realy big joke is that banks have made it so, through central banks, that they, in our current economic market, fail. And hence HAVE to be saved.

In a true capatalist market, these banks who adhered to these ridiculous quant policies go bankrupt, share holders damned compensation, salaries of those responsible are confiscated, and healthy normal thinking banks take over the market. That;s capatalism. What we have now is socialism for banks. Which maasively stimulates their need too take risk even ordanairy people like you an me understand are crazy.

12 years ago

I inform this to you guys, as a software engineer turned trader, and having tried countless aspects to model and create algorithms. They work in the short term, but not one algorithm/model can be characterized for ALL markets as they all change.

12 years ago

I am afraid the documentary may be over-hyped and over portrayed.

It is not so easy as shown. Mathematically modeling the market is a very difficult task. It is trying to model chaos and randomness.

However, trading and making in the market, as a person, is not nearly as difficult as it requires things that are not just a function of previous values, which moreover, have too many parameters to be able to successfully determine what to do.

And about physics guys going into the finance industry. What a waste of money. You can't go into the market with such logic of a physics major, but rather it is a measure of human emotions and gut feeling, which cannot be represented by an equation, as again the model is a function of previous values.

-futures/currency trader

12 years ago

@ Ron

I plan to stay with physics, well actually change over to engineering- a field that heavily depends on physics but is somewhat more practical in my area. I admit the money would be better and I love money like everyone else, but I want a job that I love to go to every day even more. Besides, like you said it all depends on how long it takes this new bubble to burst and this time we can't just blow another one, party has to end sometime. I figure I will actually major in mechanical engineering, this way I get to keep doing the physics I love and my degree is practical- in the sense that it relates to manufacturing which is something I feel we we'll eventually return to. I hope we do anyway. We need to move away from this service related borrow and spend economy back to a manufacturing based earn and save economy. Of course I am no expert so I suppose its all a gamble.

12 years ago

quoting @Imightberiding5

"Thanks for another one Vlatko. Time well spent".

12 years ago

of course

12 years ago

I tend to agree with Ron. Living in a fantasy (unreal money) can only last for so long. Reality will always come back.

Now, from what I've been learning, a lot of the "elite" or people with the most money and who have been influencing/buying politicians and leaders for a while have set their sites on a larger prize: the world.

It is no longer about usurping America's economy, but the world's. They had this all planned out. First drain from the US, then start working with China and the "next big thing" that is coming around the corner.

They have no national pride...they care about wealth and this is the rising new international elite. They are behind a lot of "war on terror" and other conflicts around the globe...even if at a very deep level that few ever realize.

12 years ago

I would not be so sure there will be a job waiting for you in the financial industry. It all depends on how long this baby goes for.

The US Federal Reserve is out of bullets. There is nothing left. They are printing money now with interest rates at zero. The banks are making money by going to the fed discount window and then helping by buying bonds and making a nice and tidy 0.25% on the spread.

Currencies around the planet are in a battle with the US dollar. Commodities are going ape again based on the US dollars that are being printed and tossed out there all over the planet.

Greece needs money the EU prints some money and gives it to them. Ireland needs some money and today the EU is printing some and giving it to them.

Spain is next BUT it is bigger than Greece, Ireland and Portugal combined. But it will get bailed out by printing money.

Gold has only one way to go long term because banks have a new deal whereby governments will print money to give them zero risk on investing in Govt Bonds etc. They will just print money.

It crumbles when the money can't be printed anymore and interest rates have to go up to attract actual real investment. Then the whole bubble will blow up because they will have absolutely nothing to keep things going. Can't lower interest rates and can't print money. Things just plain have to be flushed out and we start over.

So follow your dreams because I am not so sure that the easy money in Quant Finance will be around much like the dot com jobs like project management in IT kind of died in 2000.

Lots of great documentaries on this site about the history of economics and present situations. Lots of garbage as well but we learn from history or at least that is how it is supposed to work.

Hope I can make a buck on the next crash.

Good Luck to All

12 years ago

nice, i hope i can have a piece of the pie so that i can sell oyster when i am old

12 years ago

@ Andrew C

I wish that were true, but I don't think it is. I am majoring in physics, haven't decided which type yet, and I have already been told by two professors and one guidance councelor that more than likely I will end up in finance. When I try and tell them that I have a passion for science and would never want to go into finance, they are like wait until the money is offered and then tell us that. They have a point, by the time I finish this degree I will be around forty two years old and have major debt in the form of student loans. If I go into finance I can remedy that and live a comfortable life. If I choose to remain faithful to my passion I may die in debt, and will more than likely live a life of struggle and mediocrity. Unfortunately we do not reward science like we do finance, and no amount of shame or integrity is going to change my finacial future.

