Seduced by a Super Model

On October 15th, 2007, Federal Reserve Chairman Ben Bernanke addressed the Economics Club of New York. After his prepared remarks, the Chairman took a question from Henry Kaufman, who wanted to know what kind of information he would like to receive from the risk takers who were both lenders and borrowers in the structured markets. Bernanke thought for a moment and then replied, with an air of resignation in his voice, “I’d like to know what those damn things are worth.” The thousand or so participants in the New York Hilton ballroom thundered their applause.

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Numbers can be seductive. They can speak breathlessly in low, hushed tones of certainty, make loud cries of success, or whisper of potential opportunities. Many people love numbers because they seem to have a final, conclusive nature about them. They seem so solid, so predictable. They are the basis of every relationship in the universe. Human beings have always sought to quantify, compare, analyze, study and reach definitive conclusions with numbers. Indeed, the famous adage, ‘Numbers don’t lie,” summarizes much of what motivates and ultimately satisfies us.

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We are about to explain to you why numbers are not always what they seem to be, even when they add up.