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Central Arbitrage Agency

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Joined: 20 Mar 2006
Posts: 1273
Location: Kent (East Hill), WA

PostPosted: Mon Feb 15, 2010 11:28 pm    Post subject: Central Arbitrage Agency Reply with quote

In a recent comment of mine in the Huffington Post, I recommend the formation of Central Arbitrage Agency (CAA) to find the "loopholes" in our financial system and close them before they can be exploited.

According to the book The Quants (I just bought the ebook from B&N), the root of all these deals is arbitrage...the art of finding inefficiencies in pricing and exploiting them. The whole thing is numbers on a page, there is no real world thinking or "morality" in it. To rail about these fellows being "bad", borders on the absurd, because it's completely amoral.

There is, however, something that can be done about it. In the same way that the US funds millions for counter-terrorism and code breaking, the levels at which financial reporting and investigations are done need to be driven up a few more dimensions. What the SEC needs is a Counter Arbitrage Agency (CAA) to find these inefficiences before the G-S guys do, and figure out whether the imbalance is caused by any Government, Treasury or Fed action and fix the hole before it can be exploited.

In addition the SEC must employ the latest IT technologies of CEP (Complex Event Processing) and BIA (Business Intelligence Analysis).

We can't fight an air war with battleships. And G-S are using phasers!!

The Quants
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