Inference and prediction: Dimon 0 Volcker 1

Jamie Dimon finally gets his. Chase posted a 2 billion $ loss because of a trade that they didn’t do enough risk management on. Too funny.

From DealBook:

>> On Wall Street, few have been more outspoken about the pitfalls of the Volcker Rule than JPMorgan’s chief executive, Jamie Dimon. Mr. Dimon not only attacked the rule, he personally criticized Paul Volcker, the former Federal Reserve chairman and the regulation’s namesake.

“Paul Volcker by his own admission has said he doesn’t understand capital markets,” Mr. Dimon told Fox Business earlier this year. “He has proven that to me.” ….

Even Mr. Dimon had to admit Thursday’s disclosure was a setback for JPMorgan and other banks that want more flexibility when the final version of the Volcker Rule is issued. “It plays into the hands of a bunch of pundits but you have to deal with that and that’s life,” Mr. Dimon said Thursday on a conference call with analysts.  …

“Just because we’re stupid doesn’t mean everybody else was,” he said. “There were huge moves in the marketplace but we made these positions more complex and they were badly monitored.”

“This may not have violated the Volcker Rule, but it violates the Dimon Principle.” <<

Apparently, Mr. Dimon doesn’t understand capital markets either.

On a constructive note, I think some of these problems arise due to an inadequate understanding of how to model probability distributions from a finite amount of data and how to automatically learn changing distributions. These issues are exactly the same as the conflict in evolution: You want stability to propagate your genome, but you need variation to allow for the emergence of new traits that can handle changes in the environment. It isn’t easy to come up with dynamical systems that meet both of these desiderata.

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