Tuesday, April 20, 2010


In "The State of Financial Engineering" market consultant Sylvain Raynes takes a strong swipe at business schools in general, and the professors of finance in specific. He follows this up with "The Hollow Men of Financial Engineering", where he offers no apologies for the egos he offended in the first article. Both are good reads and if you like sardonic wit, like I do, you will no doubt agree that both articles offer insights that we can all learn from.

For example, here's what Raynes has to say about the "sleazily transparent, anti-intellectual" techniques taught at universities that offer Masters degree programs in quantitative finance, or financial engineering (FE):

What is obvious and regrettable is that no effort is ever made to teach numerical analysis as a proper and rigorous discipline. Instead, students literally learn numerical recipes and are no more equipped to handle reality than someone equipped with a driver’s license when their car breaks down.

One might think that Raynes - who was a founding principal of R&R Consulting, a structured credit consultancy firm founded in 2000 - would stop after criticizing the techniques used to teach FE. One would be mistaken. Looking at the major universities that churn out the uncreative number crunchers, Raynes tells us that:

... the Chicago School of Economics recently held a well-attended conference with the stated objective of investigating whether its thinking bore either blame or responsibility for the occurrence of the sub-prime crisis, and if so how much. As expected, the usual suspects reached the foregone conclusion that Chicago School thinking was totally blameless and that, in point of fact, the fault lay entirely with those who had “misunderstood” its groundless theories.

In many ways Raynes is simply stating what others have been pointing out for some time now. If no one is at fault, no one can be blamed for the mess of 2008. This means we will never develop long-term solutions for what ails our markets, and society. Logically, another market collapse is only a matter of time.

I bring up Silvain Raynes because of this piece from Huffington Post. In it we see that academics in the field of finance who were offended by Raynes can rest (a bit) because Raynes shows that he's an equal opportunity critic (FF to 3 minutes; watch the clip here).

No doubt cognizant of the fact that CNBC's Erin Burnett and Jim Cramer both worked for Goldman Sachs, Raynes criticizes Burnett for essentially being a Wall Street lacky because of her tendency to put Goldman Sachs cheerleaders on her show, Street Signs. He then goes after CNBC's Jim Cramer for being a Wall Street shill, and dumming down markets to a level that only an idiot would appreciate.

Whether you like his personal attacks on Cramer or not, one thing is clear. Mr. Raynes knows what he's talking about. Perhaps more importantly, with his attacks on both Wall Street shills Burnett & Cramer and our nation's business schools, Raynes seems to understand the Big Picture, which doesn't come through in the Burnett clip.

With Burnett &  Cramer's Goldman Sachs backgrounds, and their recent Wall Street mistakes and boot-licking history, CNBC needs to invite more people like Raynes to the set. Whether you agree with Raynes's tone or his methods (I like it), there's no doubt that he is both insightful and irreverant (in a healthy way).

Just what the doctor ordered in our troubled financial times.

- Mark

ADDENDUM: Speaking of Goldman Sachs, check out this Daily Show clip ...

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