12 November 2014

What Are The Odds?

The initial title was going to be something like, "Marty McFly is Grounded", since the subject is Matt Martoma, and yes, it's a bit of a stretch for an allusive pun.
Mathew Martoma, a former portfolio manager at billionaire Steven A. Cohen's SAC Capital Advisors LP hedge fund, on Wednesday lost a bid to stay out of prison while he appeals his insider trading conviction.

As the saying goes, "be careful what you wish for, you just might get it." The wish, in this case, is that cracking down on white-collar financial crime will deter the self-absorbed, greedy Wall Streeters from sinning. It was TNT running "Castle" marathons that got me hooked on the first run on ABC. In the archive shows, Lockwood (a bad guy hired by the Real Bad Guy) says to Capt. Montgomery, "If you and Raglan and McCallister hadn't sinned so spectacularly, then God wouldn't have sent a punishment like me." Soon after Lockwood and Montgomery have a shoot out with both getting killed.

In the case of Wall Street and Martoma, what seems the most plausible outcome? Well, these guys are quants, more or less, so they think in terms of odds and expected value. Well, if we raise the odds of getting caught, losing the moolah, and having to wear Orange for a decade or so, then we've lowered the expected value of schemes currently in play. We, therefore, should expect that the Wall Streeters will dream up schemes which increase in value (to them, not the 99%). I'll all for the guillotine as punishment for such behavior, but that's not enough. The folks in Congress, well the past one not the next one fur shur, also need to anticipate where the wedge will go next. Crooks be clever dudes.

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