Posted by alex in Financial Column, George Lenz at 11:20 am |
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By George Lenz
In the 1980s mathematical finance began to be widely used at the Wall Street for the first time. The fallout is still being felt today. Prudential Securities, which for years boasted that “the most important thing we earn is your trust,” apologized for having systematically defrauded hundreds of thousands of investors who bought its limited partnership deals. Banks and insurance companies bankrolled so many new buildings that the excess in commercial property has been worked out only by the year 2000. As we beginning to enter one of the worst era in modern U.S. financial history, it is a good time for a look back. It is not widely recognized, but humanistic profs with mathematical background played an important role in the 1980s debacle, providing theories full of advanced mathematics and statistics to justify some of the worst excesses. One such concept, efficient market theory (EMT), contributed to the damage then and, in its various mutations, continues to do so today.
