Quote of the Week

This week's quote definitely leans toward the jargon-y side of things, and it's admittedly a little heavy compared to what I usually showcase here. But the line caught my eye, and I think it dovetails nicely with my mini-rant on auto bailouts from the last segment of this morning's link dump.

I'm often writing here about the perils of bad science, and bad statistics, and how people try to draw conclusions from data that is inherently biased (or at least not properly controlled). In complex systems (and almost everything in human interaction is a complex system), it is almost impossible to reliably isolate and determine the impact of just one variable--but that never stops people from trying.

The response to the financial crisis is, of course, fertile ground for such statistically-challenged efforts. Without further ado, courtesy of The Daily Reckoning blog, here goes nothing... 

This week's QUOTE OF THE WEEK

"The change that is happening in the financial markets is a chaotic mess. I believe the simultaneous execution of radical monetary policy, fiscal policy, and financial regulatory reform is introducing rather than reducing systemic risk in the global financial system by ignoring the simplest lesson of the scientific method. Rather than change one variable in a complex system and test the outcome, regulators and policymakers are changing virtually all of them at the same time."
                                    - Michael A.J. Farrell; CEO, Annaly Capital Management

Farrell goes on to enumerate a laundry list of major economic changes, all of which are going on at the same time: QRM [quantitative risk management], risk retention, the Volcker Rule, Basel III capital rules, derivatives clearing and related margin requirements. GSE reform. FAS 166 and 167. Zero-bound fed funds policy and QE2. Deficit financing, structural budgetary imbalances, and debt limit debate.

Yeah, that's a lot. And in any system with that many moving parts, it's absolutely impossible to know which one of them is having a positive impact, negative impact, or no impact on the overall outcomes. Remember that next time you see a politician trying to take credit for the supposed successes of "his" policy (or, in the case of Ben Bernanke, simultaneously taking credit and blame-shifting)--there's simply no way of knowing what's helping and what's hurting when we can't isolate just one variable.