www.mortgagestrategy.co.uk DIARY
60 seconds
WITH.....
DANNY LOVEY
PROPRIETOR
THE MORTGAGE PRACTITIONER
YOU RECENTLY CHALLENGED THE DIRECTOR GENERAL OF THE
CML TO A SHOWDOWN OVER HIS RECENT COMMENTS ABOUT
BROKERS. WHAT WAS HIS RESPONSE?
There has been a deathly silence. Personally, I think it’s
because Michael Coogan doesn’t want to debate the
subject, although he may say he does not wish to lower
himself.
DO YOU AGREE WITH AMI CHAIRMAN JOHN GUMMER’S CALL
FOR RATINGS AGENCIES TO BE REPRIMANDED?
I agree with Gummer but what will it achieve? We know
the agencies messed up and they know it too, so while we
should reprimand them there’s a problem – how do we
take retribution?
I’d have thought that the knowledge they got it wrong
and the impact on their reputation should mean they
don’t get it as badly wrong again.
WILL REGULATION OF THE SALE-AND-RENT-BACK SECTOR HAVE
THE DESIRED EFFECT?
Hopefully. The sector needs regulation because there are
a lot of bad practices. There’s an issue over security of
tenure and I’m not sure how we can square the circle
on that at the moment, apart from by ensuring
transparency.
There’s an argument that runs – if a person can’t pay
a mortgage how can they pay rent? But with renting
there’s always Housing Benefit to fall back on. That safety
net is not there with a mortgage.
HAVE YOU BEEN TEMPTED TO DEAL WITH ONE OF THE MANY
CLAIMS MANAGEMENT COMPANIES THAT HAVE SPRUNG UP?
No, being an ambulance chaser is not what I’m about.
HOW HAS LIFE AS A SOLE TRADER BEEN RECENTLY?
Extremely difficult, and I can’t see it getting any easier.
HAVE YOU BEEN TEMPTED TO JOIN A NETWORK?
I gave the matter some serious
consideration earlier this year but
eventually took the decision that I’m
too independently-minded. I prefer
paddling my own canoe, come hell or
high water.
WHAT’S THE BIGGEST ISSUE FACING YOU?
There are many problems and
despite our economic plight
the Financial Services
Authority has failed to fully
endorse the role of advice. If
it truly believed in the advice
process it would do more
than just talk about it. I find
its attitude on this
extremely frustrating.
● INTERVIEW BY ROBYN HALL
Media
SPOTLIGHT
The Black Swan
By Nassim Nicholas Taleb
Asad fact of the credit crunch
is that while in hindsight it
seems obvious that everything
would go belly up the truth is
that nobody saw it coming.
And unfortunately Nassim Nicholas
Taleb’s book won’t help you get any
better at spotting the next apocalyptic
economic meltdown.
The book gets its title from the fact
that before Australia was discovered
people in the West did not know there
was such a thing as a black swan. They’d
never seen a black one so they thought
there was only the white variety.
“A single observation can invalidate a
general statement derived from millenia
of confirmatory sightings of millions of
white swans – all you need is a single
black bird,” as Taleb puts it at the
beginning of the book.
So-called black swan moments can
involve a differently-coloured bird, a war,
a top-selling novel by an author nobody
has ever heard of and most definitely an
economic crash.
Taleb has experience of both war and
economic downturn. He was a teenager
in Lebanon when the country was
plunged into civil war in 1975 and a
derivatives trader at Credit Suisse First
Boston in New York on October 19 1987 –
Black Monday.
His main point is that as a species we
are programmed to refute the improbable
and random and tend to kid ourselves we
know what’s coming next. We are bad at
making predictions – and unfortunately
this doesn’t just apply to your average
taxi driver, it also applies to the
professional economists and analysts
investing our pensions.
He says the only people who are good
at analysing where things could go
wrong are chess grand masters. And, it
seems, Taleb. He co-runs a hedge fund
called Universa that made money out of
the recent stock market crash.
He doesn’t seem to have much faith in
the economists and mathematicians who
populate the City and Wall Street. He
contends that by rigidly sticking to
mathematical models of standard
deviation, brainiacs and physicists have
left themselves vulnerable to black
swans.
Taleb uses a wide variety of
anecdotes to prove this.
One involves hedge firm Long-Term
Capital Management that went bust in
1998. LTCM was set up by a number of
maths wizards who were confident their
models would translate into financial
success. But a combination of big events
sparked by a financial crisis in Russia
wiped them out.
“LTCM went bust and almost took the
entire financial system with it, as
its exposures were
massive,” he says. “Since the company’s
models ruled out the possibility of large
deviations it allowed itself to take
monstrous amounts of risk.” Sound
familiar?
Another is a study of 2,000
predictions by security analysts. This
found that they predicted nothing.
“A naive forecast made by someone
who takes figures from one period as
predictors of the next would not be
markedly worse,” he says.
The book shows that humans are
rubbish at predicting the occurrence of
random life-changing events. And more
importantly we’re kidding ourselves if
we think the application of fancy models
to evaluate the probability of such events
occurring will get us anywhere.
And given our trust in credit ratings
agencies and mathematicians, the credit
crunch has certainly been a wonderful
demonstration of that.
● BOOK REVIEW BY ROBERT THICKETT
MORTGAGE STRATEGY June 15, 2009 31
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