Its not enough for us to point our fingers at the financial world when crisis strikes. The economy will recover one day and things will begin to boom again, its already starting to happen. Its a fake and shallow facade really, we are simply inflating another huge bubble that will certainly burst one day, but reagrdless of this fact people will again become capitivated by the money to be had and intoxicated by those that manage to take the lion's share of it. If we want true change we must redefine our values and priorities in this world, we must place importance on ethical behavior and reward those that make true meaningful contributions at least as much if not more than we reward those we all seem so quick to judge right now.

Think of it this way, if this crisis had of not happened would we even be having this conversation, of course not. Now, what does that say about us as a society or a people? I am not saying that I am above it at all, I to envied the rich and powerful with little thought as to how they obtained that status. I would like to think that will change, but I just don't see it. We are not even blaming the right people. The society we live in seduces people into this life style, we shouldn't blame them for going for it. We should change the way society operates at a deeper more fundamental level. The question is, how do we do that?

Some say by doing away with the monetary system all together, I don't think that is very realistic though. The transition would be impossible and society as well as human nature would have to change in very fundamental ways. Some say religion or some type of spirituality is the answer, but you can't fake what you don't feel forever. Too many people, myself included, just do not feel that connection. Besides, history has shown us that solution can and has at times become a means to the very end we are currently trying to change.

I have no answers really, just wanted to pose the question I suppose. It is an important question to ponder and one that we must solve or we will one day destroy oursleves. Perhaps it is too late anyway. Perhaps this was our destiny from the beginning, to blow a bubble so huge that when it bursts it takes all of this with it forever. I hope not, but like I said- I have no answers, and that scares the he11 out of me. Thanks for your input Andrew, I hope I didn't bum you and everyone else out too much.

12 years ago

So you live off of interest and you only make 100.000 per year pocket money?
You still not really out of it yet are you.
Ha, ha.

Andrew C
12 years ago

I really liked this video. When these guys start coming out with their stories you know the ship is sinking.

Well at least our best and brightest won't all flock to finance in the future...

I think we are at an interesting crossroads in history.

12 years ago

Two Thumbs Up!

12 years ago

Well said, Waldo.

12 years ago

Thanks for another one Vlatko. Time well spent.

12 years ago

It is ridiculus to blame the guy that designed the equations. He simply looked at the reality and made a mathematical model to represent it. Blaming him is like blaming Newton every time you fall down.

The people we should blame are the ones that decide it is o.k. for a bank to assume resposibility for its actions only thirty percent of the time. And that the other seventy percent can then be misrepresented and sold to unsuspecting firms or individuals. We should blame the people that some how decided that it was a good idea to make as many loans to people that can clearly not pay them back as possible. We should blame the people that decided a sytem that is driven by selfinterest and greed would be able to effectively police itself. We should blame the people that decided America didn't need to make anything, only provide services and create new technologies. And most of all we should be asking what these people had to gain from all of these bad decisions and is there any way to remove that incentive to sell us out. Because in reality there is a reason monkeys don't sell bannanas and mules will always chase a carrot.

Of course we also need to shoulder some of the blame. After all these loans would not have been given out if they were not asked for, credit cards don't go shopping all on thier own, and it is both naive and short sighted to expect businesses not to take advantage when it presents itself. These elected officials we constantly grumble and complain about are just that, elected. If we allow ourselves to be blinded by moral issues and relgious as well as nationalist rhetoric nothing will ever change. Yes the system is complicated and it will take effort and time to gain enough understanding of it to be effective as voters, but what is the alternative?

12 years ago

And there we have it. The quants were the architects and the CEOs were the shoddy contractors and the governemt allowed anyone to move in even if they couldn't afford it.

12 years ago

Hmm,I think perhaps it could be said that Wall Street is the "contribution to society", compliments of a company called The Federal Reserve.

12 years ago

Loony Toons Capitalism for you.

So advanced mathematical algorithms and computer software automatically trades stocks at lightning speeds buying and selling and making money off of nothing....

This is what wall street is all about?
What is their contribution to society I wonder.. What a joke.