Mathematics and finance

I just returned from a visit to China.  One of the things that I heard on my visit was that two-thirds of all mathematics students at one of the leading universities are taking courses to prepare them to work in mathematical finance. Two-thirds! Doubtless not all of them will end up following the career path they're aspiring too, but these are incredibly focused and dedicated kids and for sure many of them will.

The same aspiration is visible in the US (though I am not aware that any departments have reached the two-thirds level).  Masters' level programs in finance flourish, and the lure of "Wall Street" attracts the ambitious and talented undergraduate and graduate alike. Being around money is attractive, and academics are no more immune to this kind of attraction than anybody else.

It is quite puzzling though how the specific attraction to "financial math" has survived the financial crisis which began in 2008.  There is no argument that the failure of the market in mortgage-backed collateralized dent obligations was a major cause of the crisis.  The risk potential of CDOs was supposedly evaluated by mathematical modeling, but this modeling went badly awry - you can argue whether the blame lies more with the mathematicians who made the models or the managers and salespeople who ignorantly applied them, but whichever it was, mathematics was spotted near the scene of the crime.  (See here and here for articles which see the mathematical profession as implicated, and here for a very detailed response which also explains, for the trained reader, some of the math underlying CDO modeling.)

Some would say that the lesson is that we need more and better mathematics, and then we will be able to avoid the mistakes we made the first time around. No doubt. But what new mistakes will we then turn out to have made?  More fundamentally, do we need to continue to expand the "shadow economy" of finance when the "real economy" of actual goods and services may already be on a post-growth trajectory?

Is it really in the best interests of a country when two-thirds of its brightest students aim for the financial sector?

5 Steps to Prep Your Credit for Holiday Shopping

The coming couple of months will bring cold, crisp, sunny days; a festival devoted to giving thanks for the blessings we have received; and, for Christians, a celebration of the coming of One who was born in obscurity, lived in poverty, and died in humiliation.

Oh, and lots of shopping. Remember the old definition of  a credit card?  "A way to spend money you don't have, to buy stuff you don't need, to impress people you don't like."

Breathless newspaper and magazine articles (like the one from Forbes yesterday whose titled I borrowed) will encourage us to get ready for the shopping orgy; will celebrate or bemoan the level of "consumer confidence" and the resulting sales; will rehearse once once again the consumer's litany: the meaning of our lives is measured by the abundance and fashionableness of our possessions. 

The more "old" goods are discarded to our groaning landfills, and the more "new" goods are mined from the irreplaceable resources of the earth, the "better" we will be told the year has been.

Can Christians find another way?  Yes, the presentation of costly love-gifts is part of Jesus' story (and not just at Christmas). He himself is the costliest gift. Can we celebrate that abundance of generosity in a way that does not involve us in the consumption of an abundance of stuff?

I think we will have to re-learn this together.

Counterculture to co-option?

I've been in Berkeley, CA for the last couple of days.  I'm staying in a newly renovated hotel downtown.  In the entrance lobby, a familiar symbol has been tiled into the new marble floor.

A symbol of resistance to the dominant culture has become a decorative artefact that that culture can make use of.

Kinda like another cross, really.

Good news for modern man?

Richard Chartres

I was moved by this quotation from Richard Chartres, Bishop of London: "Only a crisis brings about real change. When the crisis occurs the ideas that are adopted are those which are readily available. It is part of the duty of the Church to keep alive alternative ways of thinking and living in preparation for the time when the politically impossible becomes the politically inevitable."

Saint Paul wrote,  "The appointed time has grown short... The present structure of the world is passing away." (I Cor 7:29-31) An advocate for a minority cult, facing a massive and apparently stable empire, he was nevertheless confident in proclaiming a message - a 'gospel', good news, an alternative way of thinking and living - with which he had been entrusted and which his world needed to hear.

Part of the gospel for Westerners today is that "a person's life does not consist in the abundance of their possessions" (Luke 12:15). Are we ready to proclaim this as "good news"? Because one day people will come asking the church, "We have heard that you know a way of living which is not always about 'more'. We need that now.  Tell us, please, how it can be."

Will the church have an answer?

A question of timing

Hindsight is a wonderful thing.

When the Dow Jones Industrial Average reached its all-time high on October 9th, 2007, plenty of voices could already be heard drawing attention to the boom's shaky foundations in subprime mortgage and credit expansion. We fantasize about heeding their advice at just the right moment, selling out at the top of the market, and sitting out the next year and a half during which the Dow lost more than half of its "value".

But, at the time, although we know the party is going to end badly, we don't want to miss any of the fun.

Jeremiah told the people of his generation that the party would soon be over.  But it took decades for his vision of a boiling pot, tipping over from the north, to reach its fulfillment.

Common sense, not to mention a succession of writers from the 1970s until now, tell us that the endless growth model is going to run up against hard limits sooner or later.  Heinberg (The End of Growth, 2011) tells us that the time is now: "Economic growth as we have known it is over and done with." Maybe he's right.  But can't we stay at the party just a little longer?

The trouble is, getting out of this party is not as simple as getting out of the stock market.  It can't be accomplished with a few mouse clicks. It takes a change in direction, in values, in the emotional and practical skillset I bring to life.  In a word, repentance.

And by the time that changed direction is truly needed, it will be too late to begin learning it.  Better start practicing now, in the community of faith.